Ludhiana's Manufacturing Sector in Financial Distress Over Stuck GST Refunds
Industrialists in Ludhiana, a major manufacturing hub, have sounded the alarm over critically delayed Goods and Services Tax (GST) refunds, warning that the situation is severely crippling their operational capabilities. The core issue lies in the prolonged withholding of refunds, which is choking the vital working capital needed to run their units day-to-day.
Inverted Duty Structure Widens, Intensifying the Crisis
While delays in GST refunds are not a new phenomenon, industry representatives explain that the problem has dramatically intensified. The primary culprit is a steeply widening gap in the inverted duty structure. A local bicycle manufacturer highlighted the severity, stating, "The GST refunds have been delayed for a long time, but the inverted duty structure has now become steeper, with the difference between input and output GST now being 13%. Earlier it was about 6% and we were somehow managing, but now it is too much for us to continue working."
This significant gap has forced businesses to rely heavily on credit to sustain basic operations, pushing them into a cycle of financial vulnerability. Sectors such as bicycles, sewing machines, and agricultural implements are the worst affected. The finished products in these categories attract only a 5% GST, but the raw materials required for their manufacture fall under a much higher 18% tax slab.
Industry Delegation Appeals to Punjab Government for Urgent Action
In a decisive move to address the escalating crisis, a delegation from the Federation of Industrial & Commercial Organisations (FICO) recently met with Punjab's Industries and Commerce Minister, Sanjeev Arora. The delegation detailed how the delayed refunds have locked up vast amounts of industry capital.
Manjinder Singh Sachdeva, General Secretary of FICO, elaborated on the financial mechanics, saying, "Finished products like bicycles, sewing machines, and agricultural implements fall under the slab of 5% GST, whereas the raw material falls under the higher slab of 18%. Due to this inverted duty structure, GST refunds get stuck with the government. That is the industry's own money, due to which the industry is facing a working capital deficit."
The strain is compelling companies to overutilize their bank credit limits, leading to increased interest payments and a higher overall cost of doing business.
Call for an Automated Refund System and Dire Warnings
The unified demand from the industry is clear: the government must intervene urgently by directing GST authorities to implement an automated refund mechanism. This system would ensure refunds are released immediately upon the filing of returns, eliminating bureaucratic delays.
Sachdeva emphasized the nature of the funds, stating, "This money is not a grant or subsidy that the industry is demanding. It is the hard-earned money of the manufacturers. It must be released as early as possible."
There is a growing fear that if the issue is not resolved promptly, many small and medium enterprises (SMEs) will struggle to survive. This could trigger widespread job losses and a decline in industrial output from the region. Gurmukh Singh, a sewing machine manufacturer, echoed the sentiment of many, urging that "The government must streamline refund procedures and bring relief to the manufacturing sector." The financial health of one of North India's key industrial centers hangs in the balance.
