India’s internet base is exploding. Despite being one of the topmost in the world in terms of absolute numbers, the % of internet users with respect to the total population is one of the lowest in the world. The good news is that the numbers of internet users are growing at an unprecedented rate of about 6 million per month.
The growth in Internet and smartphone penetration combined with the focus on infrastructure and manufacturing will place a tremendous demand on Logistics and Warehousing in the coming years. India’s largest online e-tailer, Flipkart has grown at a frenetic pace over the last 3 years. Its GMV (Gross Merchandise Value) has grown from $1 Billion in 2013-14 to about $4 Billion in 2014-15. The e-tailer plans to hit $10 Billion in GMV very shortly. The e-tailing industry has changed dramatically over the years. Travel and insurance were the two largest categories a few years ago. Today, electronics, furniture, fashion and even houses are part of the e-tailing spectrum. The e-tailing industry therefore is not only being driven by the increasing internet penetration, but also by the number of product categories that are being traded via e-tailing.
The long pending GST bill will fundamentally alter the warehousing and logistics landscape in India. From a tax efficiency position, the logistics industry will very shortly move to an optimal location, time and transport strategy. Over time, e-tailers will look to turn profitable and it is without a doubt that the back-end logistics and warehousing will play a pivotal role in this. As per market reports, the total warehousing space in India is expected to double by the year 2020. Availability of affordable and clear land is the biggest challenge facing warehouse developers today. Availability of good roads (connectivity) and ample power is the second challenge. Land prices in most Tier I cities in India have increased drastically in the last decade. This has made acquisition of quality land in viable locations for developments of warehouses and road connectivity extremely challenging. The levy of a surcharge on coal as per the latest budget will further increase the cost of power. All these factors, if not carefully mitigated will serve a huge challenge to the e-tailing industry and further impact their profitability.
Challenges aside, there is no doubt that the warehousing industry in India is at a very nascent stage and is poised for robust growth in terms of size and technology. The end of this decade should see major progress in this sector with increasing attention by financial institutions and top developers.
About the author
Ravi Vadhavkar, Director, Valuation & Advisory Services, comes armed with diverse work experience in the international as well as domestic markets. He is well versed in all major real estate sectors - residential, commercial, retail, industrial, and hospitality. He has handled multiple functions including design, construction management, cost estimation / procurement, land acquisitions, valuations and consulting. Due to his well-rounded work experience and education background, Ravi brings a holistic perspective to any real estate transaction.