GST set to change the dynamics of Indian logistics industry

The introduction of Good and services tax (GST) is a transformational move that will have a positive impact on all the business sectors. The logistics industry has grown by leaps and bounds owing to surge in organised retail and e-commerce. In the past, the logistics industry was mostly unorganised and fragmented due to different tax structures at the state level. One of the premise of selection of a warehousing location was basis the tax arbitrage between various locations. This lead to inefficiencies in terms quality of warehousing spaces, transportation facilities, labor management and irrational product pricing. With the introduction of GST, there is one unified tax regime. 

Now, warehousing selection decisions are taken with more scientific approach in terms of resource availability, efficiencies in transportation, timelines, cost and warehousing space. The logistics companies in India which have been operating on first-party logistics providers (1PL) to second-party logistics providers (2PL) are now planning for integrated fourth-party logistics providers (4PL) by providing a complete package of logistics services, including transportation, warehousing, pool distribution, packaging solutions, inventory management, management consulting, logistics optimisation, last-mile delivery, etc. and complementing them with advanced supply chain facilities.

Due to a uniform tax structure, several international players have sensed this opportunity and invested in the sector. For instance, Warburg Pincus and Embassy Group joined hands to develop industrial and warehousing parks, Everstone Capital has created a huge portfolio of industrial and warehousing space and planning to list a REIT of approx. USD 2 billion. Therefore, GST will integrate the country’s multi-layered indirect tax system into a single unified one to improve the ease of doing business. The changes in the proposed indirect tax system will impact logistic and warehousing sector by reducing transportation cycle times, enhance supply chain decisions, thus leading to consolidation of warehouses and reducing cost competitiveness of the players. It will also help the logistics industry reach its potential in terms of matching high-quality service levels and growth. 

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