News / India's logistics players ready to reap the rewards of simplified tax system

© Alexey Novikov

Reforms to business taxes have drastically altered the outlook for India’s logistics sector, creating the greatest potential for growth among emerging markets.

This was the finding of Agility’s Emerging Markets Logistics Index 2017, which asked more than 800 industry executives to identify the country with the most potential for logistics growth.

Introduced on 1 July, the unified Goods and Service Tax (GST) removed the need for operators to pay levies when crossing from state to state – Agility noted this could cut costs for the logistics sector by as much as 20%.

Agility’s report says: “The shift to a unified national tax has set off a wave of change in India’s notoriously inefficient logistics sector, as companies alter the way they store, move and account for goods.

“And it is already prompting logistics providers and their customers to consolidate warehousing, revamp road freight strategies and invest in system upgrades to improve supply chain efficiencies.”

Supply chain networks, it adds, will now be “operationally” optimised rather than tax-optimised, with a “drastic” centralisation of inventory expected, as well as a big cull in warehouses, but a significant increase in warehouse size.

Agility chief executive Essa Al-Saleh told The Loadstar the bureaucratic streamlining indicated that the country was trying to tackle issues surrounding transparency, poor infrastructure and trade barriers.

“Already the top businesses have begun complying with GST and are in a learning curve that will lead to the provision of better end-to-end solutions,” he said. “Companies are now unburdened of the need to require a physical location in each state they wish to sell in, and instead can have an India-wide footprint.”

Assessments by economists suggest that GST could ultimately lead to the country’s economy growing 4.2% larger than otherwise.

While the impact on GDP for port states is likely to be slightly higher – 4.4%, due to international trade liberalisation – non-port states are expected to see external trade increase by 43%.

This, the report says, will be due to declining costs involved with international trade. Conversely, port states are expected to see just a 30% increase in international trade.

It says: “Internal trade across India is predicted to increase by 29%. Together these figures illustrate what a boon GST is likely to provide for the logistics sector.”