The goods and services tax (GST) is reshaping the Rs 50,000-crore warehousing industry, as India Inc, freed from the erstwhile 2% central sales tax (CST) regime, is cutting down on warehouses by as much as 40%, say industry insiders. Prior to the July 1 tax reform rollout, an incremental 2% CST had to be paid by companies while ferrying goods from one state to another. That explains why it made sense to set up warehouses in every state. Since the uniform GST negates such a possibility, smaller warehouses are getting downsized, while capacity is being beefed up by as much as 40% in the larger ones, say executives.
“We have 27 warehouses and will rationalise them to 23 as earlier (before GST), it was a tax requirement, but now it is a business need,” says Rajesh Gupta, CFO, Havells India. The move, claims Gupta, will not only help the consumer electricals major cut down significantly on freight charges, but also improve service levels.
In the same vein, the Rs 5,370-crore chyavanprash-to-candymaker Dabur has set in motion its plan to downsize warehouses, though desisting from giving out a number. “We have already planned synergies on supply chain under the GST regime and are working on consolidating the number of warehouses,” says Lalit Malik, CFO, Dabur India.
Alongside the implementation of GST and removal of multiple taxes, supply chain efficiencies for warehousing are also increasing, while operating costs are going down. “Under the new tax regime, the strategy of several large corporates is that of consolidation followed by expansion. Hence, while it may look like there is a reduction in warehousing requirements, it is more a case of restructuring their requirements to create a better operating environment,” says Jasmine Singh, head, industrial and logistics services India, CBRE south-Asia.
In fact, a recent CBRE survey among leading corporates in sectors such as third-party logistics (3PLs), e-commerce, engineering and manufacturing, FMCG and non-durables, pharmaceuticals and retail, revealed that the way forward was one of consolidation and expansion focusing on a hub-and-spoke model.
On average, companies across the board are hacking down warehouses by half, from about 30-40 at present to a more managable 16-24 band, points out Anurag Mathur, partner, PwC India. He adds that consumer heavyweights, such as Hindustan Unilever, Godrej, Nestle and P&G, have already announced their plans of warehouse reduction, though without revealing a number. “All pharmaceuticals, FMCG companies, consumer durables and consumer electronics companies are seeing consolidation (in warehousing).”