MRP ON

IMPACT OF GST ON THE LOGISTICS INDUSTRY IN INDIA

2015-17

MBA( INTERNATIONAL BUSINESS) 2ND YR

GUIDED BY: SUBMITTED BY:

DR. Ekta Rokade ABHILASH HALDKar

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 CERTIFICATE

This is certifying that Mr. Abhilash Hadkar student of MBA 4 th

semester. Specializing in International Business has undertaken a project
entitled “IMPACT OF GST ON LOGISTICS INDUSTRY IN INDIA”.
“For the fulfillment and requirement of the degree MBA (full time) of
Devi Ahilya VIshwavidhayalaya, Indore for year 2015-17.

He is appreciated own his own sincere efforts in collecting the relevant

data. He has shown good potential in analyzing the same.

Dr. Ekta Rokade

School of Economics, DAVV, Indore

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 ACKNOWLEDGEMENT

I would like to take this opportunity to express my profound

gratitude and deep regard to my Dr. EKTA ROKADE, for her
exemplary guidance, valuable feedback and constant
encouragement throughout the duration of the project. Her valuable
suggestions were of immense help throughout my project work. Her
perceptive criticism kept me working to make this project in a much
better way. Working under her was an extremely knowledgeable
experience for me.
I would also like to give my sincere gratitude to all the friends and
colleagues who filled in the survey, without which this research
would be incomplete.

ABHILASH HALDKr
SOE DAVV, Indore
MBA VI SEM

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 TABLE OF CONTENT

S.NO CONTENT PAGE NO.

1 INTRODUCTION 4

2 REVIEW OF LITERATURE 9

3 RATIONAL OF THE STUDY 11

4 OBJETIVE OF THE STUDY 12

5 RESEARCH METHEDOLOGY 13

A NATURE OF THE STUDY 13

B STUDY AREA 13

6 CONCLUSION 42

7 REFERENCES 43

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Impact of Goods and Service Tax (GST) On
Logistics Sector in India
Abstract
Logistics sector plays a very significant role in the
development of our nation. The Indian logistics
industry is expected to grow steadily. But the logistics
costs in India are high when compared to developed
countries. This is primarily due to complex tax structure and poor infrastructure.
Currently the freight that moves across the country is taxed multiple times. So
this paper is an analysis of what the impact of Goods and Service Tax (GST) will be
on Logistics Sector in India primarily in Transportation, Warehousing and Logistics
Service Providers.
More than 150 countries have implemented GST so far.
Keywords: GST, Freight Forwarding, Logistics Service Providers

 GST: Goods and service tax “it would be a comprehensive indirect tax on
manufacture, sale and consumption of goods and services throughout
India, to replace taxes levied by the Central and State governments.”

 VAT: value added tax “indirect tax on the domestic consumption of goods
and services” charged by state government

 EXCISE DUTY: “is an inland tax on the sale, or production for sale, of specific
goods or a tax on a goods produce for sale, or sold, within a country or
licenses for specific
Activity”

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  CENVAT : “ Central value added tax ”

 MODVAT :”Modified value added tax”

Introduction
THE ARRIVAL OF GOODS AND SERVICES TAX
The Constitution Bill, 2011 amends the Constitution to give the central and state
governments the concurrent power to make laws on the taxation of goods and
services. The amendment allows for the introduction of a goods and services tax.
If Vat is a significant improvement over the local sales tax system, then the Goods
and Services Tax will be a major breakthrough towards a comprehensive indirect
tax reform in the country. Despite the success of VAT, there are still certain
shortcomings in the structure of VAT both at the Central and at the State level.
The GST at the Central and at the State level will thus give more relief to industry,
trade, agriculture and consumers through a more comprehensive and wider
coverage of input tax set-off and service tax setoff, inclusion of several taxes in
the GST and phasing out of CST.

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What is the GST? GST is a comprehensive indirect tax on manufacture, sale and
consumption of goods and services at national level. The GST is expected to
replace all the indirect taxes in India. At the centre's level, GST will replace central
excise duty, service tax and customs duties. At the state level, the GST will replace
State VAT.

How will it work in India? The GST system is based on the same concept as VAT.
Here, set-off is available in respect of taxes paid in the previous level against the
GST charged at the time of sale. The GST model has some aspects which are as
follows:

Logistics is generally the detailed organization and implementation of a complex

operation. In a general business sense, logistics is the management of the flow of
things between the point of origin and the point of consumption in order to meet
requirements of customers or corporations.
The logistics of physical items usually involves the integration of information flow,
material handling, production, packaging, inventory, transportation, warehousing
and often security.
Logistics Sector in India is highly fragmented. Due to increased industrial
activities, the India logistics industry has gained immense significance over the
years and a major contributor of Indian GDP.
The India logistics industry is projected to grow at CAGR of 15-20% during the
financial year 2016 tothe financial year 2020.The primary bottleneck in driving
economic growth of this sector is due to multiple tax charged by authorities at
interstate check posts. This results in high logistics costs putting extra cost burden
on the customers. The logistics costs in India is high (13 per cent of GDP) as
compared to developed countries (8-9 per cent of GDP).The India logistics sector
is primarily categorized into four segments comprising transportation,
warehousing, freight forwarding and value added logistics.
Transportation alone holds 60 per cent share of the logistics industry and rest 40
per cent is contributed by Warehousing, freight forwarding and value added
logistics.GST implementation will be a game changing event for businesses and
particularly for organized logistics players .

Experts have enlisted the benefits of GST as under:

• It would introduce two-tiered One-Country-One-Tax regime.

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• It would subsume all indirect taxes at the center and the state level.

• It would not only widen the tax regime by covering goods and services but also
make it transparent.

• It would free the manufacturing sector from cascading effect of taxes, thus by
improve the cost-competitiveness of goods and services.

• It would bring down the prices of goods and services and thus by, increase
consumption.

• It would create business-friendly environment, thus by increasetax-GDP ratio.

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Review Of Literature

Dr. R. Vasant hagopal (2011)2studied,“GST in India: A Big Leap in the Indirect

Taxation System” and concluded that switching to seamless GST from current
complicated indirect tax system in India will be a positive step in booming Indian

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economy. Success of GST will lead to its acceptance by more than 130 countries in
world and a new preferred form of indirect tax system in Asia also.

Ehtisham Ahmed and SatyaPoddar (2009)3 studied, “Goods and Service Tax
Reforms and Intergovernmental Consideration in India”and found that GST
introduction will provide simpler and transparent tax system with increase in
output and productivity of economy in India. But the benefits of GST are critically
dependent on rational design of GST.

Nitin Kumar (2014)6 studied, “Goods and Service Tax- A Way Forward”and
concluded that implementation of GST in India help in removing economic
distortion by current indirect tax system and expected to encourage unbiased tax
structure which is indifferent to geographical locations.

Monika Sehrawat, and UpasanaDhanda, “GST In India: A Key Tax

Reform” International Journal of Research – Granthaalayah: found that due to
dissilient environment of Indian economy, it is demand of time to implement GST.
Consumption and productions of goods and services is undoubtedly increasing
and because of multiplicity of taxes in current tax regime administration
complexities and compliance cost is also accelerating. Thus, a simplify, user -
friendly and transparent tax system is required which can be fulfilled by
implementation of GST.

Nishita Gupta Assistant Professor ,UNIVERSITY OF DELHI “Goods And Services

Tax: IT’S Impact On Indian Economy : Concluded that tax policies play an
important role on the economy through their impact on both efficiency and
equity. A good tax system should keep in view issues of income distribution and,
at the same time, also endeavour to generate tax revenues to support
government expenditure on public services and infrastructure development.
Cascading tax revenues have differential impacts on firms in the economy with
relatively high burden on those not getting full offsets. This results in loss of
income and welfare of the affected economy.
Business Line July3 2016- „Transport Corporation of India: En route to growth‟
The passage of GST bill, when it happens, can spur large warehouse related
investors by logistics providers to derive cost savings from route and warehouse
optimization. The joint study report of Transport

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Corporation of India and India Institute of Management, Calcutta on operational
efficiency of freight transportation by road suggests that government shall resolve
issues regarding GST with varies stakeholders to reduce the stoppage delays that
take place for documentation check and tax collections .

Girish Gang-2014- Basic concepts and features of GST in India- International

Journal Of Scientific Research And Management- vol. 2 ISSUE 2 PP 542-549
Introduction of GST would make Indianproducts competitive in the domestic and
internationalmarkets. This would instantly spar economic growth.

Decan Chronicle May 15, 2016

The ambitious GST would help the transport sector in improving its efficiency
besides reducing the logistics costs. GST will help the country in two areas-
logistics cost will come down and efficiency will increase both within India and
exports.

RATIONALE OF STUDY

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The ambitious Goods and Services Tax (GST) would help the transportation sector
in improving its efficiency besides reducing the logistics cost.

GST will help transport sector in two areas - logistics cost will come down and
two, efficiency will increase both within India and exports. If GST is properly
implemented, then it will have a double positive impact on the industry.

It has recommended transporters to understand how the new tax regime would
impact their businesses and plan their future strategy accordingly

. GST would help unify the market, lower incentive to use tax system loopholes,
widen tax base apart from improving the productivity of the overall economy.
Noting that medium and heavy commercial vehicle (M&HCV) industry in the
domestic market was very volatile, the size of the industry was expected to reach
3.42 lakhs units by 2020 from the present 2.33 lakhs units.

Majority of the growth will be due to the cargo segment which accounts for 84
per cent of the M&HCV industry. The M&HCV market has put a lot of pressure on
bottom-line of the Original Equipment Manufacturers (OEMs). "Therefore as the
market revives the OEMs should move away from discounting policy".

Objectives Of The Study

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Objectives of the study:

understand the concept of goods and service tax on Logistic & transport.

growth factor which affect the Logistic industry and its analysis.

over the current taxation system in India.

To evaluate the challenges of GST which Logistic industry have to face.

The objective of the study is to analyze the impact of GST on various sectors of
logistics such as warehousing, transportation and freight forwarding because
almost 70 percent of the total spent on logistics in India consists of
transportation, warehousing and freight forwarding.

Research Methodology

NATURE OF STUDY:

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Explanatory research: An exploratory research project is an attempt to lay the
groundwork that will lead to future studies or to determine if what is being
observed might be explained by a currently existing theory. Most often,
exploratory research lays the initial groundwork for future research.

It is based on secondary data of journals, articles, newspapers and magazines.

Considering the objectives of study descriptive type research design is adopted to

have more accuracy and rigorous analysis of research study. The accessible
secondary data is intensively used for research study.

STUDY AREA:
The study is limited to Indian logistic companies and dependent industry . Where
necessary will take the references of other countries taxation system .

DATA COLLECTION:
Secondary source of data will be used for my research like journals, articles,
newspapers and magazines.

Secondary data refers to data that was collected by someone other than the user.
Common sources of secondary data for social science include censuses,
information collected by government departments, organizational records
and data that was originally collected for other research purposes.

Concept of GST and how it work on Logistics & Transport

The indirect tax regime in India is not only complex (with multiple taxes applicable
on a business) but also widely seen to be inefficient and opaque. One of the
features of the current system is that taxes are non-creditable either due to
restrictions in the law or because there is no fungibility between central and state
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levies. Furthermore, as a result of multiple applicable levies, a tax payer engaged
in the manufacture of goods, sale of goods and provision of services has to
comply with payment, reporting and audit requirements under different tax
authorities.

Transport and logistics sector will gain from removal of multiplicity of taxes and
availment of additional credits. The GST input tax credit will be available across
the value chain and prevent tax cascading. The logistic services providers will be
able to offset their GST liability not only against the credit received on any
services consumed, but also on purchase of goods and capital assets. This will
favorably impact the cost structure and hence on profitability of the industry to
some extent.

It is understood that currently trucks lie idle for 30 per cent to 40 per cent of the
time during their delivery schedule due to trade barriers such as entry taxes, local
body taxes, octroi (which will get subsumed under GST). As per World Bank
estimation Indian corporate can save up to 30-40 per cent of logistic costs
incurred due to stoppages at various tolls and check posts (filing of entry permits,
compliances under Entry Tax laws and local levies will be done away with). It is
also anticipated that under GST regime, logistic time will substantially reduce due
to phasing out the border check posts. Clearly there would be improved
efficiencies due to reduction of trade barriers.

However, the fine print as per the Model GST law does not provide any clarity on
the removal of check posts related compliances and it is recommended that
representations should be made in this regard so that final law is suitably
amended enabling optimization of delivery schedules, lowering operational costs,
and consequently enabling competitive pricing.

As per the Model GST law there is yet another critical area where clarity is
needed. It relates to taxability of international freight. The place of supply
provisions for transportation of goods has been defined as the location of the
recipient, if the recipient is a registered person. If the recipient is un-registered,
the place of supply is where the goods are handed over for transportation. Under
the present regime, for transportation of goods by vessel, services provided for
the outbound movement of goods i.e. exports, have been zero rated, whereas
services provided for the inbound movement of goods i.e. imports, are subject to

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Service Tax. Further, for transportation of goods by air, the services provided,
whether for outbound or inbound movement of goods, are exempt from Service
Tax.

Under the Model GST Law, it appears that international freight (by air or sea) will
be subject to GST, so long as the recipient is located in India. Though zero rated
supplies have been defined in the law, the same has not been applied to
international freight. It is pertinent that a representation should be made to zero
rate international freight under GST, to keep the taxation of freight in line with
global practices, with the objective of facilitating international trade.

Additionally, representation should also be made that ancillary services used for
the export of goods be afforded the same treatment as international freight, i.e.,
zero rated. This will be in accordance with international practices adopted in
Canada, Singapore, the UK and the EU, for the treatment of services ancillary to
freight.

Currently, transportation services enjoy the benefit of abatement which is also

expected under GST regime. However, there is no clarity on taxation of petroleum
products which are major inputs for this sector Though Union Finance Minister
said petroleum products will be zero rated products and would be brought under
GST after approval of GST Council. Yet, it is pertinent that this sector obtains
clarity well before the GST is implemented.

GST will also bring in scale to logistics companies as there will be a lot of savings,
stoppage of wastage and lower delays, said ShashiKiranShetty, founder and
chairman, Allcargo Logistics Ltd

Top 10 Players in 2014

DHL , Bluedart , TNT Express , Agarwal Packers and Movers ,UPS ,FedEx,
DTDC ,Gati , Aegis ,All Cargo Ltd.

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 CONTRIBUTUON TO INDIAN LOGISTICS
TRANSPORTATION WAREHOUSE FREIGHT FORWARDIN VALUE ADDED LOGISTIC

5%

10%

25%
60%

TRANSPORTATION SEGMENTATION
2%

8%

ROAD
RAIL
30%
WATER
AIR
60%

SOURCE: CARE RESEARCH

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 TOTAL LOGISTICS MARKET ANALYSIS

350

300

250
REVENUE

200

150

100

50

0
2014 2015 2016 2017 2020 2009
TOTAL LOGISTIC MARKET: REVENUE
FORCASTS AT 9.9% FOR TOTAL 120.4 132.3 145.4 159
LOGISTICS MARKET INDIA 2014-2017
FORE CASTED FOR 2020 AT 12.17
178.35 301.89
CAGR
TOTAL LOGISTICS MARKET IN INDIA
75.19
WAS US$75.19BN, APPROX 6.2%

SOURCE: Cygnus Business Consulting & Research

Logistics growth life cycle
In 2009 the total logistics market in India was about Us $75.19 billion, representing
approx. 6.2% of the country’s GDP. The CAGR2009-2016 is 9.9% in current tax
system but after implementation of GST it is forecasted that CAGR will be 12.17 by
2020. In 2016 logistic contribution to Indian GDP was 15% after implementation of
GST it is expect that it will contribute to 17% in Indian GDP.

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Source: World Bank, Industry, PhillipCapital

As Indian logistics majorly dependent on road transportation and from above

chart we come to know that it is the costliest way of transportation i.e. Rs.1.5 per
ton per km.If we are talking about other medium of transport like Railway and
Coastal it will have low cost per ton per km (Rs.) which give indication to low our
transportation cost by road.
Scenario in Indian logistics

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Rail network: Lots needs to be done
Indian rail network is fourth largest after the US, China, and Russia. It is the
largest passenger carrier in the world. India has historically had sub‐optimal
investment in transportation. In the last 64 years, freight loading has grown by
1344% and passenger kilometres by 1642%, while railway capacity (route
kilometres) have grownby only 23%!

Major changes we expect:

Consolidation of warehouses
Industry players could consolidate their warehouses and set up larger facilities,
which would bring in supply‐chain efficiencies. Current supply‐chain models have
to depend more on tax considerations instead of the more logical operational
considerations. Tax rationalization is also likely to increase third‐party outsourcing
for logistics and lead to companies focusing more on their core competencies.

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Improved efficiencies due to reduction of trade barriers
With the removal of trade barriers, the downtime of vehicles (check‐post
inspection, filing of waybills/entry permits, compliances under entry tax laws, and
local levies) is likely to reduce. After GST, interstate movement of goods will be
subject to IGST, under which all movements will be ‘tax paid’. Additionally, the
GSTN will have an audit trail of the movement of goods across state boundaries,
which would lead to optimization of delivery schedules and operational costs of
transporters, resulting in competitive pricing.

Shift in sourcing and manufacturing decisions

Currently sourcing and manufacturing decisions are dependent on indirect tax
considerations. Under the GST regime, due to fungibility of credits, these
decisions will be made from a supply‐chain perspective – which will lead to
logistics hubs in new locations. Free‐flowing movement of goods across the
country would result in logistics players gaining larger volumes and nationwide
contracts from clients. To fulfil large and long‐distance consignments in the new
scenario, logistics players would need a significantly larger share of heavy trucks
(20+ tonnes); they would also need mini trucks for efficient last‐mile delivery.
Currently most logistics service providers have a large share of medium‐sized
trucks in their fleet and a very low share of large truck‐trailers or small trucks.

Ecommerce and Free Trade Warehousing Zones (FTWZ)

Under the present indirect tax regime, the ecommerce industry is facing
significant challenges in terms of VAT payments in destination states. Clear
guidelines on the taxability of ecommerce transactions would provide
much‐needed relief to the ecommerce industry. If GST extends benefits of
tax‐free supply to an FTWZ unit for onward exports, these units will be able to
attract significant volumes.

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Emergence of Multimodal Logistics Parks (MMLP)
The focus of logistics companies is shifting towards handling multiple cargos and
increasing the share of value‐added services. Leading players are setting up
Multimodal Logistics Parks (MMLP) instead of simple ICDs/CFS. MMLP are mainly
connected with rail network (for efficient handling of large cargo
parcels),container yards, and warehousing (with value added services such as
cross docking, palletization, inventory management, wrapping, packing, bar
coding and labelling).

The following table illustrates the expected benefits that Logistics industry
would derive post implementation of GST:

Pre GST Post GST

Interstate tax
burden Currentl y, each of India’s 29 s tates ta xes goods that Not a pplicable. Uniform taxation and no va rying ta x

move a cross their borders a t different ra tes apart s tructures would be a llowed across states.

from tha t Corporate state tax of 2% i s levi ed for

i nter-state goods tra nsfer.

Nature of the
industry Current i nterstate taxation has resulted i n a l arge Wi th the introduction of GST, there is likely to be

number of unorganized players i n this i ndustry. ma jor consolidation i n the industry. It could see the

Res ulting in fragmented industry. emergence of major large players who can s pan the

enti re l ogistics chain.

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Logistic time Due to tra de barri ers s uch as entry ta xes, local body Improvement in the logistic ti me a fter phasing out

ta xes , OCTROI a nd other hurdles, trucks l ie idle for the border check posts resulting i n improvement in

30 to 40% a s per i ndustry estimates during their opera tional efficiency through quicker a nd increased

del ivery s chedule. number of deliveries along with reduction in logistic

cos t during the tra nsit. As per world bank estimation

Indian corporates ca n save upto 30-40% of l ogistic

cos ts incurred due to stoppages a t va rious tolls a nd

check posts.

Cost The existing i nterstate taxation s ystem has forced GST ta x wi ll be l evied on tra nsportation of goods and

the companies to create and maintain warehouses i n ful l credit will be a vailable on i nterstate transactions.

ea ch state. Currently, there a re around 20-30 Logi stic costs are expected to be decreased by 1.5-

wa rehouses per company, one in every s tate, i n 2.00% of s a les on a ccount of optimization of

a ddition to this 20-30 Ca rry & Forwa rding agents per wa rehouses leading to l ower i nventory cos ts which

s ta te ma king the supply chain l onger a nd i nefficient. a re s et up across s tates to avoid paying 2% corporate

s a les tax a nd phasing out of i nterstate sales ta x.

There is i mmense scope for optimization of costs.

The rollout of GST, in India would dissolve the existing indirect tax structure, ie,
multiple taxes that is being split between center and state governments leading
to reduction of about 20% of current logistic costs.

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What impact GST will have on pricing of products as compared to current
scenario?
.

Let us take an EXAMPLE to understand this clearly

COMPARISION BETWEEN MULTIPLE INDIRECT TAX LAWS AND GST

PARTICULARS Without GST With GST

Rs. Rs.
MANUFACTURE TO WHOLESALER
COST OF PRODUCTIO 5 OOO 5000
ADD: PROFIT MARGIN 2000 2000
MAFT. PRICE 7000 7000
ADD:EXCISE DUTY@12% 840
TOTAL VALUE(A) 7840 7000
ADD:VAT@12.5% 980
ADD:CGST 12% 840
ADD:SGST@12% 840
INVOICE VALUE 8820 8680

WHOLESALER TO RETAILER
COG TO WHOLESEALER(A) 7840 7000
ADD:PROFIT MARGIN@10% 784 700
TOTAL VALUE(B) 8624 7700
ADD: VAT @12.5% 1078
ADD: CGST 12% 924
ADD: SGST 12% 924
INVOICE VALUE 9702 9584

RETAILER TO CONSUMER:
COG TO RETAILER(b) 8624 7700
ADD: PROFIT MARGIN 862.4 770
TOTAL VALUE (C) 9486.4 8470
ADD: VAT @12.5% 1185.8 -
ADD: CGST 12% 1016.4
ADD: SGST 12% 1016.4
TOTAL PRICE TO CONSUMER 10672.2 10502.8
COST SAVING TO CONSUMER - 169.4
% COST SAVING - 1.59

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Notes:· Input tax credit available to wholesaler is Rs.980 and Rs.1,680 in
case of without GST and with GST respectively. · Likewise Input tax credit
available to Retailer is Rs.1,078 and Rs.1,848 in case of without GST and with GST
respectively. · In case, VAT rate is also considered to be 12%, the saving to
consumer would be 1.15%. -
You can note that the tax paid on sale within state can be claim against tax paid on
sale outside state in GST system, which is not in present tax system.

The credit of CGST cannot be taken against SGST and credit of SGST cannot be
taken against CGST but both credits can be taken against IGST

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Growth drivers for the logistics sector

The major drivers for logistic players are implementation of GST for efficient tax
system, growth in retail and e‐ commerce, and a revival of water and rail
transport.
India’s logistic and warehousing industry presents a big opportunity – with growth
in consumption along with infrastructure and regulatory support from the
government. The Make in India movement and ease of doing business will revive
growth in the industry and in services, resulting in increased movement of goods
and services. We expect a significant pick up in investments in transport and
logistics ahead, with the government focused on reducing cost of logistics and
increasing the competitiveness of Indian exports.
Demand drivers are also affecting the need for logistics. The changing dynamics of
the retail industry has shifted the focus from supplier to consumer and delivering
products in less time is gaining importance. Retailers are now maintaining steady
flow of stock, as delay in the delivery of products could threaten their entire
business model. Focus is on real‐time inventory management and order
placement and retailers are becoming heavily dependent on smooth and efficient
supply management.

Rapid industrial growth: Rapid growth in industries such as automobiles,

Pharmaceuticals, fast-moving consumer goods (FMCG) and retail has significantly
increased the demand for movement of consumer and capital goods across the
country, from entry ports to manufacturing or distribution locations or from
Manufacturers and distributors to consumers and exit ports.
The volume of freight traffic is positively related to the GDP of the country.
Therefore, as the GDP increases, the volume goods’ movement is expected to
increase through all modes. During the period from 2007-2012, the agriculture
and manufacturing GDP have increased from US$ 263.6 billion toUS$ 290.7 billion
at constant prices. The corresponding increase in freight traffic was from 1.3
trilliontonne kilometres (TTK) to 2.1 TTK.

Globalisation: With the growing integration of India’s economy with the world,
the country’s total trade has grown at a CAGR of about 20 per cent from US$ 57

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billion in 1997-98 to US$ 862 billion in 2012-13.The initiative to construct a
trilateral highway connecting India, Myanmar and Thailand represents an
Important step in the establishment of connectivity between India and Southeast
Asian countries. The highway is expected to be operational in the year 2015-16
and is likely to boost trade ties of India with other countries.
The increase in international trade has effected corresponding growth in cross-
border freight traffic, thereby, adding to demand for logistics services.

Government initiatives: The Government of India has initiated several policy

measures and programmes to attract investments in developing the logistics
infrastructure of the country. Some of the key reforms undertaken by the
Government of India include the following:
FDI regulations: The government allows 100 per cent FDI under the automatic
route for all logistics services, except air cargo and courier services. For air
transport services including air cargo services, the limit was increased from 49 per
cent to 74 per cent in 2008. Also, FDI of up to 100 percent is permitted for courier
services, subject to Foreign Investment Promotion Board (FIPB) approval.
Greater investments in development of logistics infrastructure: The government
has significantly increased the investment allocated for the development of
logistics infrastructure including ports, airports, national highways, logistics parks,
freight stations and corridors.
Private sector partnerships: Several measures have been undertaken by the
Government of India to encourage private sector participation in the logistics
industry across all modes. These measures include increasing targeted
contributions of private players in the investments set aside for the development
of logistics infrastructure, tax exemptions and duty free imports. Apart from
speeding up capacity creation, this is also aimed towards incorporating latest
technologies and bettermanagement practices.

Streamlining indirect tax structure: The proposed introduction of the Goods and
Services Tax (GST) is expected to significantly bring down the total costs of the
logistics industry. At present, most companies have set up multiple small
warehouses of size 4,000-10,000 sqft across the country to save taxes on inter-
state movement. But with the implementation of GST, the need to have several
small warehouses is likely to be mitigated in favour of larger and consolidated
warehouses at strategic locations.

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 •Overall GDP growth, increased industrial activities and export‐import trade
•Make in india
•Ease of doing buisness
GDP

•• Logistics parks, SEZ, FTW

•Dedicated freight corridors for efficient rail movement
•Road network
•Developemt of water ways with coastal and inland waterways
Infra‐structure
•Development of regional transporation links in South Asia

•Inplementation of Goods and Service tax

•support from state and central governemnt
GST

•Increased FDI, entry of foreign players

•Increasing focus on 3PL activities and cost competitiveness
Organised •Ecommerce
structre

Outsourcing of logistics: The logistics industry stands to benefit from the

increasing trend of outsourcing the logistics and warehousing function to third
party service providers. This function was traditionally performed by the
organisations themselves. However, corporate entities recognise the benefits
associated in engaging a third-party logistics provider for integration of
information flow, material handling, production, packaging, inventory,
transportation, warehousing and often security. This allows corporate entities to
concentrate on their core business and also avail of significant discounts through
outsourcing.

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  Impact of GST on Warehousing

Warehouses are an important in the supply chain. growth in production and

organized retail, the major segment which contributes towards the Indian logistics
industry is the warehousing sector. A warehouse placed strategically not only
improves the levels of customer service but also reduces the burden on other
supply chain elements.
The implementation of GST will play a major role in the warehousing sector. The
current tax structure is quite complex – there are central level taxes in form of
excise, customs duty and Central Service Tax, and then the are varying state level
taxes in form of VAT and other levies like Octroi, state level Cess, etc. The
problem is that, state level taxes are applicable on top of central taxes. Which
means the manufacturer/supplier is paying taxes on taxes. Only way to avoid this
multi tax scenario is to create a state transfer between industry stocking points
within states.Hence, most industries - like manufacturing/third party logistics
players - generally have warehouses/offices in each state to reduce tax burden of
Central Service Tax (CST). Thus, planning is more driven by logic of saving taxes,
rather than achieving operational efficiency. So currently, most of the companies
operate with multiple warehouse strategy, having different warehouses in
different states, to avoid interstate taxes. With GST in place, India will become a
common market without any difference between interstate or intrastate sales. It
will allow companies tooperate a large central warehouse rather than operating
multiple warehouses. Hence, the companies will be forced to re-engineer their
business operations to leverage efficiencies of scale, locations, warehouses and
routes. The networks associated with warehousing and transportation hubs will
the impacted the most in the supply chain. The location of warehouses will
change to ensure proximity to manufacturing hubs or consumption markets. This
would allow companies to expand their existing warehouses, develop new
warehouses or indeed shut down several existing setups.

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Let‟s look at two scenarios that show how a consumer goods (CG) manufacturer
sells its goods to the distributor and how that impacts the location of the
warehouse in a non GST environment.

Scenario- A: Intrastate Stocks Transfer Sale

Let‟s assume a firm operates a warehousein another state and does a stock
transfer of its goodsto the warehouse before actually selling it to thedistributor in
thatstate. According to the current tax laws, this transfercarries no Central Sales
Tax (CST) since no sale hasbeen realized. In this case the VAT is applied onlyafter a
sale is made to a distributor using thewarehouse. Also, the VAT paid by the
distributor tobuy from the warehouse used as an input tax credit.

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Scenario- A: Intrastate Stocks Transfer Sale
Let‟s assume a firm operates a warehouse in another state and does a stock
transfer of its goods to the warehouse before actually selling it to the distributor
in that state. According to the current tax laws, this transfer carries no Central
Sales Tax (CST) since no sale has been realized. In this case the VAT is applied only
after a sale is made to a distributor using the warehouse. Also, the VAT paid by
the distributor to buy from the warehouse used as an input tax credit.
This scenario is shown in the following table.

TABLE-I
Margi
n Input Price Total Full
Scenario: A Intrastate Stocks
Transfer Sale before Tax Price
Supply Landed (INR) VAT Tax

Chain Point Cost (INR) (INR)

CS
(INR) VAT T

(INR)

Firm 400 100 0 500 0% 0% 0 500

. Warehousing 500 0 0 500 4% 0% 20 520

Distribu tor 520 40 20 540 4% 0 21.60 561.60

Retailer 561.60 30 21.60 570 4% 0% 22.80 592.80

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Scenario-B: CST Sales to Distributor
Let‟s assume the firm decides to sell its goods directly to the distributor located in
another state without holding in that state. In this case, the firm pays CST on this
interstate sale. The rest of the transactions in the supply chain remain the same.
TABLE-II
Scenario B- CST Sales to Distributor

Supply Landed Margin Input Price Total Full

Chain Point Cost (INR) VAT before GST Tax Price

(INR) (INR) Tax (INR) (INR)

(INR)

Firm 400 100 0 500 4% 20 520

Warehousing 0 0 0 0 0% 0 0

Distributor 520 40 20 540 4% 21.60 561.60

Retailer 561.60 30 21.60 570 4% 22.80 592.80

 Impact of GST on Transportation

GST will have double positive impact in transport sector in India. India moves by
road and time spent at interstate check posts due to difference in taxes between
states accounts to idle time (60% of total journey time) which will get eliminated
in GST regime. Hence, transport time would reduce by 30-40 per cent and
transport costs by 20-30 per cent leading to fall in prices by 3-4 per cent which
will, in turn, reduce costs for customers and logistics companies, making the latter
more efficient and profitable. Supply will also be able to match demand to a large
extent. With lesser paperwork goods will be transported faster, with far lesser
check points. Hence the ambitious GST would help the transport sector in
improving its efficiency within India and exports besides reducing the logistics
costs.

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 However, since petroleum products are kept outside the scope of GST
currently, and since nearly 50% of all goods transported is motor spirit, some of
the benefits of GST may not reach end customer.
 Impact of GST on Third party Logistic service providers (3PL):

Post GST implementation the 3PL’s would have to restructure its assets and
realign its operations in line with changes in the operations of its customers in the
new scenario. Currently, 3PL’s have warehouses located near major distribution
centers of its key clients (different industries) irrespective of its geographic
disadvantage mainly to avoid interstate taxes. However, post GST implementation
3PL’s are expected to build integrated warehouses at logistic suitable locations.
So accordingly, 3PL’s would have to restructure the assets to accommodate the
long distance consignments which will occur with this scenario of free movement
of goods across the country.
The consumer durables sector is expected to witness maximum drop in the
logistics costs as percentage of total sales, as their warehouses are built at
different states to avoid interstate tax. Mostly, the consumer-oriented industries
are going to have high impact of GST on its operations model rather than capital
intensive industries.
The following table shows the role of 3PL in India as compared with other
countries
TABLE IV

Role of 3PL in India

Countr y Logistics Role of 3PL

Cost/GDP
India/China 13-20% Less than 10%

US 9-10% 60%

Euro pe 10% 30-40%

Japan 11% 80%

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 2016 INDIAN LOGISTICS COSTS
TRANSPORTATION COST $BILLION Changes after GST
FULL TRUCK LOAD 278.8
LESS THAN TRUCK LOAD 63.7
PVT. OR DEDICATED 240.1
MOTOR CARRIERS 582.6
PARCEL 82.2
CARLOAD 60.8
INTERMODAL 19.9
RAIL 80.7
AIR FREIGHT 67.4
WATER 47.6
PIPELINE 29.5
SUBTOTAL 889.9 667.425

INVENTORY CARYING COST

OTHER(SHRINKAGE,INSURANCE,HANDLING) 128.2
STORAGE 141
FIN. COST(WACC*TOTAL BUSS. INVENTORY) 158.1
SUBTOTAL 427.3 410.208

OTHER COSTS
CARRIERS'SUPPORT ACTIVITIES 45.7
SHIPPERS'ADM. COSTS 45.3
SUBTOTAL 91 59.15
TOTAL INDIAN BUSS. LOGISTICS COSTS 1408.2 1136.56 result 19

SOURCE: SUPPLYCHAIN DIGEST

The total cost of INDIAN logistics was estimated at $1.408 trillion for 2016, up $30
billion or so in 2014 under the new calculation. A lot of elements go into that
number, from warehouses to trucking to pipelines, but as can be seen the three
main categories are inventory carrying costs, including the costs of warehousing
(30.3% of the total logistics spend in 2016), transportation costs (63.2%), and
administrative costs, mostly related to spend on freight forwarders and logistics IT
spend not otherwise captured in the other two categories (just 6.4% of the total).

Within transportation, trucking-related spend (including private fleets but

excluding parcel) comprise 65.4% of total transport costs and 41.3% of total
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logistics spend. Parcel was broken out for the first time this year as a separate
cost category, estimated at $82.2 billion in total, or 9.2% of transport costs and
5.8% of total logistics.

At $80.7 billion in 2016, rail comprises 9% of transportation spend and 5.7% of

the total logistics costs.
From above impact analysis we come to know that the transportation cost , ware
housing cost and freight forwarding charges is come down up to 25% ,4% and 30%
respectively. If we can make these changes to 2016 data we will get a imaginary
resulted data which gives us a idea that how much we can save in logistic cost
after GST implementation.
After making changes in the transportation, warehousing and freight forwarding
cost we get the new Logistic cost of India i.e $1136.56 bn which is 19.27% less
than the 2016 original cost incurred by Indian logistic.

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Current Issues and Challenges of Logistics industry in India
The logistics cost in India is high as compared to developed countries. This is due
to varies issues and challenges faced by this industry. Apart from being entangled
in complex tax structure, the key challenges of logistics are truck regulations, poor
infrastructure, trained, manpower, lack of training institutions and information
and communication technology poor warehouse and storage. In current tax
system goods move across the countries border at different tax rates. Due to this,
freight movement which happens within the country is taxed multiple times.
Moreover, there are long queues at interstate check posts, as the authorities
examine the freight which is moved and levy taxes which are applicable. Truck
delays amount to 6-7 hours of wait time at interstate check posts which includes
lot of manual work by the authorities. Since 65% of the freight in India moves by
road, it is a fact which leads to see the logistics experts to look into the GST as a
crucial area of concern in India.

Major Challenge -To sail the GST bill through the headwinds of political and
democratic embroilment:
The GST bill although has passed its acceptance through Lower House in May
2015 after religious deliberations, it is yet to be passed by the upper house of the
parliament (Rajyasabha). Post this, bill has to be passed through respective state
governments in state assemblies and it has to be ratified by at least 50% of them.
Once the bill receives approval from majority of the state assemblies, the
government has to arrive at a revenue neutral rate so that the implementation of
the proposed new tax structure will not have negative implications on revenues of
states and central. Furthermore, the government has to formulate the principles
for levy or exempt of the tax in the course of interstate trade with consistency
and relevancy the rules for ‘Place of supply’. After traversing through all the
aforementioned phases, once the draft GST bill is out, the Central government
has to compile all the views of the stakeholders and make an error- free and
uniform GST legislation.
The hurdles and milestones which the bill has to face and cross before it is
actually implemented is a tedious and time guzzling task at every stage of passage
lest there is drive to expedite the same.
Apart from above the success of GST depends upon robust IT network connecting
all the state governments, trade, industry, financial institutions, etc. The
development of real time business model by the special purpose vehicle in the

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name of Goods and service tax network (GSTN) promoted by Government of
India, various state Government bodies and non-Government financial
institutions plays a vital role.

Challenges Faced by Logistics Industry in India

1 Transport Related Challenges

In India road has become predominant mode of transportation of freight cargo.

Estimate of the modal movement of cargo highlights that in India nearly 60.2% of
the cargo is moved by road, 32.1% by rail, and rest by the coastal shipping,
airways and inland waterways. Pipelines constitute a very minor proportion.
Figure: 2

It is recognized that movement of long haul bulk traffic by road is less efficient
than by rail. But road is still preferred over rail because:
1. Important rail networks are over saturated- There has been little improvement
in the track infrastructure since independence. While route kilometerhas grown

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only at a CAGR of 3%, incorporating additional lines on existing routes has not
fared much better growing at a low CAGR of 6.6%. During the same period freight
and passenger traffic has grown at a CAGR of nearly 55%. This had led to most
high density corridors becoming oversaturated.
2. Rail freight tariffs are high- Indian railways follows a policy of subsidizing
passenger tariff by freight tariff. This has resulted in sharply rising trend in railway
freight rate over the years compare to little increase in passenger tariff rate. The
result of this has been that Indian rail\ freight rates have already become one of
the highest in the world.
3. Transit times are long and uncertain- Freight traffic is frequently subordinated
to passenger traffic on the railway network. This results in a freight train taking as
much as 6-8 days for a journey of 2000kms. Also there is no guarantee on the
transit time for freight trains.
4. Rail terminal quality is poor- Most rail terminals (goods shed) used for
loading/unloading of freight are antiquated. They also suffer from issues of access
and evacuation of traffic.
5. Less flexibility in carrying different types of products- Special wagons are not
easily available for carrying specialized products. For eg- Special types of steel
required for automobile production have to be carried by trucks as the existing
wagons do not offer the kind of protection that these high value products require.
6. Railway carriage not easy for industry which cannot provide full train loads-
Railways have a preference for customers who can provide full train load as unlike
in some other countries, railways in India no longer run mixed trains which can
carry different types of cargo due to operational inefficiencies.
While Road movement is preferred to rail, road movement has its own set of
challenges.
They are:
1. Road network coverage- Freight movement in India is dependent on national
highways.
While NH constitutes only about 2% of the road network of India, they carry 40%
of total traffic. As a result most of these highways are severely congested
resulting in freight travelling only a third of the distance compared to developed
countries.
2. Poor road quality- The road quality in India, on the NHs as well as the roads is
improving but is still poor in many locations. Estimates suggest that motor able
roads are still less than 10% of the total road network.

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3. Expressway network will take time to develop- In many developed countries
expressway s have been developed to facilitate high speed freight movement
through linking of important cities, ports and industrial centers. In India the
expressway network is still largely at a planning stage with a target of
development of around 15000Kms of expressway only by the end of 13th plan
period.
4. High level of fragmentation of the trucking industry- The trucking industry in
India is largely fragmented and in the hand of small truck operators. Estimates
suggest that nearly 70% of the truck owners in India own between 1-5 trucks. Due
to this there is fierce competition amongst operators leading to truck owners
resorting to overloading to recover investments.
5. Multiple checkpoints- Trucks in India have to pass through multiple check
points in their journey. Trucks have to stop at state borders, for payment of toll
taxes, for RTO inspections etc.

2 Issues of Port Sector

1. High turnaround times- Data from Indian ports association shows that ports in
India suffer from high turnaround times for ships. JNPT, the premiere port in
India, has more than two times the turnaround time of Colombo and Singapore
ports because of congestion on berths and slow evacuation of cargos unloaded at
berths.
2. Inadequate depth at ports- The depth at many ports in India is not enough and
dredging tenders take a long time in getting awarded. As a result with the existing
dates many ports are unable to attract very large vessels.
3. Coastal shipping has not taken off- Coastal shipping in India is hampered by
inadequate port and land side infrastructure which hampers large scale use of it
for freight movements.

3 Storage Infrastructures Related Challenges

In addition to the poor transportation infrastructure the storage infrastructure in

India also
needs significant improvement. Main reasons for this are:
1. State of ICD/CFS is poor- The ICD/CFS infrastructure available for EXIM trade
isinadequate. The land requirement for setting up ICD/CFS at an appropriate place
is difficult to come by as several hurdles have to be cleared in the consolidation of

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land. As a result many logistics companies with an interest in setting up ICD/CFS
eventually fail to do so. While it is difficult to set up a facility, at the same time the
existing facilities are plagued with severalissues:
- Many of the older facilities today are located within city boundaries restricting
day movement of trucks.
- The approach roads to the facilities are poor making evacuation of cargo
difficult.
- Most facilities have issues of inadequate parking, lack of available land for
expansion etc.
2. State of warehousing is poor- Various estimates put warehousing costs to be
around 10% of the total logistics costs. Despite this the state of warehousing is
largely dismal. On the warehousing front 80-85% of warehouses are traditional
with sizes of less than 10,000sqft. Most of these warehouses are not leak proof,
equipped with security systems, racking facilities etc. Majority of the operators of
these warehouses are also small to mid-sized entrepreneurs with limited
investment capacity, The only large warehousing owners are government
agencies including central warehousing corporation and state warehousing
corporations, but their focus is mainly on food grain storage. There is also
shortage of warehouses. This is because land availability for warehousing at an
appropriate place and at an appropriate price is a concern.
Table: 1

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3. State of cold storages is poor- Despite the significant requirement of cold
storages from the retail sector, pharmaceutical and chemical sector and the farm
sector, where it is estimated that up to 40% of the fruits and vegetables grown in
India gets wasted, receptor needs to grow much faster to meet the needs.
4. Multi-modal logistic parks yet to take off- With emerging requirements of
integrated logistics, provision of transportation hub, value addition etc. large
logistics park were sought to be developed. However as with other areas the
number of such facilities continues to remain much less than the requirement.
Consolidation of large land parcels is a significant issue hampering their
development. Other issues include the lack of recognition of the concept of
logistic park by government.

4 Tax Structure Related Challenges

A complicated tax regime places several challenges on the logistics industry.

Payment of multiple state and Centre taxes results in:
1. Considerable loss of time in transit for road freight in order to pay such taxes.
2. Fragmentation of warehousing space especially for low margin products
thereby providing a disincentive to create a large integrated warehousing space. A
uniform tax structure to be introduced through the GST is being highlighted as the
panacea for the existing situation. If implemented in spirit GST will enable logistics
services to be provided without consideration for ex boundaries.

5 Technology and Skills Related Challenges

The logistics industry is also hampered by low rates of technology adoption and
poor skill levels. On the technology front the industry now seems to be paying
serious attention with use of RFID, vehicle tracking technologies, warehouse
management system etc. While acceptance is perhaps is not an issue anymore,
the marriage between IT and domain requirement needs to be resolved.
Automation in processes is still only in its infancy. Further progress is dependent
on a certain level of standardization which is made more difficult by the
fragmentation in the industry. This drawback needs to be tackled at the earliest.
In addition to the technology related issues the skill levels of in the logistic
industry also require to be upgraded urgently. As now courses focusing on logistic
industry remain few and far between. Also logistic industry is still not looked at as

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the industry of choice for young graduates thereby making hiring of quality
professional manpower challenging.
Some of the skills required in this sector are technology skills, driving skills
including safety procedures, industry understanding and multi operator’s skills.

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MAJOR FINDINGS

 After making GST changes in the transportation, warehousing and freight

forwarding cost we get the new Logistic cost of India i.e $1136.56 bn which
is 19.27% less than the 2016 original cost incurred by Indian logistic

 As Indian logistics majorly dependent on road transportation and from

above chart we come to know that it is the costliest way of transportation
i.e. Rs.1.5 per ton per km.

 . In 2016 logistic contribution to Indian GDP was 15% after implementation

of GST it is expect that it will contribute to 17% in Indian GDP.

 The good and services become cheaper because of input credit available at
the whole supply chain process.

 Infrastructure is not adequate to boost rapidly logistic sector after

implementation of GST, it will take time.

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Conclusion

From the above analysis it is clear that the implementation of GST will have a
significant impact on logistics sector in India. If GST is properly implemented, then
it will have a double positive impact on the logistics industry that is logistics costs
will come down and logistics efficiency will increase both within India and exports.
So the main objective of logistics management, that is customer satisfaction at
least logistics costs, will be achieved with the implementation of GST. The GST
implementation will also leads to emergence of organized service providers since
taxes will not be added costs for the business. In the current scenario the logistics
sector is a highly fragmented industry with very few large organized players. The
unorganized sector would have to shape up and join hands with the organized
players for setting up economies of scale.

In a nut shell, the successful implementation of GST could reduce transportation

cycle times, enhance supply chain decisions, lead to consolidation of warehouses
etc. which could help logistics reach itspotential in terms of service and growth.
So it will be great boom for the logistics sector which leading to accelerated
economic growth.

GST has the potential to accelerate growth in the logistics industry. However, its
complete impact can only be understood after the announcement of the draft
GST Law and Rules. Nevertheless, GST is still the change the logistics industry is
eagerly awaiting as overall, the positive impact of GST far outweighs the
disadvantages for this industry.

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REFERENCE
Monika Sehrawat, and UpasanaDhanda(2015):, “GST In India: A Key Tax
Reform” International Journal of Research – Granthaalayah, Vol. 3, No. 12(2015):
133-141

The Empowered Committee Of State Finance Ministers (2009), First Discussion

Paper On Goods and Services Tax In India, November 10, 2009.

Nishita Gupta[Year - 2014], Goods And Service Tax: It’s Impact On Indian
Economy, Volume 5 Issue 3

Juhi Khan (2016) _ LinkedIn, How can GST impact on Logistics Industry in India

Jones Lang LaSalle Property Consultants (India) (2015),Indian logistics - Taking

giant leaps forward.

Dr. R. Vasanthagopal (2011), “GST in India: A Big Leap in the Indirect Taxation
System”, International Journal of Trade, Economics and Finance, Vol. 2, No. 2,
April2011.

EhtishamAhamad and SatyaPoddar(2009), “Goods and Service Tax Reforms and

Intergovernmental Consideration in India”, “Asia Research Center”,LSE, 2009.

Nitin Kumar (2014), “Goods and Service Tax in India-A Way Forward”, “Global
Journal of Multidisciplinary Studies”, Vol 3, Issue6, May 2014.

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