The much-anticipated reduction in Goods and Services Tax (GST) for bicycles, intended to provide relief, has instead plunged Ludhiana's iconic bicycle manufacturing sector into a deeper financial crisis. Industry leaders report that the cut from 12% to 5% has worsened the existing problem of an inverted duty structure, leading to severe working capital blockage and threatening the survival of smaller units.
GST Reduction Backfires, Widening the Tax Gap
Earlier this year, the GST rate on finished bicycles was lowered from 12% to 5%, a move welcomed by the industry to boost affordability and sales. However, this reform has had the opposite effect. Manufacturers are now grappling with a wider mismatch between input and output taxes. They purchase raw materials like steel, rubber, and components at a GST rate of 18%, but sell the final product at only 5%. This creates a significant 13% gap.
Manjinder Sachdeva, General Secretary of the Federation of Industrial and Commercial Organization (FICO), stated that the expected sales upswing has not materialized. "On the contrary, the inverted duty structure has become a bigger hurdle," he explained. The core issue lies in the refund mechanism for the Input Tax Credit (ITC). While the system is designed to refund this gap, delays are crippling businesses. "This gap would have been manageable had the refund system worked smoothly. But ITC refund delay is creating a huge financial strain on the industry," Sachdeva added.
Working Capital Blockage Threatens Livelihoods
The financial strain is acute. With refunds stuck, a substantial portion of their capital remains locked with the government. "Our capital is getting accumulated. Our working capital is getting blocked. This might lead to closure of smaller units," warned a manufacturer. This is particularly alarming for Ludhiana, where bicycle manufacturing is a traditional economic pillar, employing thousands and contributing significantly to Punjab's industrial output.
The problem extends beyond final assemblers. Rajiv Jain from the United Cycle and Parts Manufacturers Association (UCPMA) highlighted that component makers, the backbone of the local supply chain, are equally stressed. He criticized the cumbersome refund process, advocating for an automated online system. "If we deposit our GST online, there should be an online system to match the GST and refund should be sent automatically," Jain argued, questioning why income tax refunds are automated but GST refunds are not.
An Industry Plea for Structural Reform
The industry's initial demand for a rate cut has proven insufficient without addressing the structural flaw. A manufacturer on Gill Road pointed out the grim reality: "Smaller units simply cannot survive this yawning 13%." He emphasized that the tax inversion remains unaddressed, hindering competitiveness. The collective demand now is for the Central Government to rationalize the GST structure itself and ensure faster, automatic refunds to unblock capital.
The stakes are high. Approximately 2.5 crore (25 million) bicycles are manufactured in Ludhiana annually, with about 55-60% of manufacturers dependent on government tenders. The continued blockage of working capital threatens not just individual businesses but the stability of a major industrial cluster and the livelihoods it supports.
