Additionally, the working capital requirement for the majority of the participants in the manufacturing sector (steel, textile, auto and auto ancillary) will go up owing to the requirement to pay the entire tax at the point of the dispatch of goods from factory gates, and also for the movement to warehouses.Working capital needs for all businesses will go up under goods and services tax (GST), but micro, small and medium enterprises (MSME) will face the prospect of loans at higher cost due to weak credit profiles, rating agency India Ratings and Research (India-Ra) said. It added that large businesses would find the transition to GST easier due to better financial flexibility.
Additionally, the working capital requirement for the majority of the participants in the manufacturing sector (steel, textile, auto and auto ancillary) will go up owing to the requirement to pay the entire tax at the point of the dispatch of goods from factory gates, and also for the movement to warehouses.
However, increased working capital requirement for large corporates in the manufacturing sector is also likely to drive the bank credit growth. These businesses would also benefit from seamless input tax credit (ITC), which would lead to some savings in working capital and partially offset the impact of higher working capital.
“Ind-Ra estimates the increase in working capital requirement at 200-450 bp of revenue for the steel industry and at about 500 bp of net value addition across the value chain for the textile industry. The increase in working capital requirement, as a proportion of revenue, would aid bank credit growth for large corporates,” the agency said.
The working capital crunch faced by some companies under GST was primarily due to their ability to claim ITC as they lack the infrastructure to map the inventory held on the transition date with respective invoices. This is accentuated by various GST Network-related technical issues and admissibility of these ITC claims.a
