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Subject: Economics

  • The Bilateral Investment Treaties (BITs) to review

    Context

    The report of the Standing Committee on External Affairs on ‘India and bilateral investment treaties (BITs)’ was presented to Parliament last month.

    Factor’s that necessitated the review of India’s BITs

    • Investor’s started suing India frequently: Since 2011, when India lost its first investment treaty claim in White Industries v. India, foreign investors have sued India around 20 times for alleged BIT breaches.
    • This made India the 10th most frequent respondent-state globally in terms of investor-state dispute settlement (ISDS) claims from 1987 to 2019 (UNCTAD).
    • Adoption of new Model BIT: India adopted a new Model BIT in 2016, which marked a significant departure from its previous treaty practice.
    • Negotiating new BITs: India is in the process of negotiating new investment deals (separately or as part of free trade agreements) with important countries such as Australia and the U.K.

    Recommendations of the Committee

    • 1] Speed of the existing negotiations: India has signed very few investment treaties after the adoption of the Model BIT.
    • It recommends that India expedite the existing negotiations and conclude the agreements at the earliest because a delay might adversely impact foreign investment.
    •  2] Sign more BIT’s in core sector: The committee recommends that India should sign more BITs in core or priority sectors to attract FDI.
    • Generally, BITs are not signed for specific sectors.
    •  It will require an overhauling of India’s extant treaty practice that focuses on safeguarding certain kinds of regulatory measures from ISDS claims rather than limiting BITs to specific sectors.
    • 3] Fine-tune Model BIT: Model BIT gives precedence to the state’s regulatory interests over the rights of foreign investors.
    • The Model BIT should be recalibrated keeping two factors in mind:
    • a) tightening the language of the existing provisions to circumscribe the discretion of ISDS arbitral tribunals.
    • b) striking a balance between the goals of investment protection and the state’s right to adopt bonafide regulatory measures for public welfare.
    • 4] Improve the capacity of government officials: The committee recommends bolstering the capacity of government officials in the area of investment treaty arbitration.
    •  While the government has taken some steps in this direction through a few training workshops, more needs to be done.
    • What is needed is an institutionalised mechanism for capacity-building through the involvement of public and private universities.
    • The government should also consider establishing chairs in universities to foster research and teaching activities in international investment law.

    Need to improve poor governance

    • A very large proportion of ISDS claims against India is due to poor governance.
    • This includes changing laws retroactively which led to Vodafone and Cairn suing India.
    • Annulling agreement in the wake of imagined scam which resulted in taking away S-band satellite spectrum from Devas.
    • The judiciary’s fragility in getting its act together (sitting on the White Industries case for enforcement of its commercial award for years).

    Suggestions

    • The Committee could have emphasised on greater regulatory coherence, policy stability, and robust governance structures to avoid ISDS claims.
    • The government should promptly assemble an expert team to review the Model BIT.

    Consider the question “India is one of the most frequent respondent-state globally in terms of investor-state dispute settlement (ISDS) claims. In context of this, examine the reasons for such frequent disputes and suggest the way forward.” 

    Conclusion

    The committee’s report on India’s BITs have novel suggestions, but it is lacking in several aspects.

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    Back2Basics: ISDS mechanism

    • Investor-state dispute settlement (ISDS) is a mechanism in a free trade agreement (FTA) or investment treaty that provides foreign investors, with the right to access an international tribunal to resolve investment disputes.
    •  ISDS promotes investor confidence and can protect against sovereign or political risk.
    • If a country does not uphold its investment obligations, an investor can have their claim determined by an independent arbitral tribunal, usually comprising three arbitrators.

  • What are the First Advance Estimates of GDP?

    The Ministry of Statistics and Programme Implementation (MoSPI) has released the First Advance Estimates (FAE) for the current financial year (2021-22 or FY22).

    Tap to read more about:

    National Income Determination, GDP, GNP, NDP, NNP, Personal Income

    What is GDP?

    • GDP measures the monetary value of all goods and services produced within the domestic boundaries of a country within a timeframe (generally, a year).
    • It is slightly different from the other commonly used statistic for national income — the GNP.
    • The Gross National Product (GNP) measures the monetary value of all goods and services by the people and companies of a country regardless of where this value was created.

    GDP estimates for FY22

    • According to MoSPI, India’s GDP will grow by 9.2 per cent in 2020-21.
    • Last financial year, FY21, the GDP had contracted by 7.3%.

    What are the First Advance Estimates of GDP?

    • The FAE, which were first introduced in 2016-17, are typically published at the end of the first week of January.
    • They are the “first” official estimates of how GDP is expected to grow in that financial year.
    • But they are also the “advance” estimates because they are published long before the financial year (April to March) is over.
    • It is important to note that even though the FAE are published soon after the end of the third quarter (October, November, December), they do not include the formal Q3 GDP data.
    • Q3 data is published at the end of February as part of the Second Advance Estimates (SAE).

    Significance of FAE

    • Budgetary calculations: Since the SAE will be published next month, the main significance of FAE lies in the fact that they are the GDP estimates that the Union Finance Ministry uses to decide the next financial year’s budget allocations.
    • Basis for nominal GDP: From the Budget-making perspective, it is important to note what has happened to nominal GDP — both absolute level and its growth rate. That’s because nominal GDP is the actual observed variable.

    Note: Real GDP, which is the GDP after taking away the effect of inflation, is a derived metric. All Budget calculations start with the nominal GDP.

    Real GDP = Nominal GDP — Inflation Rate

    The difference between the real and nominal GDP shows the levels of inflation in the year.

    How are the FAE arrived at before the end of the concerned financial year?

    Ans. Benchmark-Indicator method

    • The FAE are derived by extrapolating (uses ratio and proportion) the available data.
    • The approach for compiling the Advance Estimates is based on Benchmark-Indicator method.
    • In this, the estimates available for the previous year (2020-21 in this case) are extrapolated using relevant indicators reflecting the performance of sectors.”

    What are the main takeaways?

    #1 GDP Growth

    • At 9.2%, the real GDP growth rate for FY22 is slightly lower than most expectations, including RBI’s, which pegged it at 9.5%.
    • These estimates are based on data before the rise of the Omicron variant.

    #2 Role of high inflation

    • For FY22, while real GDP (with 2011-12 base prices) will grow by 9.2%, nominal GDP (calculated using current market prices) will grow by a whopping 17.6%.
    • The difference between the two growth rates — about 8.5 percentage points — is essentially a marker of inflation (or the rate at which average prices have increased in this financial year).

    #3 Private consumption continues to struggle

    • The FAE analyses the three main contributors to GDP — private consumption demand, investments in the economy, and government expenditures.
    • It shows that while the latter two are expected to claw back to the pre-Covid level, the first engine will continue to stay in a slump.

    #4 Average Indian is much worse off

    • For the bulk of the Indian population, thus, aggregate data recovering to pre-Covid levels are largely academic.
    • An average Indian has lost almost 2 years in terms of income levels and 3 years in terms of spending levels.

    Try this PYQ:

    Q. In the context of Indian economy, consider the following statements:

    1. The growth rate of GDP has steadily increased in the last five years.
    2. The growth rate in per capita income has steadily increased in the last five years.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2

     

    Note: There can be no absolute answers to such questions unless the year is mentioned. Still try to substantiate your answer with the FY21 context.

     

    [wpdiscuz-feedback id=”k4u3k21e1t” question=”Please leave a feedback on this” opened=”1″]Do post it here.[/wpdiscuz-feedback]

     

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  • What are Scheduled Banks?

    The Reserve Bank of India (RBI) has informed that Airtel Payments Bank Ltd. has been categorized as a Scheduled Bank.

    Why such a move?

    • With this, the bank can now pitch for government-issued Requests for Proposals (RFP) and primary auctions.
    • It can undertake both Central and State Government businesses participating in government-operated welfare schemes.

    What are Scheduled Banks?

    • Scheduled Banks refer to those banks which have been included in the Second Schedule of Reserve Bank of India Act, 1934.
    • Reserve Bank of India (RBI) in turn includes only those banks in this Schedule which satisfy the criteria laid down vide section 42(6)(a) of the said Act.
    • Every Scheduled bank enjoys two types of principal facilities: it becomes eligible for debts/loans at the bank rate from the RBI; and, it automatically acquires the membership of clearing house.
    • Banks not under this Schedule are called Non-Scheduled Banks

    Types of Scheduled Banks

    There are two main categories of commercial banks in India namely:

    1. Scheduled Commercial banks
    2. Scheduled Co-operative banks

    Scheduled commercial Banks are further divided into 5 types as below:

    1. Nationalised Banks
    2. Development Banks
    3. Regional Rural Banks
    4. Foreign Banks
    5. Private sector Banks

    Payment bank (currently four banks Airtel Payments Bank, Fino Payments Bank, India Post Payments Bank, Paytm Payments Bank have been granted Scheduled bank status).

    Scheduled Co-operative banks are further divided into 2 types namely:

    1. Scheduled State Co-operative banks
    2. Scheduled Urban Co-operative banks

     

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  • What is Antrix- Devas Multimedia Deal?

    A Canadian court has ordered the seizure of more than $30 million worth of Airport Authority of India’s assets.

    Background

    • In 2005, Devas Multimedia signed an agreement with Antrix —a commercial arm of the IISRO —to provide multimedia services to mobile users using the leased S-band satellite spectrum to be provided by Antrix.
    • In 2011, the UPA-2 government canceled this agreement on the ground that it needed the S-band satellite spectrum for national security and other social purposes.
    • This led to arbitration between Antrix and Devas at the International Chambers of Commerce (ICC) and two bilateral investment treaty (BIT) arbitrations. India lost all three disputes.

    India’s non-compliance

    • AAI and Air India are being targeted because they are Indian public sector entities with overseas assets and serve as a proxy for the government of India.
    • The Canada court can do so through the concept of restrictive immunity.
    • In the meanwhile, the National Company Law Tribunal (India) ordered the liquidation of Devas Multimedia on the ground that the affairs of the company were being carried on fraudulently.

    Why did India cancel the deal?

    • The scandal first came to light when in 2011, the news reported that there were some irregularities in the agreement between Antrix and Devas.
    • They reported the findings of a draft audit report and pointed out discrepancies including financial mismanagement, conflict of interest, non-compliance of rules, and favoritism.
    • This revelation came at the heel of the 2G spectrum scam which was condemned for the high level of corruption.

    How can a Canadian court order the attachment of Indian assets?

    • State immunity — a well-established principle of international law — shields a state and its property against legal proceedings in the courts of other countries.
    • This covers immunity from both jurisdiction and execution.
    • However, there is no international legal instrument in force dealing with state immunity in the municipal legal systems of different countries, which has created an international void.
    • Consequently, countries have filled this void through their national legislations and domestic judicial practices on state immunity.
    • Typically, prominent jurisdictions such as Canada follow the concept of restrictive immunity (a foreign State is immune only for sovereign functions) and not absolute immunity.

    How can assets of AAI be seized when the claim is against India?

    • In execution proceedings, assets of an entity can be seized if that entity is an alter ego of the State that fails to comply with the arbitral award.
    • In other words, if the foreign sovereign exercises such extensive control over the entity, then the presumption that the entity has a separate corporate character is set aside.
    • Thus, the Canadian court must have concluded that the Indian government extensively controls AAI.

    What options does India have?

    • The first option is to comply with the two adverse BIT awards. However, it is highly unlikely that India would do so.
    • The second option is to challenge this decision in an appellate court in Canada as per Canadian law where India can try proving that the ‘extensive control requirement’ is not met in the case of AAI.
    • However, state immunity from execution is purely a procedural hurdle to the enforcement of the BIT award.
    • It cannot justify India’s breach of its international law obligations enshrined in the two BITs and the continued failure to comply with the arbitral awards.

    Back2Basics: New Space India Limited (NSIL)

    • It functions under the administrative control of the Department of Space (DOS).
    • It aims to commercially exploit the research and development work of ISRO Centres and constituent units of DOS.
    • The NSIL would enable Indian Industries to scale up high-technology manufacturing and production base for meeting the growing needs of the Indian space program.
    • It would further spur the growth of Indian Industries in the space sector.

    ANTRIX

    • Antrix Corporation Limited (ACL), Bengaluru is a wholly-owned Government of India Company under the administrative control of the Department of Space.
    • It is as a marketing arm of ISRO for promotion and commercial exploitation of space products, technical consultancy services and transfer of technologies developed by ISRO.
    • Antrix is engaged in providing Space products and services to international customers worldwide.

     

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  • Understanding IC15, India’s first Crypto Index

    Superapp CryptoWire recently launched India’s first cryptocurrency index, IC15, which will measure the performance of the 15 most widely traded cryptocurrencies listed on leading crypto exchanges by market capitalization.

    What is IC15?

    • CryptoWire constituted an Index Committee of domain experts, industry practitioners, and academicians that will select cryptocurrencies from the top 400 coins in terms of market capitalization.
    • The eligible cryptocurrency should have traded on at least 90% of the days during the review period and be among the 100 most liquid cryptocurrencies in terms of trading value.
    • Also, the cryptocurrency should be in the top 50 in terms of the circulating market capitalization.
    • The committee will then select the top 15 cryptocurrencies. The index will be reviewed quarterly.

    What is its significance?

    • IC15 can be replicated for creating index-linked products such as index funds or exchange-traded funds (ETFs).
    • Usually, the performance of a mutual fund scheme is assessed with reference to a benchmark, which could be a total return index of the Nifty or the Sensex.
    • IC15 is the first index in India that can act as a benchmark of the underlying cryptocurrency market and the performance benchmark for fund managers.
    • Moreover, robo-advisors, which provide financial advice with moderate to minimal human intervention, can use this index to create investment products at lower costs.

    How  does  IC15  correlate  with other market indicators?

    • IC15’s base value as on 1 April 2018 was 10,000.
    • It would mean that the index has gained 615% in absolute terms to 71,475.48 till 31 December 2021.

    Can  index-based  crypto investment reduce risks?

    • Index investing can be an effective way to diversify against risks as a fund invests in a basket of assets against a few limited coins.
    • However, index-based investing may not fully remove risks associated with investing in crypto assets.
    • Case in point: IC15 saw a 50% plunge in 2018, whereas other asset classes have seen a maximum drop in the range of 3-4%.
    • Further, bitcoin and ethereum have a combined weightage of 77% in the index, making it highly vulnerable to any volatility in these two coins.

    Can crypto funds be launched in India?

    • SEBI has recently asked mutual fund houses not to launch crypto-based funds until the Centre comes out with clear regulations.
    • This means asset management companies for now won’t be able to launch crypto funds based on IC15.
    • However, in the absence of any regulations, crypto platforms can offer products based on the index.
    • Global crypto investment platform Mudrex last year launched Coin Sets—crypto funds based on themes such as decentralized finance or market cap.

     

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  • A reality check on great CAPEX expectations

    Context

    Economists are predicting a potential virtuous capital investments (capex) cycle to kick in globally as we emerge from the pandemic.

    Why do analysts think that capital investment cycle is about to start?

    • Less leveraged: Corporates are less leveraged today compared to 2008.
    • Indian corporates repaid debts of more than Rs 1.5 trillion.
    • Fiscal and monetary support: Companies are also more confident of durable fiscal and monetary support.
    • Increased savings: Households have large excess savings built during Covid — $1.7 trillion in the US and roughly $300 billion in India as per a UBS report.
    • Cash: Lastly, corporates are sitting on a large cash pile – S&P 500 firms’ cash has soared from $1 trillion pre-pandemic to $1.5 trillion now.

    Why capex wave is difficult in India?

    • Fall in capital formation: India’s fixed capital formation rate has steadily fallen from 36 per cent of GDP in 2008 to 26 per cent in 2020.
    • For a set of 718 listed companies for which data is consistently available from 2005, the capex growth rate has decreased from 7 per cent in 2008 to around 2 per cent in 2020.
    • Low return on invested capital: The return on invested capital in FY21 is still low at 2-3 per cent compared with 16-18 per cent returns in 2005-08.
    • Structural issues: Land acquisition is still tough, changes to labour laws have been slow, and reform uncertainty has resurfaced with the rollback of the agriculture reform laws.
    • Discouraging current data: As per CMIE data, the quarter ending in June 2021 saw Rs 2.72 lakh crore worth of new projects announced. This fell to Rs 2.22 lakh crore for the September 2021 quarter.
    • This is much below the average of Rs 4 lakh crore a quarter of new project announcements during 2018 and 2019.
    • Further, new projects are concentrated in fewer industries (power, and technology) with the top three accounting for 44 per cent of the total of new projects announced.
    • Low capacity utilisation: At the same time, capacity utilisation for corporate India is at an all-time low.
    • From a peak of 83 per cent in 2010, when capex was running hot, utilisation levels declined to 70 per cent just before the pandemic, and further to 60 per cent in June 2021 as per the RBI’s latest OBICUS data.
    • Capex is funded either from fresh debt or equity issues or from accumulated cash. Large firms are repaying debt.

    Conclusion

    It is too early in the cycle to predict anything with confidence, but we need more evidence to predict a capex cycle.

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  • RBI approves Offline E-Payments

    The Reserve Bank of India (RBI) has come out with the framework for facilitating small-value digital payments in offline mode, a move that would promote digital payments in semi-urban and rural areas.

    Offline E-payments

    • Offline digital payment does not require Internet or telecom connectivity.
    • Such payments can be carried out face-to-face (proximity mode) using any channel or instrument like cards, wallets and mobile devices.
    • Such transactions would not require an Additional Factor of Authentication.
    • Since the transactions are offline, alerts (by way of SMS and/or e-mail) will be received by the customer after a time lag.
    • There is a limit of â‚č200 per transaction and an overall limit of â‚č2,000 until the balance in the account is replenished.

    Conditions applied

    • Payment instruments shall be enabled for offline transactions only after the explicit consent of the customer.
    • That apart, these transactions using cards will be allowed without a requirement to turn on the contactless transaction channel.
    • The customers shall have recourse to the Reserve Bank – Integrated Ombudsman Scheme, as applicable, for grievance redressal.
    • RBI retains the right to stop or modify the operations of any such payment solution that enables small value digital payments in offline mode.

     

    Answer this PYQ in the comment box:

    Q. With reference to digital payments, consider the following statements:

    1. BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account.
    2. While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication.

    Which of the statements given above is/ are correct? (CSP 2018)

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2

     

    [wpdiscuz-feedback id=”naidd0dw2j” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

     

     

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  • Preparing for a green energy shift in 2022

    Context

    Political leaders find themselves currently amid a messy reality. The seemingly “irresistible force” for clean energy has met, it would appear, the “immovable object” of an embedded fossil fuel energy system.

    Changes in the energy sector in 2021

    • Commitment to Net-zero: One hundred and thirty-three countries pledged to a “net-zero carbon emissions date” and most governments, corporates and civic entities have shown determination to “phase down” and eventually phase out fossil fuels from their energy basket.
    • Price volatility: The petroleum market seesawed and was expectedly volatile.
    • High price: Natural gas prices reached stratospheric levels as demand exceeded supplies and geopolitics compounded the imbalance. 

    Five trends that will shape the emergent energy landscape

    [1] Transition to clean energy will be long and expensive

    • Redesign and rebuilding: The fossil fuel-based economic system will have to be redesigned and, in parts, rebuilt for clean energy to achieve scale.
    • The process will take decades and require massive capital infusion.
    • No country or multilateral institution can finance this transition individually.
    • The world needs to collaborate: The world will have to collaborate and if it fails to do so, the financing deficit will push back the transition even further.

    [2] Fossil fuels will dominate the energy basket during the transition

    • Fossil fuels will dominate the energy basket during this transition phase.
    • Contributing factors: As has been the case so far, its market will be defined by the “fundamentals” of demand, supply and geopolitics and the “non-fundamentals” of exchange rates and speculative trade.
    • The price movements will be sharp, volatile and unexpected.

    [3] The resurgence of market influence of OPEC plus after private companies move beyond fossil fuel

    • The “ OPEC plus” will resurge in market influence.
    • The low-cost, high resource petrostates (Saudi Arabia, the Gulf nations, Iraq, Iran, Russia) will, in particular, gain greater control over the petroleum market as private companies move beyond fossils under pressure from shareholders and regulators.

    [4] Transition will create new centres of energy power

    • The Democratic Republic of Congo controls, more than 50 per cent of the global supply of cobalt; Australia holds a comparably large share of the lithium market; and China controls the mining, processing and refining of rare earth minerals.
    • It is difficult to tell how and when these countries will exercise their market power but it is clear that the “green transition” will create new centres of energy power.

    [5] Nationalism and political opportunism will influence energy policy

    • The US and China are currently embroiled in a “Cold War” over technology, trade, cyber issues and the South China Sea.
    • The US and China appear to be in a similar face-off. But that has not come in the way of their energy relations.
    • A few weeks ago, the two countries decided to coordinate the release of oil stocks from their strategic reserves to cool off the oil market.
    • The underlying reality is that national self-interest and short-term political ambition will be the defining determinant of future energy supply relations cutting across values and rhetoric.

    Suggestions for India

    • Nurture relations with traditional suppliers: India must assiduously nurture relations with our traditional suppliers of oil and gas.
    • It must not assume their role in the energy market will diminish.
    • Increase storage capacity of strategic reserves: It should accelerate the build-up of the storage capacity for oil and gas; the latter to hold strategic oil reserves, the former to store gas for inter alia conversion to blue hydrogen.
    • Ecosystem for search and development of minerals required for clean energy: It must create a facilitative ecosystem for the search and development of the minerals and metals required for clean energy.
    • Clean energy supply chain: It should create a “clean energy aatmanirbhar supply chain”.

    Conclusion

    The green transition must not lead to import dependency on raw minerals and manufactured inputs, especially from China. The current policy to incentivise the manufacture of semiconductors is a step in the right direction.

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  • Global shortage of Semiconductor Chips

    Worldwide carmakers have slashed production due to an abrupt and cascading shortage of semiconductors.

    Semiconductor Chips

    • Semiconductors — also known as integrated circuits (ICs), or microchips — are most often made of silicon or germanium, or a compound like gallium arsenide.
    • It’s the thing that makes electronic items smart and faster.
    • Made from a material, usually silicon, that “semi-conducts” electricity, the chip performs a variety of functions.
    • Memory chips, which store data, are relatively simple and are traded like commodities.
    • Logic chips, which run programs and act as the brains of a device, are more complex and expensive.

    Reasons for shortages

    • Stay-at-home shift: This pushed chip demand beyond levels projected before the pandemic. Lockdowns spurred growth in sales of smartphones, laptops etc to the highest in a decade
    • Fluctuating forecasts: Automakers that cut back drastically early in the pandemic underestimated how quickly car sales would rebound.
    • Stockpiling: Chinese smartphone industry dominates the global market for 5G networking gear — began building up inventory to ensure it could survive US sanctions.

    How is the chip crisis playing out in geopolitics?

    • The global chip crisis and geopolitical tensions with China have shifted focus back on semiconductors.
    • The US, which was once a leader in chip manufacturing, wants the crown back.
    • The protectionist US is looking to bring manufacturing back to America and reduce its dependency on a handful of chipmakers mostly concentrated in Taiwan and South Korea.
    • China’s renewed aggression on Taiwan is also being seen in light of the chip crisis.

    Impact of semiconductor shortages

    • Chip shortages are expected to wipe out $210 billion of sales for carmakers this year, with the production of 7.7 million vehicles lost.
    • Broadband providers were facing delays of more than a year when ordering internet routers.

    Why is it so hard to compete?

    • Manufacturing advanced logic chips requires extraordinary precision, along with huge long-term bets in a field subject to rapid change.
    • Plants cost billions of dollars to build and equip, and they have to run flat-out 24/7 to recoup the investment.
    • A factory also consumes up enormous amounts of water and electricity and is vulnerable to even the tiniest disruptions, whether from dust particles or distant earthquakes.

     

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  • GST Council defers Tax Rate increase on Textiles

    Hours before the new GST rate was to take effect, the GST Council  has decided to temporarily roll back the increase in tax rate for the textiles sector.

    What was the proposal?

    • The GST Council had recommended making certain rate changes for footwear and textiles to correct the inverted duty structure.

    What is Inverted Duty Structure?

    • An inverted duty structure arises when the taxes on output or final product is lower than the taxes on inputs.
    • This creates an inverse accumulation of input tax credit which in most cases has to be refunded.

    A loss for the govt

    • Inverted duty structure has implied a stream of revenue outflow for the government prompting the government to relook the duty structure.
    • For footwear, the government refunds around Rs 2,000 crore in a year.

    What is the present rate of GST on textiles?

    • At present, tax rate on manmade fibre, yarn and fabrics is 18%, 12% and 5%, respectively.
    • Apparel and clothing up to Rs 1,000 per piece currently attracts 5% GST.

    Issues with the tax increase

    • This decision has created a negative impact resulting in drop in demand and recession.
    • The new rate structure would cause closure of around 1 lakh textile units and losses of 15 lakh jobs nationally.

     

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