GST will lower product costs by 10-15%: TCI

Sonia: Hypothetically, if and when the goods and service tax (GST) bill does get passed what kind of befits will your company see in terms of supply chain, XPS division or freight or seaways in terms of the cost coming down can you quantify that for us in anyway?

A: Essentially, what has been studied that once GST comes about there should be a 10-15 reduction in cost of products. Now how will this come about? Essentially what will happen is - consider a company that has let us say five manufacturing plants all over India and today they have may be 25 warehouses virtually in every state because of the CST and essentially to save taxes.

So, the distribution matrix is 5x25 so there is a lot of movement going to these 25 warehouses. Once GST come about the taxation structure becomes common. So, you don’t need to necessarily have 25 warehouses. You will probably have warehouses closer to the consumption centers. Hence you might have closed to maybe 15 warehouses.

So, now your distribution matrix is changed from 5x25 to 5x15 so that has two major impacts. First – is that kind of warehouses that you would need would be much larger. Instead of 25 warehouses now you have consolidated that in to 15 warehouses which means larger space, more management, better visibility of inventory hence lower cost and better economies of scale.

Secondly, the movement that will happen between these locations would increase because volume is a same but it has now been concentrated into 15 locations. So, that movement would mean there is a hub-and-spoke kind of movement. That could be multi model; it could be by road, by rail, by sea so that you get better cost efficiencies and hence lower prices.

The other thing that will happen hopefully with GST is that the movement of trucks between the states should improve. We should have smoother movement; we should have faster movement and less waiting time at the borders. So, all of this will have a direct impact on companies like us.