Weavers reel under post-GST hike in yarn prices

The price hike has been caused by rising raw material prices such as PTA and MEG

A post Goods and Services Tax (GST) hike in prices of fully drawn yarn (FDY) and partially oriented yarn (POY) by 5-7% has sent the synthetic textile weaving industry reeling under margin pressures. The price hike has been caused by rising raw material prices such as purified terephthalic acid (PTA) and monoethylene glycol (MEG) which have spiked on the back of rising crude prices.

However, at a time when several weavers, processors and traders are yet to register under GST, along with lack of clarity over accumulated duty credit and the reverse charge mechanism (RCM), decentralised powerlooms and textile processing units are finding it tough to sustain under rising input costs.

"There is still uncertainty in the industry since registration process is still going on. Weavers, processors and traders are not in the position to buy or sell. At such a time, a price hike in raw materials is having a significant impact on our input costs as well as margins," said Ashish Gujarati, president of Pandesara Weavers' Association in Surat.

Unlike the pre-GST prices, the post-GST ones will see an additional 18 per cent levy on powerlooms and processors, which the latter have to claim through input tax credit. However, on account of excess input credit accumulation and the RCM, due to lack of registered job workers in the value chain, powerlooms and processors have to bear the additional cost themselves. Hence, a Rs 2 per kg hike in yarn prices will attract an additional 18% tax, which for now might not be got back through input credit.

Prices of yarn in different variants of denier have risen in the recent past. For instance, while the 75/72 denier FDY has seen prices rise by six per cent from a pre-GST Rs 95 per kg to Rs 101 per kg, that for 70/36 FDY has risen by seven per cent, up from Rs 98 per kg to Rs 105 per kg. Prices for 80/72 Roto, 50/24 FDY, and 50/36 BRY have risen by five, six and six per cent, respectively, to Rs 120 per kg, Rs 112 per kg and Rs 140 per kg.

"What spinners have done is that as the market opened after a lull due to GST implementation, they have taken advantage of the buzz in demand by hiking the prices. This is profiteering," Gujarati said.

However, say yarn manufacturers, prices have risen on account of rising crude oil prices, as explained earlier, and have been seasonal. "It is a periodic exercise yarn makers engage in from time to time. It is not related to a post-GST market scenario," said O P Lohia, chairman of Indo Rama Synthetics, a leading synthetic yarn maker.

Source: http://www.business-standard.com/article/economy-policy/weavers-reel-under-post-gst-hike-in-yarn-prices-117080101293_1.html