Goods and Services Tax (GST) in India is playing a pivotal role on the warehousing and logistics sector in boosting both the Hub & Spoke model as well as the growth of the Multi –Modal Logistics Park (MMLP).
As a result of this, India will see over 20% CAGR in warehousing and will have approximately 25 new MMLPs in the next few years.
A report, launched during the 8th India Warehousing Show 2018, says that GST has provided a great leap forward for the sector in India.
The advancement in technologies and infrastructure, along with Government’s support through policy initiatives has paved the way for positive improvements. In the early stages of evolution, India is showing tremendous potential for development which can be seen in its improvement in global rankings as well.
The report estimates that warehousing space in India will increase by 112% by end of 2021. Of the same, Grade A warehousing space is expected to grow by over 170% while Grade B will grow by approximately 85% from 2017 – 2021. The growth of Grade A warehousing space will be a direct out com of the implementation of GST as it blurs out the boundaries for set up
The most prominent impact of GST on the warehousing sector are as below:
* Hub and Spoke to Rule:
Organizations will now be able to explore a different distribution model from the traditional carrying and forwarding (C&F) distributor based models. Growing demand for Larger Hubs / Regional Distribution Centre as well as Smaller ‘Spoke’ warehouses.
Post GST, the focus would shift on efficiency rather than tax saving through smaller warehouses. Companies to re-structure their warehousing portfolio to bring in larger and ‘supply –chain’ efficient warehouses, typically built to their specific warehouse requirements.
State-border check points for scrutiny and location based tax compliance, which accounts for almost 60% of a truck’s transit time, can hugely reduce, thus quicker supply.
* Efficient and Larger Warehouses
Efficient warehouse management is expected to boost the sector as the warehouses are expected to have ‘economies of scale’ thus increasing Per Cubic Metre storage efficiency of warehouses.
Warehousing developers investing in larger logistic parks and buying land at strategic locations.
*More Organized Logistics Players:
Existing organized warehousing developers can expect significant increase in demand. More organized players are expected to enter the sector.
*Reduced cost to customers:
Reduction in tax cascading may lead to lower cost of production and distribution which can be eventually passed on to the consumers.
A view is doing the rounds that GST has had a positive effect on warehousing activities in India due to diminishing state boundaries and has made way for cost and operationally efficient Hub and Spoke Model.
Further, the government’s support through policy initiatives like establishment of logistics division, granting Logistics an ‘infrastructure status’ and establishment of MMLPs; is paving way for positive improvements and boosting the growth of the logistics industry. The warehousing sector is expected to grow at an average CAGR of over 20% in the next three years (2018 – 2020).>