According to estimates from the Clothing Manufacturers Association of India (CMAI), bridal wear accounts for 10-12% of the total clothing market, underscoring its significance.

A group of ministers (GoM) led by Bihar deputy chief minister Samrat Chaudhary as part of the GST rate rationalization exercise is discussing whether to increase the rate for readymade garments priced above ₹1,500 while reducing the tax on cheaper ones.

But the central government on Tuesday distanced itself from the proposal in an indication that the Centre and the ministerial panel may not be on the same page on it yet.

Reuters reported on Tuesday that the panel on Monday decided to hike the tax on sin goods like aerated beverages, cigarettes, tobacco and related products to 35% from the present 28%, and to rationalize the rates on apparel, quoting an official.

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As per the decision, readymade garments costing up to ₹1,500 would attract 5% GST, and those between ₹1,500 and ₹10,000 would attract 18%. Garments costing above ₹10,000 would attract 28% tax, the report said.

India's wedding industry has grown to an estimated $130 billion, making it the second-largest consumer sector after food and groceries, according to a recent report by Jefferies Group, a global investment banking firm. This sector has become a significant contributor to India's economic boom.

The report highlights that the average Indian wedding spending is ₹12 lakh, a figure that can sometimes exceed the amount spent on 18 years of a child's education. Compared to global standards, India's wedding expenditure stands at five times its GDP, a ratio much higher than in several other economies.

With 8-10 million weddings hosted annually, India is potentially the largest wedding market globally, surpassing both China and the US in terms of volume. In terms of the total market size, India's wedding industry is nearly double that of the US, though still behind China.

'Big shocker'

Talking to Mint over the phone, Rahul Mehta, chief mentor of CMAI, which represents the readymade garment sector, expressed concern over the proposed 28% GST slab for garments priced above ₹10,000. Mehta cautioned that such a move could severely impact the industry and consumers alike, calling it a "big shocker" for the sector.

"If the proposed tax slab is considered by the GST Council, it will be against the readymade garment industry. Currently, middle-class consumers purchase bridal clothing priced above ₹10,000 because it cannot be manufactured below that range. Mandating 28% GST instead of the existing 12% will burden consumers and hurt the industry," Mehta said.

He further argued that the decision could drive consumers toward the informal sector, undermining GST collection and weakening the wedding clothing industry. "This will kill demand for wedding clothing, encourage informal markets and reduce government revenue," he added.

"Artisans and handicrafts will suffer as their products are already expensive. This hike will severely impact their livelihoods," he said.

The Central Board of Indirect Taxes and Customs (CBIC) on Tuesday said reports of the ministerial panel's recommendations on GST rate changes on certain items based on its deliberations were "premature and speculative," Mint reported. Finance minister Nirmala Sitharaman welcomed the clarification in a social media post.

To a question on the Centre's stand on the GoM's suggestions, a government official said on Wednesday that the GST Council will take a call on the matter.

Ripple effect

Economists agreed that a hike in GST on readymade garments would ripple through the economy, affecting production and the economy.

"If demand falls, production will also decline. While the move may benefit weaker sections in some ways, the middle class will be disproportionately affected. Reduced consumption will ultimately impact GDP growth," said Abhash Kumar, assistant professor of economics at Delhi University.

Rajat Mohan, a senior partner at AMRG & Associates, a chartered accountancy firm, said careful consideration is needed to address the challenges and unintended consequences that may arise from such a shift in tax policy.

"The proposed GST rate rationalization, particularly the plan to increase taxes on garments priced above ₹1,500, may have a significant impact on the readymade garment sector. First of all, the categorization based on prices or value, which is being proposed for the readymade garment sector, marks a significant departure from the current taxation system," said Mohan.