Moving to the faster lane
Dated NEW DELHI, September 3, 2017
We are in times of outstanding significance and consequence for our nation. The start of the GST era is already upon us with the law coming into effect July 1 onwards. Just a few months earlier, sceptics were actively debating whether the roll-out would happen within the stated timeline, or if it would see administrative delays.
However, here we are, in a post GST India and the implementation of ‘One Nation, One Tax, One Market’ reform has proven sceptics wrong. GST reform is certain to catalyse conformity in every part of the business chain and to expand the tax base in a transparent and efficient manner. There are likely to be initial hiccups for a few months as organisations, large and small, across industry sectors are adapting to this fundamental change.
Of course, these pain points will be short lived as companies are expected to settle in rapidly into the new GST era. The introduction of GST tax reforms will have the most far-reaching ramifications in the growth of the logistics sector in India.
Supply chain evolution
From a macroeconomic perspective, a commonly used metric to assess global economies in terms of supply chain efficiency is the ‘logistics costs as a percentage of national GDP’. This percentage for India is as high as 14% compared with 8% in developed nations. Digging deeper into the logistics costs percentage and breaking it down into components reveals the actual challenges. Compared with global economies, India has some of the cheapest transportation and warehousing costs. However, our inventory carrying costs and losses (related to wastage of food), is the highest in the world. The high inventory carrying costs are due to modest physical infrastructure, inadequacy of technology adoption and complicated tax structure. On the issue of complex taxation, recent actions related to the Goods & Service Tax (GST) denote a major legislative milestone in the long-term evolution of efficient logistics in India.
There are facets of our industry where the GST is undeniably expected to impact. Interstate movement of goods has become easier with reduced procedures and restrictions at state borders. Dismantling of check posts at state borders on July 1 has remarkably reduced transit times by about 18% for organised players as average truck speeds have increased.
In the long term, GST offers a unique opportunity for customer organisations to eliminate inherent inefficiencies in the location, movement and inventory holding of goods. GST is the trigger for the user industry to migrate from legacy supply chain models designed for optimising tax payouts, to more efficient models, though these are medium- to long-term plans. In this context, tremendous opportunities arise for logistics players.
The logistics industry supports goods movement for numerous end-user verticals, which requires specialised capabilities and product know how. This complex amalgamation of overall goods movement has placed the onus of preparedness post-GST on the logistics players.
Moreover, state governments have begun issuing interim transit rules, requiring logistics players to quickly adapt for efficient movement of goods. While these were early hiccups, an anticipated disruption in the medium and long term is the proposed implementation of the e-way bill legislation.
We believe that the initial draft e-Way bill Rules needed to recognise the process involved in time-sensitive multi-modal transportation. A desirable GST structure will support reduction of bottlenecks and therefore, we urge the regulators to take cognisance of unique features of the logistics industry in formulating final rules.
The GST is already proving to be a blessing in the context of supply chain costs and lead time to market. At a broader level, numerous initiatives in the area of trade and industry promotion have helped place India favourably in an otherwise volatile global economy. Complemented by this encouraging environment, GST is expected to help unlock much-needed efficiencies in the way domestic businesses operate today. Shifting gears and moving on to a faster lane is a matter of time for the logistics industry at large.