A new duty on certain apparel products made in India could mean raised prices at retail for consumers.
India released its budget for 2016-17 this week, in it outlining a proposed 2 percent excise duty on branded ready-made garments priced at 1,000 rupees ($14.85) and above.
Prior to the proposal, manufacturers weren’t paying any duty on those clothing items and some retailers have said they’ll have to raise retail prices to account for the manufacturing cost increase.
Rakesh Biyani, a director at Future Group, which produces apparel in India, told Live Mint that the excise tax, coupled with other service-charge changes outlined in the budget, could mean the cost passed on to consumers is higher than just the 2 percent.
“If you see the increase in service tax last year and factor in this year’s increase in excise, we anticipate a net increase of anywhere to 5-6% on retail prices,” Live Mint reported Biyani as saying.
Companies will also be paying higher compliance costs for filing excise returns.
Puma India indicated a likely price increase starting with its SS ’17 collection since orders for the next two seasons have already been placed, according to Live Mint.
Other companies, like Max Fashion India, fear that raising retail prices at a time where consumers are spending less and—when they do spend, are particularly price-conscious—could spell trouble for business.
As such, Max Fashion said it would absorb the additional costs, even taking a hit on profitability until consumer sentiment improves.
India’s sales of ready-made garments helped boost the country’s apparel exports to $41.4 billion in the 2014-15 fiscal year, but exports are expected to slow to roughly $40 billion for fiscal 2015-16.
Garment association leaders in India are concerned price increases amid a global slowdown could severely hamper the country’s export industry.