GST Can Lower Cost Of Logistics Industry By 20%: Care Ratings


Mumbai: Logistics industry is projected to grow at a compounded annual growth rate of 15-20 per cent between 2015-16 and 2019-20 that will get a further boost if GST is rolled out from this year, which can trim costs by 20 per cent, says a report.

The much-delayed GST rollout can help boost the GDP by 100-200 bps as this will help faster and cheaper movement of goods across the country with a uniform taxation structure, said a report by Care Ratings.

“Logistics industry is likely to clip at CAGR of 15-20 per cent during 2015-16-2019-20 and if GST is rolled out this year this can bring down the logistic costs by up to 20 per cent from the present levels,” it said.

Cost can also come down drastically as a one-nation-one-tax GST structure can massively reduce the long and winding queues at border check-points and other entry points within and between the states.

Another reason for lower logistics cost is that operators will be able to rationalize and restructure their warehouses and other logistical infrastructure.

Due to trade barriers such as the entry tax, local body tax, Octroi and other hurdles, trucks idle for 30-40 per cent of the day, leading to huge man-hour and fuel losses, says the report.

Since GST will be levied on goods transportation and full credit will be available on interstate transactions, logistic cost is expected to come down by 1.5-2 per cent of sales due to warehouse optimization and the resultant lower inventory cost.

According to a recent World Bank report, corporates can save up to 40 per cent of their logistic costs incurred at check-posts and toll plazas.

According to the report, the higher growth of the logistic industry will be driven by e-commerce, GST rollout, government focus on local manufacturing, the new national integrated logistic policy, and 100 per cent FDI in warehouses, food storage facilities etc.

But in spite of large potential, the industry remains entangled in complexities such as higher costs, a myriad of complex tax structures.

The logistic sector is primarily divided into four segments — transportation, warehousing, freight forwarding and value-added logistics.

The transportation contributes the lion’s chunk of 60 per cent of the logistic pie, followed by warehousing compromising industrial and agricultural storage at 24.5 per cent.

Packaging and other related businesses constitutes the rest of the segment.