After GST, Kashmir’s Ailing Handicrafts Sector Hangs by a Thread

Most parts and processes of the industry were largely tax exempt under previous regimes. Stakeholders believe that the transition to GST, which comes with high rates, will severely impact an already struggling sector.

Man weaving threads in Kashmir. Credit: Reuters/Anjali Rao Koppala

Man weaving threads in Kashmir. Credit: Reuters/Anjali Rao Koppala

Srinagar: On a hot Thursday afternoon, Ali Muhammad Ganie, a frail 75-year-old carpet weaver from the Sumbal area of northern Kashmir, holds an anti-GST protest banner in his hands that reads “Don’t kill us by snatching our livelihood”.

Ganie had come all the way from his village to participate in the sit-in protest held in the city centre of Lal Chowk against implementation of the Goods and Services Tax (GST) regime.  

Like Ganie, hundreds of artisans, traders, manufacturers, exporters and raw material suppliers had gathered in a city park to protest for several hours against GST. The stakeholders of the handicrafts industry in the valley have now given a deadline of two weeks for the state government to roll back the tax and have threatened to intensify the stir if their demands are not fulfilled.

Ganie, who has been a carpet weaver for four decades, said that the “GST will kill Kashmiri handicrafts” which has already been hit by various local and global factors over the past few years.

“We are poor and marginalised carpet weavers as this trade has been facing a slump for the last several years especially since the 2014 floods,” said Ganie. “Handicraft was a precious heritage from our forefathers which has been completely damaged by the counterproductive government policies.”

Most parts of India’s handicrafts industry, under previous tax regimes, was largely tax-exempt, with there being no central tax and a number of states giving the sector tax-exempt status. Post GST, various raw and finished components are being taxed anywhere between 5% (broomsticks, kites, kaolin clay, glass beads) to 18% (animal dye, cotton & jute bags, sewing & knitting needles).

The protestors at Lal Chowk include young people such as Lateef Bazaz who runs a handicrafts exports firm in Khanyar, Srinagar. Speaking to The Wire, Bazaz lamented, “On one hand, the government is promising to create employment and on the other hand, the same government is snatching livelihood of lakhs of people by imposing heavy taxes on handicrafts”.

Muhammad Yusuf Wani, president of Kashmir Carpet Manufacturers Association, said that 3.5 lakh families across Kashmir are dependent on handicrafts. He threatened that artisans “will hit the roads” if GST is not rolled back.

A final blow

Parvez Bhat, president of Artisans Rehabilitation Forum, a non-profit organisation working for Kashmiri artisans, said GST will be a big blow for Kashmiri handicrafts as it is already struggling against Chinese products. “Our exports have declined from Rs 2,300 crore to Rs 1,100 crore and levy of GST will further hit the handicraft trade”, said Bhat. “Even vendors who used to sell products door to door in various cities are not spared under GST.”

The implementation of GST has hit the already ailing handicrafts sector in the valley as all handicraft items have been taxed at 12% in the new central tax regime. Since the last few years, the handicrafts sector in the valley has witnessed a slump, particularly after the 2014 floods. The new tax regime under GST is putting an additional burden on the artisans and exporters associated with this sector who are now up in arms against the state and central government, calling for the immediate rollback of GST.

“There are no buyers and takers for the finished goods that weavers and other workers have made from the last three years”, says leading handicraft exporter Sheikh Ashiq Ahmad, who’s previously been the president of Kashmir Chamber of Commerce and Industry (KCCI). “The imposition of taxes will discourage them to continue with this trade and their families will be affected by the GST regime.”

A group of people associated with the handicraft sector recently met state finance minister Haseeb Drabu who assured them that state government has put forth the issue of “bringing down” GST rates on handicrafts with the GST council. The handicraft stakeholders took out a symbolic funeral procession of a spinning wheel from Pratap Park to nearby Press Colony in Lal Chowk, Srinagar. They also carried banners that read “Don’t mar my livelihood” and “GST free handicrafts”.  

Ashiq, who is also the member of committee of administration of the Jammu and Kashmir region at the Carpet Export Promotion Council (CEPC), said handicraft stakeholders won’t budge until GST on handicrafts is rolled back by the government. “Government keeps on saying they have a veto power”, said Ashiq, who was part of the group that met Drabu to put forward their concerns. “Let them now make amendments.”

“People from all handicraft segments including those associated with washing, binding and repairing of products have to be united to ensure that GST on our goods becomes zero percent as everyone is affected by it”, Ashiq said, adding that finance minister Haseeb Drabu has informed traders and exporters that he has “appealed” to the GST council to make GST on handicrafts zero percent. “But Drabu seems to have a conviction that it (GST) won’t go below 5% which we completely oppose”, said Ashiq.  

After GST came into force in the state on July 8, artisans, manufacturers, traders and exporters associated with the Kashmiri handicrafts expressed serious concerns over the impact of GST on handicraft items which was earlier exempted from tax. They’ve been demanding its immediate rollback to provide relief to the artisans and others affected under the new tax.

Traders protesting against GST at Jehangir Chowk in Srinagar, July 4, 2017. Credit: PTI

Traders protesting against GST at Jehangir Chowk in Srinagar, July 4, 2017. Credit: PTI

In the handicrafts sector, papier-mâché art work is already under stress as artisans are unable to get good prices for their products from buyers. “With the implement of GST on papier mâché items, no one can buy as it is not necessary for them to buy this product”, says Pervaiz Naqash, a valley based papier-mâché exporter. Naqash was recently sent an invoice for raw material he had to buy from Delhi and Muradabad. “They sent me an invoice and a GST copy with 12% increased tax. I have to sell the same product with GST of 18% and the total comes to 30%”, he says.

Naqash says that recently, a wholesale supplier of papier-mâché from Kashmir had an order of Rs 5 lakhs placed from Madras. “His goods are ready but no transporter is ready to take the shipment without GST”, says Naqash. “When the buyer was told that the price will be increased by 18%, he simply refused to buy the goods at this price.”

The carpet industry, which was earlier under 0% VAT regime, has also come under 12-18% tax under GST. “There are about 16 lakh people whose livelihood is dependent on the carpet industry including weavers and manufacturers who are also getting affected by GST”, says Farooq Ahmad Shah, general secretary of Carpet Manufacturers Association of Kashmir.

He says the carpet trade in the valley has been under duress since 2008 and they have sought assistance from state government in the previous years, which has not been forthcoming to help revive their trade. “Now the new tax of GST will prove to be death knell for this already ailing sector”, he says. “If a buyer can’t even pay say Rs one lakh even for a finished carpet, how can he now be willing to pay additional tax charges under GST for the same carpet?”

Shah says there is about 33% raw material which is used in carpet making, for which they have already been paying tax before implementation of GST. “The rest 67% involves labour charges for which we have to pay more tax under GST now,” he says.

“Our carpets are not selling and the weavers presently are all sitting idle at their homes,” he says. “All the people associated with carpet making and selling want a rollback of GST which will destroy this trade if this tax continues to be levied.”

Zubair Butt, who runs a wood joinery mill in Srinagar’s Khonmoh area, says the implementation of GST will have an adverse impact on the small scale industrial units like his. “Earlier, there was an exemption of tax, but now under GST, we have to pay more and this is going to be challenging for the industrial sector here”, says Butt. He says the small scale units use less amounts of capital per unit of output and also provide more employment per unit of output. “Not providing the exemption opportunities will really affect the growth of small scale industrial sector in the valley.”

Butt says post GST implementation, the business holders will be forced to exaggerate rates of goods and the customers will also be asked to pay more which will in turn badly affect the handmade craft businesses in the valley. “Also if actual benefit is not passed to consumers, sellers will increase their profits and the prices of goods can also see a rising trend,” he says, adding that smalls scale business holders in the valley are already suffering due to the uncertain situation in the valley over the past few years. “Now GST will be suicidal for the industry and if it’s not rolled back, I don’t see any other option except for closing my factory.”

Questions of fiscal autonomy apart, experts believe GST will have a huge impact on the state’s economy as it pushes the state’s primitive economy to compete with advanced states like Maharashtra, Punjab etc. “Some particular sectors like tourism, handicrafts, dry fruits, etc, where the state could create some advantage is lost now”, says Inam ul Haq, senior business editor in valley’s leading daily Greater Kashmir. “There is an open competition in agriculture sector. It will be a big blow to local production in meat and poultry sectors, as trade will become more preferable instead of producing locally, as small farms of Kashmir cannot compete with the big guns of Punjab and other states, who already have lot of advantages due to economy of scale”.

Last week, the Lok Sabha passed a legislation to extend GST to Jammu and Kashmir, making it part of the “one nation, one tax” regime.

“The dream of economic integration of the country has been full filled,” Union finance minister Arun Jaitley said in his reply to the discussion on GST’s extension to Jammu and Kashmir, calling it a “positive step for the state and the country.”