Logistics and GST

Logistics and GST

The Indian logistics industry is on the stage of a steady growth due to the latest e-commerce penetration, economy revival, proposed GST implementation . Transportation alone holds 60% share of the logistics industry and rest 40% is by warehousing, freight forwarding, value-added logistics, etc. Because of India’s GDP growth the logistics industry is expected to grow at 1-1.5x as logistics business is directly correlated with economic activity. The logistic sector in India remains totally immersed in several complexities like higher logistic costs and complex tax structure. The implementation of Goods and Service Tax (GST) bill will reduce the logistic costs upto 20% from the current levels, however, the persisting high logistic costs could only be resolved by development of logistics infrastructure. The Indian logistic sector is mainly divided into four segments like transportation, warehousing, freight forwarding and value-added logistics. Transportation which comprises of road ,rail, air and water contributes the maximum to the logistics sector. India has a very high logistics because of the various issues and challenges faced by the industry. The industry is also affected by the lack of customs efficiency in the clearance processes and procedures thus affecting the international export . Due to the existing Indian infrastructure that lacks implementation of efficient IT-enabled tracking and tracing mechanisms has adversely affected the performance of logistics courses in kerala. As per GST the same level of taxation would be charged on a specific product or service across the entire country irrespective of being manufactured and sold in different states. With the introduction of GST, there are chances of major consolidation in the industry. It could see the emergence of large players who can control the entire logistics chain. Improvement in the logistic time after phasing out the border check posts may result in the improvement in operational efficiency through quicker and increased number of deliveries along with reduction in logistic cost during the transit. As per world bank estimation Indian corporates can save upto 30-40% of logistic costs incurred due to stoppages at check posts . The existing interstate taxation system has forced the companies to set up and maintain warehouses in every state. Currently, there are around 20-30 warehouses for each company, in every state, in addition to this 20-30 Carry & Forwarding agents per state making the supply chain longer and inefficient. GST will be levied on transportation of goods and credit will be made available on interstate transactions. Logistic costs are expected to be decreased by 1.5- 2.00% of sales on account of maximization of warehouses leading to lower inventory costs which are set up across states to avoid paying the corporate sales tax and escaping the interstate sales tax. There is immense scope for optimization of costs. The implementation of GST, would benefit immensely the players in organized sectors in terms of consolidation and merging of smaller players with larger organized players to have the mutual benefits. Furthermore, the sector would also attract interest from international logistic players through FDI, JVs or acquisitions, which in turn pushes the industry to march towards the developed market standards of logistic performance index. The implementation of GST would help the logistic industry in improving the operational efficiency thus cutting the logistic cost and expanding the business prospects through the consolidation of logistic players.

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