Logistics in India – the first words that used to spring to mind hearing this phrase were: vast potential for growth, major contributor to GDP, disorganized, lack of infrastructure development etc. Post Aug 8, 2016, it’s GST. The Goods and Sevices Tax (GST) bill looks to solve the problem of indirect taxation in India by bringing together all kinds of state as well as central taxes under one umbrella. While there has been significant delay (initial target date for GST roll out as declared by then Finance Minister was 1st April, 2010), this would be a much awaited and much needed tax reform, once it is rolled out, in all probability by April, 2017.
The implementation of GST will at once solve a number of malaises that have been plaguing the Indian Logistics scenario for long – need for multiple warehouses, high transit time due to check-post delays and high taxes payable & less tax credits. With the introduction of GST, manufacturers and service providers can look to have one central warehouse instead of multiple warehouses at different states. This in turn has the capacity to change the entire landscape of warehousing & logistics in India. Businesses will now look to set up factory and warehouses where cost of operations is least and not where tax benefits are high. Also, this consolidation would mean that businesses can reap the benefits of economies of scale at the same time significantly bringing down their fixed cost.
Another huge implication of the proposed GST bill is the reduction in transit times. With no/less delays at state entry check-post, transit time can come down by up to 50% of the present value. This would mean faster turnaround and increased revenues for all. That new age service providers like Rivigo has become talk of the town, just on the back of crashing transit times to previously un-thinkable levels, epitomizes how important a factor transit time is, when it comes to logistics.
While details of the bill are still unclear and much speculated, from a broader perspective, GST is bound to improve – 1. Ease of doing business, and 2. Efficiency of operations for logistics services in the country. This in turn will attract interest and investments in the logistics sector in India, leading to its overall development. That a PE firm like Warburg Pincus has agreed to invest an astronomical amount of INR 850 crore in Stellar Value Chains, a company in the warehousing & logistics space, vindicates just how impactful can this bill be, once passed and implemented properly.
