GST boost for Indian economy: GST has improved efficiencies and cost savings for warehouses, resulting in a significant growth in warehousing space, according to a report.
GST boost for Indian economy: Amid dissenting voices on success and effectiveness of the GST, here’s yet another proof that India’s sweeping indirect tax reform has provided a major impetus to the economy, in the dramatic rise in handling of goods. GST has improved efficiencies and cost savings for warehouses, resulting in a significant growth in warehousing space, according to a report.
The total warehouse space in eight primary locations in India is expected to reach 204 million square feet by the year 2019, driven by strong demand and investment in the short to medium-term, KPMG said in a recent report. Further, warehousing spaces is expected to witness an increase of 112 per cent by 2021, said the report citing industry experts as saying.
“It is noteworthy that the implementation of GST has dramatically improved efficiencies and cost savings with a ‘Hub and Spoke’ model of warehousing. Pre-GST implementation CAGR (2014–16) of 15% has increased to an expected post-GST implementation CAGR (2017–21) of 21% for Grade A and B warehouse stock projections in the top eight cities in India,” said the KPMG report.
Notably, transaction volumes of warehousing spaces has registered a massive rise, increasing by more than 85% in 2017 to 25 million square feet across India’s top cities – Mumbai, NCR, Ahmedabad, Bengaluru, Pune, Chennai, Hyderabad and Kolkata.
Explaining how GST has led to such a significant improvement, KPMG said that smaller and fragmented warehouses are getting consolidated into centralised warehousing hubs with increasing focus on supply chain efficiencies. Implementation of GST is leading to consolidation in larger warehouses to help attain benefits from economies of scale. This in turn, is driving the demand for efficient and larger warehouses.
Further, GST has also reduced the need to maintain high inventory levels resulting in increased demand for shared and centralised warehousing hubs, which aid in improving inventory turnover rates, said the report.
Apart from the eight major locations, strategic locations such as Nagpur, Bengaluru, Kolkata and Guwahati are expected to become regional warehousing hubs connected to smaller local nodes via secondary logistics, says KPMG.
The government’s move to award infrastructure status to the logistics sector including warehousing in November 2017, has paved the way for institutional players to invest in the sector, bringing in a number of benefits for the warehousing realty, said the report. “India is expected to witness investments of approximately Rs 500 billion for creating storage facilities between 2018 and 2020, leading to an approximate CAGR of 21% by 2021,” the report noted.