Recommendations: Improvement of supply chain distribution to reduce Transportation charge. More focus on centralised ware house with effective transportation. As per primary analysis, after implementing GST retailer and wholesaler are more benefited as compare to customer. So Company can reduce slightly the profit margin of retailer and wholesaler to please the customer. Creating awareness about GST in nation-wide. Note : For Detailed calculation excel sheet you can contact me.

1. IMPACT OF GST ON PRICING OF PRODUCTS
IN INDIAN FOOTWEAR INDUSTRY
FINAL REPORT IIMKASHIPUR
SUBMITTED BY :
SOUMYA SETHY(PGP14098)

2. About GST in India
Goods and Services Tax (GST) is a significant step taken by the government of India in the
field of tax reforms especially in the indirect tax sector. Under this a number of Central and
State tax would be amalgamated into a single tax thereby mitigating tax cascading. Currently
tax in the range of 25%-30% is being paid. Introduction of this would make the Indian
products competitive.
Currently the bill is already passed by the Lower house and awaiting to get passed in the
Upper house. The one levied by the State would be known as State GST (SGST), the one
levied by the centre will be called Central GST (CGST) and there will be an Integrated GST
(IGST) that would be for the inter-State transfers and import of products.
For the Centre, GST will replace the following taxes:
a) Central Excise duty
b) Excise Duty (Medicinal & Toilet Preparations)
c) Additional Duties of Excise on Goods which are of Special Importance
d) Additional Duties of Excise on Textiles & Textile Products
e) Additional Duties of Customs also known as CVD
f) Service Tax
g) Special Additional Duty of Customs (SAD)
h) Cesses and surcharges in as far as they relate to supply of goods or services
For the States, GST will replace the following taxes:
a) State VAT
b) Central Sales Tax
c) Purchase Tax
d) Luxury Tax
e) Entry Tax (All forms)
f) Entertainment Tax which are not levied by the local bodies
g) Taxes on advertisements
h) Taxes on lotteries, betting & gambling
About footwearindustry in India
 Indian footwear sector is estimated at ₹ 50000 crores with domestic market of ₹
32000 crores and export market of ₹ 18000 crores
 2nd largest producer of footwear in the world after China. China produces more than
60% of total footwear production of the world
 India has 9% (2.1 billion pairs) share of global annual production of 22 billion pairs
 90% of produced footwear produced in India are consumed internally
 Major export destination are European nations

3.  India’s share is only 1.9% of total export market in the world, which is equivalent to
$120 billion
 Major export is leather products constituting around 80% of total export
 Footwear exports have grown at a CAGR of 20% from March 2010 to March 2015
 Average Selling Price (ASP) for exports is around ₹ 800 per pair whereas domestic is
about ₹ 160 per pair
 Footwear industry in India is highly fragmented with 15000 SME’s present largely in
unorganized segment
 Indian footwear industry has limited presence of organized segment
 Unorganized segment is majorly present in low cost rubber/plastic footwear
 Equal value share for both organized and unorganized segment
 Operating profitability in leather is around 10-18%, plastic footwear is 5-12% and
rubber footwear is around 3-8%
 Highly working capital intensive with high raw material costs
Drivers for growth:
 Increasing disposable income
 Growth in rural segment
 Rising international demand for leather footwear
 Rise in organized retail
 Changing lifestyle of customers
 Increasing availability of credit
 Growing consciousness on health and beauty
 Increase in awareness
Challenges:
 Tough Competition from unorganized players
 Increasing imports from China
 Fake products of low quality
 Distribution issues for new entrants
 Depreciation of rupee and rise in energy costs

4. Swotanalysis of footwearindustry in view of GST
GST in footwear& it (information technology)readiness
Adesh Gupta, CEO and ED, Liberty Shoes answering to a question says IT will be playing a
major role in implementing of GST in the footwear industry, Liberty is the 1st Indian
company of footwear industry to implement IT across all the plants and business units, they
have implement SAP long back in the year 2000 itself which is a major tool of integration
and for any change in taxation they have the tools available. They had their IT systems
upgraded to the last level and they are even ready to implement GST even if it comes
tomorrow.
GST is a tax that will be levied on the final consumption or the end product according to
13th Financial Commission, allowing the other stages starting from raw materials to
production and distribution as a mere pass- through, but this strengthen the existing system
thereby increasing the tax compliance, because it will be needing evidence of tax compliance
from each and every link of the supply chain for paying of taxes starting from the
procurement and identification of raw materials to the dealers and distributor in the form of
its preceding link and here IT will play a major role without which GST might not be
effective since all the generation of reports, vendor management, suppliers, sourcing,
STRENGTH
Marging of wholesaler & Retailer will
increase
Cascading taxes like turnover tax, anti-tax
and number of different taxes will go
away
Increase in transparency across allied
services & industries
WEAKNESS
Branded Footwear is too costly
Limited presence of Large scale
manufacturing units
Highly cash intensive
OPPORTUNITY
Bring competitiveness in unorganised
setor, manufacturing & retail
Rising level of disposable income
Intenational demand increase
Social media & e-commerce
Change in lifestyle
THREAT
Unorganised Sector
Cheap Chineese alternative
SWOT

5. production, cost, forecasting and the share of taxes each cost head will be generating will not
be possible without IT.
GST and pricing at intermediary level
Footwear companies transport the end products first to the regional heads and then to the
local dealers, rollout of GST will definitely help them avoid unwanted taxes.
Indian footwear industry is maturing from manual footwear manufacturing method to
automated systems of manufacturing, world class machines are being installed with skilled
labours which have the potential to turn any idea however innovative it may be into reality.
This sector is de-licensed and de-reserved by the government, and also 100% FDI via
automatic route was permitted by the Government and European countries like Portugal,
Spain and Italy are showing active interest to collaborate with the Indian Footwear
companies.
The footwear industry of India is highly fragmented with small and medium enterprises
numbering around 15000 majority being in the unorganized segment
Government Policies and Pricing: Firms that sell above ₹ 300/350 have to pay a VAT of 12.5
% and those below don’t have to pay any taxes. Firms in Agra have to pay an excise duty of
16% if their annual turnover is more than ₹1.5 crores.
Subcontracting by firms: Firms like Liberty, Bata, Khadim’s and Shree Leathers etc. source
their outputs from small and tiny enterprises and also the problem of copying arises. Even the
small firm who sell directly to wholesalers are also squeezed by the wholesaler who have the
maximum share thereby exploiting the existing loopholes created by the unorganised sector
and the existing multiple taxation system.
All these existing gaps could be filled up by the GST if implemented properly, but it will be
mainly helpful to the big listed companies like Liberty Shoes etc. and thus is the reason
behind jumping of their share as they will be getting deductions on the taxes which is being
paid by their small suppliers and the provision in GST being if turnover is more than ₹1.5
crore you have to pay GST if its less than that you have to pay excise (or value-added) tax.
And to remain profitable these small companies will have to increase the prices to remain
profitable and this will result in higher prices and it so happen that the price of footwear
might also increase.
Primary data collection and Analysis
We have analysed the impact of GST on footwear industry. Below are the findings of our study:
Methodology:
For above study, data related to prices, for footwear in plastic and leather categories were
being collected from field. We have collected rates and profit margin of footwear (both
categories) from regional manager of Bhuvneshwar for ABC footwear industries. We have
applied central excise duty as and when applicable, and have tried to do the comparative

6. price analysis for footwear industry under VAT and GST regime.
From the market survey, we found that for plastic footwear, wholesaler’s profit margin is
around 6% and for leather footwear it hovers around 12.6%. While retailer’s profit margin is
around 15% for both the categories of footwear i.e. plastic and leather.
In Bhuvneshwar, footwear could be procured from outside Odisha or from within the state. If
goods are procured from outside the state them to reach consumers they passes through 2
stages: from wholesaler to retailer and from retailer to consumer. Whereas, if goods are being
manufactured inside the state then they are passed to consumers through 3 stages: from
manufacturer to wholesaler, then from wholesaler to retailer and finally retailer to consumer.
We have included excise duty, VAT and entry tax wherever it is applicable and have taken
them into account while analysing the cost. Following are the various taxes levied on
footwear:
 Excise duty at 6%,
 VAT on Leather footwear at 13.5%
 Entry tax at 1%
We have made certain assumptions while doing this analysis. Following are our
assumptions:
1. When GST would be implemented, there would be 3 different rates under the GST.
There would be lower rate of 6%, a standard rate of 10% on goods and 8% on services,
these rates would be for both Central and State separately. Thus, combined GST rate
would turn out to be 12%, 20% and 16%. We have assumed that footwear industry
would be placed in lower tax category i.e. at 12%.
2. Currently only 10.5% of service tax is levied on 25% of the transportation cost, but
IGST (Inter-state Goods and Service Tax) on similar transportation would be charged
around 16% on the total transportation cost.
3. GST would include Central sales tax(CST) once implemented
4. Entry tax in Odisha would be kept out of GST
5. Since the dealer will avail of credit of input tax, he will not include the tax paid on
inputs in his basic cost price.

7. Primary Analysis with Footwear Company - Liberty:
We have interacted with RM (Regional Manager) of Liberty Company for Bhubaneswar,
Odisha region. As per the company spoke person, the profit margin for wholesaler is 6% and
for retailer is 15%. As per current Tax process, various tax like Excise duty (6%), Central Sales
Tax (2%), Service Tax (14.5%), Entry Tax (1%) and VAT (13.5%) are applicable on footwear.
Whereas in GST we have assumed that CGST (6%) and SGST (6%).So overall GST is
12% applicable on footwear. Similarly Inter-state GST is applicable of 12%.We are analysing
the scenario where the manufacturer is in Lucknow(UP) and the goods are transported to
Bhubaneswar,Odisha.It’s a case of inter-state sales.
There will be decrease in price of leather footwear, as these are excisable goods. Presently,
excise duty and CST are collectable on these goods. Since excise duty and CST is not VAT
able, the tax paid on these goods gets embedded in the cost price which causes cascading.
Under GST regime CST and excise duty shall be subsumed and input tax credit will be
available on sale of those commodities. Hence, it is found the price of these commodities will
decrease. Plastic footwear are also excisable goods. There will be marginal price rise by 1.34%.
Our findings could be seen in the following tables:
Footwear procured in
Lucknow(UP)
Transported to
Bhubaneswar
Wholesaler(Odisha)
Local Retailer in
Bhubaneswar
Bhubaneswar
Consumer

8. Table 1:
But for wholesaler and retailer, the profit margin has increased. As per current taxation, profit
margin to retailer is Rs 180.33 But after implementing GST it will increase to Rs 185.20.
Recommendations:
 Improvement of supply chain distribution to reduce Transportation charge.
 More focus on centralised ware house with effective transportation.
 As per primary analysis, after implementing GST retailer and wholesaler are more
benefited as compare to customer. So Company can reduce slightly the profit margin
of retailer and wholesaler to please the customer.
 Creating awareness about GST in nation-wide.

9. Sources:
1. Sambasiva Rao Vanimireddy , Subashini K & Harish K3, “Management of HRD
Requirements - A Case Study of Indian Footwear Industry”, Vol.3 , Issue 2, February
2014, International Journal of Innovative Research in Science, Engineering and
Technology
2. Sandip Sarkar, ” A Case Study of Footwear Industry in India”,
3. http://www.ihdindia.org/Formal-and-Informal-Employment/Paper-4-A-Case-Study-
of-Footwear-Industry-in-India.pdf
4. Harish Bhat, “The Brand Value of GST”, livemint, Wed, Mar 24 2010. 09 53 PM IST
http://www.livemint.com/Opinion/X0vBTWlmE8rbeKJcizQWrI/The-brand-value-of-
GST.html
5. CNBC-TV18, Co ready to execute GST; eye better topline: Liberty Shoes,
http://www.moneycontrol.com/news/economy/co-ready-to-execute-gst-eye-better-
topline-liberty-shoes_1256039.html
6. http://www.leatherindia.org/products/footwear.asp
7. http://www.financialexpress.com/article/markets/indian-markets/if-gst-gets-a-
passage-top-15-stocks-to-invest-in-on-stock-markets/172160/
8. http://articles.economictimes.indiatimes.com/2015-02-
28/news/59613104_1_footwear-industry-excise-duty-budget-2015
9. http://gst.customs.gov.my/en/cp/Pages/imp.aspx
10. http://www.livemint.com/Opinion/X0vBTWlmE8rbeKJcizQWrI/The-brand-value-of-
GST.html
11. http://www.firstpost.com/india/5-reasons-gst-may-cracked-1857539.html
12. http://zeenews.india.com/business/budget-2015/gst-sops-in-rural-sector-will-boost-
fmcg-industry_119963.html
13. http://retail.economictimes.indiatimes.com/re-tales/indian-footwear-industry-a-
perspective/81