Over the last decade, notwithstanding the rise in demand, many players have been holding up their plans for expansion of warehouses. They knew that the GST would prompt them to revisit their strategies.
Given the decade-long deadlock over the Goods and Services Tax (GST) Bill and the uncertainties it triggered across the sectors, the current euphoria over the passage of the Bill in Rajya Sabha is legitimate. The jubilation will continue till the rules are framed and the real impact is measured after all the exemptions and expectations are taken into account. As someone from the logistics industry, my overwhelming feeling is that of relief. I will, however, wait for the real euphoria to set in after GST is implemented. There is a long way to go before that as the GST Council has to do lots of permutations to finalise the rules and rates. But, the passing of the Bill by Parliament is indeed a decisive step forward as we are assured of the light at the end of a rather long tunnel.
The logistics industry, in general, and warehousing, in particular, are among the key sectors that are predicted to fare better after GST is implemented. But the real impact will be seen only when it gets implemented in a transparent, smooth and hassle-free manner. The unending queues of trucks at our state borders represent the hiccups because of which our ranking in the global ease of doing business index remains quite low. It is to be seen how far GST can ease snarls at check-posts by doing away with multiple registrations or filings. Trucks move 65% of the country’s freight and face five-to-seven hour delays at checkpoints. The GST has been hailed as a ‘one-nation, one-tax’ regime. But, if the movement of goods remains stuck at check-posts, this one-nation vision will only be partially realised. What we need is simplicity in registration and filings that will make the process transparent. So, GST implementation is also a test of how India can move up the ladder on ‘ease of doing business’ parameters, by ensuring the seamless flow of goods. Border regulations have been the biggest deterrent for the logistics sector so far.
As we move towards a destination-based tax regime, logistics will continue to be the backbone and any positive impact, by the way of reduced transportation costs, will have cascading impacts on all other sectors, right from manufacturing to consumption. Freight times can be cut by 30-40% and logistics costs can be reduced by 20-30% through a proper GST dispensation. That means the manufacturing sector itself will get an additional boost of around 3-4%.
The most visible impact will be on the warehousing sector which will see optimisation, consolidation and redrawing of distribution and inventory. Indian warehousing, estimated around R560 billion excluding the inventory costs, has been growing at 10% CAGR. With the revolution in e-commerce, the growth is expected to be faster.
At present, the logistics sector has to put up with a plethora of taxes like excise and customs duty, service tax, state-level value-added tax and the central sales tax. To escape the complexities related to these taxes, manufacturers prefer to build warehouses in the places where they operate. Under the GST, the entire warehousing landscape is going to change for the better as the country will become a single unified market.
Over the last one decade, notwithstanding the rise in demand, many players have been holding up their plans for expansion of warehouses. The situation was so fluid that the logistic players were left with few options. They knew that the GST would prompt them to revisit their strategies to realign and overhaul the warehousing infrastructure. Thus, plans of investment have been delayed or shelved. Many even delayed significant planned investment in technology which could play a different role in the warehousing management under the GST regime.
Beyond the political stalemate, the real deadlock was in the warehousing sector which failed to plan or unfold a long-term strategy. Now, with the passage of the Bill, the logistic and supply-chain companies can at least think of future strategies.
The author is executive vice-chairman of Patel Integrated Logistics Ltd