The Government of India has finally implemented the Goods and Service Tax (GST) and the ceramic industry in Morbi is staring at a business slowdown, under the effect of the 28% GST on the sector.
Even in the anticipation of the imposition of GST the industry had started facing a slowdown. Stockists had already applied brakes on new purchases in a bid to neutralise their inventories. Morbi in Gujarat is the third-largest manufacturing hub for ceramics in the world after China and Italy, and accounts for 90% of the total ceramic production in the country. However, in a move to save the industry from a total collapse, Morbi ceramic units are giving a big push to the exports market in the hope that this would help them survive domestic losses. Exports from Morbi have gone up from Rs 4,000 crore to Rs 6,000 crore in the past one year alone. Over a period of time ceramic players have made several changes and adopted new technologies such as digital printing and automation to improve quality of products. This has opened the market for India in a big way. Now, we are capable of competing with China and Italy internationally.
The industry has been claiming for a cut in the GST rate on ceramic items from 28% to 12%. The ceramic association of Morbi along with manufacturers had also met finance minister Arun Jaitley.
The GST Council has put ceramics in luxury category and imposed 28% tax. This will increase the prices by 42% for end users. The higher prices may lead to significant reduction in demand and we may loose domestic business to cheaper Chinese imports. After the announcement of GST, stockists stopped placing fresh orders as they wanted to clear old stocks. This has led to a slump in demand by as much as 40%.
Before GST, the tax rates in the ceramic industry in Gujarat were pegged at around 17-18%, a major reason why ceramic players are opposing the new rates of GST, as this will not only increase the production costs but also raise the working capital costs by 10-11%.
Ceramic tiles are basically not a luxury item and therefore, the 28% GST rate will seriously affect it. By putting ceramics industry under luxury items category, we are strengthening our competitors.