GST rationalisation is set to reshape India’s textile sector, with UP’s garment hubs emerging as key beneficiaries of lower tax rates on apparel and handicrafts, writes Yawer Ali Shah
Will GST rationalisation power Uttar Pradesh’s ambition to become India’s garment hub? With Noida, Varanasi, and Gorakhpur emerging as major textile clusters, the decision to cut GST rates on garments and handicrafts could trigger a demand revival, sustain jobs, and position UP as a key driver of India’s USD 350 billion textile dream.
The 56th meeting of the GST Council, held on 3 September 2025, in New Delhi, has brought cheer to India’s textile sector. The Council approved a sweeping rationalisation of GST rates in pursuance of the next-generation GST reforms announced by Prime Minister Narendra Modi on 15 August. The most significant change is the revision of GST rates on readymade garments and made-ups: garments priced up to Rs 2,500 per piece will now attract 5 per cent GST, compared to the earlier threshold of Rs 1,000.
This single change expands the scope of tax relief for millions of consumers, particularly those in low- and middle-income groups who form the backbone of India’s apparel market. Industry estimates suggest that over 70 per cent of garments sold in India are priced below Rs 2,500, meaning a vast majority of consumers and retailers stand to benefit from this move.
Old vs. New – The Difference That Matters
Under the old regime, garments costing above Rs 1,000 attracted 12 per cent GST, creating price rigidity for mass-market players. Combined with high raw material taxes (18 per cent on MMF fibre and 12 per cent on yarn), this often forced manufacturers to absorb costs or pass them on to consumers—both unsustainable in a price-sensitive market like India.
With the new rates, the cost of producing a Rs 2,000 shirt or saree could fall by 6 to 8 per cent, depending on the fibre composition and processing stage. Industry body Confederation of Indian Textile Industry (Citi) has welcomed the move, stating that “the rationalisation will correct structural distortions and support India’s aspiration to become a global textile hub.”
Uttar Pradesh – The Emerging Powerhouse
If any state stands to gain substantially from this reform, it is Uttar Pradesh. The state is home to several textile and garment clusters including Noida, Ghaziabad, Lucknow, Varanasi, and Gorakhpur. According to the UP government, the state produces nearly 14 per cent of India’s readymade garments, with Noida alone hosting over 3,000 apparel manufacturing units.
Varanasi, the city of weavers, will particularly benefit from the GST cut on handlooms, rugs, and handicrafts. Over five lakh weavers and artisans in and around Varanasi depend on this trade. Lower taxes could revive demand for Banarasi sarees and handwoven products, both domestically and internationally.
For a state with a population of over 24 crore—larger than many countries—affordable apparel is a major consumption driver. A price drop in the mass-market segment can trigger a volume-led growth cycle, create employment in stitching and tailoring units, and boost exports. With the UP government already investing in textile parks under the PM MITRA scheme, the GST rationalisation acts as an added catalyst.
A Step Towards the USD 350 Billion Dream
India’s textile industry is on an ambitious trajectory to achieve a USD 350 billion market size by 2030, with USD 100 billion targeted from exports alone. The government’s “5F” vision—farm to fibre to factory to fashion to foreign—aims to integrate the entire value chain and make India a global textile powerhouse.
Lower GST will improve affordability, revive retail demand, and sustain the employment of millions of workers, most of whom are women. It will also help Indian brands compete against cheap imports from Bangladesh and China, strengthening the “Make in India” initiative.
What More Needs to Be Done
While the industry has largely welcomed the reforms, there is consensus that further steps are needed to maximise the benefit. The most significant demand is the reduction of GST on raw materials, dyes, and chemicals, which remain taxed at higher slabs. Lowering input costs will make finished products even cheaper and create a truly fibre-neutral regime.
Additionally, faster GST refunds—especially for exporters—are critical. The GST Council’s proposal to simplify refund processes based on system-driven risk evaluation is a good start, but its effective implementation will determine whether working capital bottlenecks are truly resolved.
A Boon, but Needs More
The revised GST slab is undoubtedly a boon for India’s textile industry. It lowers costs, revives consumption, and supports employment. For Uttar Pradesh, with its booming garment clusters and massive workforce, the reform could be transformational, turning the state into a key driver of India’s textile growth story.
However, the journey towards a USD 350 billion industry will require continued policy support, including rationalisation of raw material taxes, infrastructure investments in textile parks, and skill upgradation of workers. If these complementary measures are implemented, India will not only preserve its rich textile heritage but also emerge as a global leader—truly living up to the vision of “Virasat Bhi aur Vikas Bhi.”
About the Author :
Yawar Ali Shah is the Co-Founder & CEO of AMA Herbal and serves as Convenor of the CII MSME Panel and Advisor for Exports Promotion at IIA. A global advocate for sustainable textiles, he has represented India on the use of natural dyes at international forums.
