GST set to transform face of Indian logistics industry
India's greatest tax reform - replacing an array of provincial duties with a nationwide goods and services tax - is transforming the logistics industry in a country where moving stuff around is notoriously difficult to do, executives say. The advent of organized retail and e-commerce began modernizing warehouses in India a decade ago, but most firms still rely on musty, dilapidated "godowns", as storehouses are known colloquially. The unified tax system is expected to bring change on a far grander scale, removing distortions created by differential taxes and duty structures imposed across India's 29 states and 7 union territories. "When we moved from one state to the other, it felt like moving from one country to another," said Ramesh Agarwal, chairman of New Delhi-based Agarwal Packers and Movers. From July 1, the new Goods and Services Tax, or GST, introduced by Prime Minister Narendra Modi's government, will change all that, with the biggest tax reform seen since India won independence from British colonial rule 70 years ago. Companies that have previously based storage models on tax efficiency can move to the much more cost efficient, demand-based hub-and-spoke model used globally. Anticipating the change, Agarwal's firm, for example, has carved India into five regions and is setting up one massive warehouse in each. "There's no tax arbitrage to be gained. So decisions on manufacturing, warehousing and selling will be purely driven by the real costs of manufacturing and going to market, that is the single biggest advantage of GST," said R Subramanian, Managing Director at DHL Express in Mumbai. In the last two years alone, as Modi made GST a priority, these investors have put $1.5 billion in the warehousing business. "GST is not only a tax reform, it is also a business reform as a whole, and a lot of businesses are now restructuring their supply chains," said Rohit Jain, a partner with Economic Laws Practice in Mumbai.