GST Eases Ecommerce Logistics Ecosystem

The logistics industry in India is likely to grow at a rate of 9–10 percent over the medium-term, supported by underlying structural positives, rating agency ICRA said on Monday.

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While the key driving factor on the demand side would be the economic recovery, the trend towards outsourcing of non-core activities like logistics, warehousing and associated activities to integrated players is likely to drive the share of the organised segment, it said.

“The domestic sector is currently in a transformation phase with game-changing trends like implementation of GST, increasing focus by foreign investors across the logistics value chain, growing demand for end-to-end solution providers and emergence of new avenues such as ecommerce, logistics parks, cold chains and new startups.

“The government’s thrust towards building multi-modal transportation infrastructure is also likely to have a significant influence,” Subrata Ray, Senior VP and Group Head-Corporate sector ratings, ICRA, said.

“The logistics space in India is expected to grow at a rate of 9–10 percent over the medium-term,” the rating agency said in its report.

Enhanced Opportunities for Ecommerce Logistics

The GST implementation will have three major implications for ecommerce logistics — consolidation of warehousing network, shift towards a ‘hub and spoke’ model and ease of doing business.

  • Impact on warehousing

With only one Goods and Services Tax across the entire country, companies can achieve cost efficacy in their supply chain side of operations. The Companies can consolidate inventories at warehouses in strategic locations while reducing demand variation at specific warehouses thus resulting in efficient demand planning and inventory management.

  • Hub and Spoke Model

Logistics companies can now consolidate and streamline their warehouse locations from the point of efficiency in supply chain by adopting hub and spoke model.

  • Done Away with Multi-Taxes

Abdul Majeed Partner-automotive practice PwC India says that GST will remove the inefficiencies in the logistics sector by 15–20 percent. The industry was not efficient due to the multifarious taxes like service tax, VAT, octroi paid at check posts. With the uniform tax regulation applying across different states, ecommerce sector and related logistics service providers is poised to grow significantly.

GST has prevailed at a significant time when the logistics sector is at an inflection point. Going forward, one could see a significant part of the future growth of logistics driven by tech-enabled ecommerce firms.

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