With Goods and Services Tax (GST) in effect, the Indian Logistics Industry (ILI) is engulfed by the wave of optimism as unified tax system is benefitting the industry by replacing multi-layered tax structure imposed by different 29 states.

Moving goods across the country prior to the GST was quite difficult because the complex tax structure was difficult and consumed a lot of time with paperwork hindering timely transit.

Indian Logistics Industry is expected to grow at around 8% (CAGR) to reach nearly US $198 billion by 2020. But with the implementation of GST and government’s one nation, one market, one tax concept, industry experts believe that ILI will accelerate further crossing the $200 billion mark by the end of this decade.

Benefits of GST in ILI:

Industry to enter in the era of hub-based warehouse: Earlier, to avoid state taxes, manufactures set up warehouse in consumer based states from where goods were delivered to distributors. But GST removed check-post from the state borders due to which manufacturers are now focused on hub-based warehouse in appropriate location. This will reduce transportation cost and optimize delivery schedule.

GST to organize the industry: The logistic industry in India is highly fragmented and one of the reasons behind this is the traditional tax structure. With GST in effect, the input tax credit proposal is expected to encourage small and unorganized firms to register with GST. This will drive unorganized sector in the main stream of logistics with improved service. Moreover, they are likely to tie up with established market players in order to tap into the growing opportunities unfolded by GST.

A strong stride towards technology: Technology is vital to drive this industry of more than US $150 billion. Automation of the sector will systematically manage both the areas—organized and unorganized. The fragmented firms are attributed to manual workforce resulting in high costs but introduction of new technology will restructure the entire industry as a unit, enhancing efficiency.

Lowering logistics costs: The implementation of GST is likely to reduce logistics costs by 20% and this will ultimately benefit customers as goods are delivered at lower price in comparison to pre-GST era.

Subarna Poudel is a researcher with Frost & Sullivan. He can be reached at subarna.poudel@frost.com

Sapan Agarwal drives content and marketing for Frost & Sullivan. Sapan is based out of Kuala Lumpur Malaysia and can be reached at sapan.agarwal@frost.com | +603 6204 5830