If you wanted to design a tax structure that ties up working capital, invites classification disputes, and blunts investment in one of India’s most strategic value chains, you would struggle to do better than an inverted duty structure where inputs are taxed higher than the final product. That is exactly the bind the textile sector finds itself in today. The proposal now on the table aims to prune the GST rate structure to two principal slabs at 5 per cent and 18 per cent, with a headline change being the removal of the 12 per cent and 28 per cent slabs. The question is not whether such a reform is tidy on paper; it is whether it advances India’s goals of industrial competitiveness, and job-rich growth. Planned execution with precision and pairing of rate rationalisation with targeted guardrails are the way forward.Textiles: From Fibre Bias to Fibre NeutralityAdvertisementThe textile sector is one of India’s most vital industries, rooted in tradition, innovation, and large-scale employment. From handlooms to modern mills, it supports millions of livelihoods and plays a central role in the country’s manufacturing and export ecosystem. With global demand increasingly shifting toward man-made and performance fabrics, creating a level playing field for all fibres is key to boosting competitiveness and growth. Adjusting the tax structure can optimise operations, reduce administrative burdens, and benefit both producers and consumers. Currently, cotton and cotton yarn are taxed at 5 per cent, while MMF yarn is at 12 per cent; many petrochemical inputs sit at 18 per cent. Taxation on finished apparel is split — garments up to Rs 1,000 are taxed at 5 per cent and those above at 12 per cent. This rate map tilts the playing field as it penalises synthetics and creates refund-heavy inversions in the MMF chain, while the price threshold at retail invites disputes and complexity. By removing the 12 per cent slab and simplifying the chain to 5 per cent, the new structure may produce cleaner alignment and reduce refund dependency.In late 2021, a move to make much of the MMF chain uniform at 12 per cent was notified, but on December 31, 2021 the textile hike was deferred, leaving the prior structure in place, which meant the inversion continued. This forces small manufacturers and powerloom operators to borrow for yarn purchases, pay interest, and face losses till their refunds are settled against the accumulated input GST.Further, the Federation of Tamil Nadu Powerloom Associations has urged the government to reduce GST on MMF viscose, polyester, and synthetic yarn from 12 per cent to 5 per cent, highlighting how lakhs of livelihoods in the state depend on easing this burden. By aligning yarn with fabrics at 5 per cent, the government would directly address the sector’s most pressing concern.AdvertisementGlobally, man-made fibres already account for about 73 per cent of fibre production (2023). Our export ambitions in sportswear, athleisure, technical and performance textiles — precisely the segments hit hardest by the current 18 per cent, 12 per cent, 5 per cent staircase — hinge on shifting this mix. Collapsing slabs into 5 per cent cuts cumulative tax cascading, reduces refund locks, and aligns domestic cost structures closer to global competitors.There is also a scale and employment argument. Textiles and apparel directly employ about 45 million people, India’s second-largest employer after agriculture, and sit at the heart of MSME-dense clusters from Tiruppur to Ludhiana. When rates are tangled, working capital in thousands of small units sits stranded in refund pipelines, it weakens an already thinly capitalised sector.Also Read | Ahead of GST Council meet: Opposition states flag revenue loss concerns from rate cuts; NDA ally Andhra offers supportBy moving inputs fully to 5 per cent, the government can align incentives correctly. This approach could streamline the supply chain, eliminate administrative burdens from refund claims, and reduce the misclassification of garments by either splitting of goods or underbilling. Leakages are also not new to textiles. For example, goods priced above Rs 1,000 were often split into separate goods below Rs 1,000 to attract the lower slab. The consolidation into a simple 5 per cent structure will plug such loopholes, making compliance more robust.Administration, Guardrails, and the Growth Dividendmost readThe real challenge is making sure that the cost savings from this simplification flow into lower retail prices for consumers. If industry gains from the elimination of refund bottlenecks and reduced tax burdens, these benefits should flow into lower retail prices, particularly in mass-market segments. Another crucial step will be the management of legacy credits. Under the current inverted duty regime, a significant amount of working capital remains tied up in refund claims. A one-time, fast-track mechanism for closing these refunds, integrated with simplified advance rulings on classification in the transition period, will ensure that liquidity is genuinely freed when the new system takes effect. This not only releases resources for investment but also reduces the scope for interpretive disputes that have long plagued the sector.India’s GST was built on the promise of simplicity, neutrality, and compliance-friendliness. In the case of textiles, that promise has been only partly kept. Inversions are not just a technical irritant; they are a tax on time, a levy on working capital, and a subsidy to arbitrage. Far from a surface adjustment, a move to single principal slab represents a foundational reform — a cleaner chain from fibre to fashion removes fibre bias, kills the refund treadmill, and replaces a cliffy retail threshold with a clear runway for scale. Reforms, to be durable, must be both economically coherent and administratively executable. The transition to a single slab GST structure at least for a sector like textile meets that test. In a decade where supply-chain credibility and speed will separate winners from also-rans, getting the rate design right is not a footnote. It is the strategy.Deb is the Chief Economist, Chief Minister’s Secretariat, Government of Assam and Jha is a graduate student of Comparative Social Policy at the University of Oxford and a Felix Scholar