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'There is a clear need for GST in the logistics industry'

Feb 22 2013, 19:26   |   By SME Mentor

Mahendra Agarwal, Founder & CEO, Gati Limited

Dear Mr Finance Minister

There are many lacunae in the logistics industry that need to be addressed but let me start with the biggest concern - service taxation. Currently, the taxation guidelines revolve around definitions and modes, dissimilar abatement rates and the ultimate liability of tax payment. This often leads to confusion among shippers and service providers.

The best alternative to this form of taxation is the introduction of GST, which is already pending with the government. We feel the impending regulatory reforms in GST taxation are favourable for the growth of the logistics sector. It would also bring down our overall costs significantly. GST would essentially simplify the tax structure and make India one single common market by eliminating state-specific barriers. This would benefit everyone.
 
How GST will help logistics

Let me explain, more specifically, how GST would stimulate the emergence of a true 'hub-and-spoke' system. In a GST regime, companies would be encouraged to set up large 'hubs' in key strategic gateway locations and smaller 'spoke' warehouses close to metro / urban consumption centres. These supply chain adjustments in product flows and the need for faster reach will result in express delivery being the preferred mode for secondary distribution.
GST would also improve our transit and, consequently, delivery times because state border crossings would likely be uncomplicated. Also, more customers would look at outsourcing their logistics functions to third-party logistics providers because of the input tax-credit mechanism.

Cold chains need more sops

We would also like to draw your attention to the cold chain business, Mr Finance Minister. Despite several government sops and the 'infrastructure' status it enjoys, investment in the cold chain business remains weak. India has a storage capacity of 31 million tonnes, which is short by around 25 per cent. With the opening of FDI in retail, the need for cold chain storage facilities is going to increase. To encourage investment in this segment, real-estate development will need more sops.

Regulatory body for logistics

In the last few years, the logistics sector has witnessed substantial FDI deals. The logistics segment is allowed 100 per cent FDI but the courier segment requires FIPB approval. As industry representatives, we look forward to easing of norms and quick clearance from the FIPB. Logistics, as an industry, contributes 13 per cent to the GDP but there is no regulatory body for the sector. We are looking forward to the constitution of such a body, one that will take a holistic view of all stakeholders.

Mahendra Agarwal is Founder & CEO, Gati Limited. Gati is a leading player in the express cargo delivery business and a pioneer in distribution and supply chain management solutions in India since 1989

As told to Gargi Banerjee

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  •  SME Messenger |   Feb 22 2013,07:03