GST set to trans­form face of In­dian lo­gis­tics in­dus­try

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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.

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