LOGISTICALLY SPEAKING. The opportunities at play from Goods and Services Tax

The Goods and Services Tax (GST), which the NDA government hopes to introduce from the next fiscal, is seen as a game changer for the logistics sector. Even a tiny player in the field is aware of its benefits and waiting for the day the country becomes a single unified market, ensuring seamless flow of goods across States. This will transform the structure of the supply chain infrastructure, particularly warehouses and distribution centres – the number of warehouses could come down but their size could go up. Eventually, it will reduce the logistics cost (estimates put cost of inefficiencies in the system at 2-3 per cent) and open up new growth opportunities.

If news reports are any indication, there is a renewed investor interest. Private equity investors appear to be bullish, as reflected in the recent IPOs of logistics firms. The improved sentiment was also visible in the stocks of logistics’ companies which gained after the introduction of the GST Bill in Parliament. Obviously, there will be fresh growth opportunities. As manufacturers re-work their logistics strategy, there will be demand for large green-field warehouses, cold storage and modern fleet to transport their raw materials and finished goods. There will be scope for third party logistics operators.

Yet, all are not that positive. Multimodal transport operators, key players who ensure seamless flow of goods, fear that GST could be a burden, at least initially, as the cost of tax compliance would continue to be high unless the scope of multiple interpretations of tax provisions is fully removed. Shailesh Bhatia of the Association of Multimodal Transport Operators (MTO) in India worries that the benefits of GST will be nullified by the cost of compliance, unless this ‘fundamental flaw in the tax administration’ is rectified. Another issue is that since petroleum products are not covered by GST, it could create a problem for MTOs operating in different States.

His fear may not be unfounded, given the experience of tax administration in India. There are thousands of cases in courts mainly due to multiple interpretations of provisions in tax laws. True, this could continue unless there is a change in the mindset of tax collectors. But what is more worrisome is the slow growth of transport infrastructure.

The highways development programme is fraught with various problems. Expansion of port capacity is stifled by disputes and litigations over tariff regulations. Cargo terminals at airports have inadequate facilities. Even if inter-State tax or entry barriers are removed, faster movement of goods cannot be assured unless there is an efficient transport infrastructure in place.

Many areas such as development of dedicated freight corridors, inland water transport service, coastal shipping and air-cargo terminals need attention. An efficient multi-modal transport system is a pre-condition for a unified market to operate effectively.

One cannot expect a completely flawless tax system overnight. The decision, though delayed, to implement the GST – the biggest tax reform since independence – from next April itself, needs to be appreciated.

GST will surely transform the landscape of the logistics sector. It is time for players to work out long-term growth strategy.

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