India’s truckers on the road to brighter future as barriers fall
As we fret about the UK’S creaking motorway infrastructure and the spectre of mild chaos for road haulage after Brexit, we can at least cheer ourselves up by looking at India. For now. Until very recently a truck hauling tea from the gardens of Darjeeling to the 10 million-plus tipplers 932 miles away in New Delhi would take about 10 days.
By contrast, lettuces grown on farms around the horticultural hub of southern Spain routinely transit the 1,367 miles to the plates of London’s salad lovers in two to three days.
About 60pc of the journey time of an Indian truck is spent stationary. Logistics costs in India are 14pc of GDP compared to about 8pc for advanced economies.
What are they getting so wrong in India? The biggest culprit historically is India’s byzantine maze of domestic taxes. Differing sales and value-added taxes across India’s 29 states, including some city levies too, forced trucks to stop at multiple border checkpoints. Officials and tax inspectors routinely checked loads, waybills and other documents. Real or imaginary non-compliance exposed drivers – and therefore truck owners and businesses – to corruption and delay.
As trucks queued up for hours or even days, the border posts became townships in their own right. All manner of refreshments were available while drivers queued, paid up and awaited the nod of officialdom to allow them on their way.
These differing tax regimes hit companies hard. Take Emami, a market leader in niche consumer goods. It had to set up multiple warehouses and distribution hubs in different states. This meant raw materials might traverse the country to a factory with the best tax breaks in one state, only for finished products to come all the way back to be sold in bigger markets near where the raw materials were first sourced. The roadblocks and checkpoints had to be endured each way.
It also prevented companies from choosing logistically efficient locations that could service consumers across many geographies. In turn this added layer upon layer of warehousing, transport and distribution costs, to say nothing of the administrative and bureaucratic hassles involved in accounting for all these differences. Contrast this with the UK, US or Europe, where even the largest consumer companies concentrate their distribution hubs strategically – for example, Procter and Gamble has only six mega-distribution centres to service all 48 mainland US states.
But at last things have changed. In 2016 prime minister Narendra Modi’s government took a big step towards resolving this situation by passing the historic Goods and Services Tax Act, which modifies and harmonises state and central taxes and introduces a whole new regime of registration and compliance.
Its introduction will see the physical barriers to transit for most products replaced by an electronic collection of input and output taxes, which are then shared between state and central governments. The GST Act was launched at a special midnight session of the Indian parliament on July 1, 2017, so it is now more than a year old. It has not been the smoothest of transitions. It has involved an IT exercise of mammoth proportions with an estimated 10 million businesses registering for the new electronically administered tax. The barriers have been coming down, however, and the system is beginning to bed down.
Most significantly it has brought a huge number of businesses into the tax net, as failure to register makes it impossible to charge GST when you sell, or reclaim GST when you buy. The level of cash “leakage” in the economy (what we know as the black economy) has been reduced, and the Indian government’s tax take should rise, to say nothing of the huge cache of data this will create on economic activity throughout India.
The more recently introduced Electronic Waybill Act further reduces unaccounted-for transits and cash leakage as goods travel between states. Like GST, the initial implementation has been imperfect, but is improving.
Economists have estimated that in time the GST could raise India’s GDP growth rate by 1.5pc, while logistics experts suggest truck journey times will reduce by up to 20pc. Bypassing bottlenecks and consolidating warehouses should further improve transport efficiencies and reduce costs.
Haulage in India is not about to match the efficiency levels of the UK any time soon, but the direction of improvement is clear.
Emami and other consumer companies have focused on rejigging their distribution relationships first, and are now focusing on their supply-chain reorganisation, so the benefits will play out over some time. Consumers should benefit too as the GST laws restrict excessive profiteering from the new tax regime.
So now a truck driver from Darjeeling should have a much swifter journey to Delhi. Improved physical infrastructure will also help. As both GST and the expressway investment show, there are few smooth passages to Indian investment but, like a nice cup of Darjeeling tea, and with a potential market of 1.4 billion Indian consumers, it should certainly be worth the wait.
‘The Indian government’s tax take should rise, to say nothing of the huge cache of data this will create’