Ludhiana: Thousands of small-scale manufacturers in the bicycle, sewing machine, and carton sectors are facing a liquidity crisis due to a flawed “inverted duty structure”. While the government promised GST refunds within 30 days, local units claim that 13% of their working capital is being locked up for months, forcing many small factories to shut down every 10–15 days.The crisis stems from manufacturers buying raw materials (pipes, paint, brass) at 18% GST but selling finished goods at only 5%. This leaves a 13% tax gap that can only be recovered through government refunds. Industrialists allege that by holding these funds for long periods, the government is effectively using the industry’s capital as interest-free loans, leaving units unable to pay wages or buy fresh raw materials.Industry representative Avtar Singh highlighted that small entrepreneurs, often operating with capital as low as Rs 30 lakh, cannot survive six-month delays. The sewing machine sector, already struggling against cheap Chinese imports, is heading toward a “sunset” if these financial and R&D hurdles are not addressed, he added.The current structure is also making imports more attractive than local manufacturing. Importers pay 5% IGST and sell at 5%, avoiding the refund trap entirely. Industrialists warned that these prolonged delays are encouraging “informal trade,” as some units have begun avoiding billing altogether to prevent their funds from getting stuck in the GST system.
