Indian Logistics Industry

Indian Logistics Industry — Overview & Impact of GST. Logistics is the backbone of any economy. The Logistics industry in India is growing rapidly. Logistics is become important as it may lead to reduced operational costs, improved delivery performance and increased customer satisfaction levels, thereby making an organization more competitive in terms of cost, quality, delivery and flexibility. Logistics is important as it is the management of the flow of products from the place of their origin to the place of their consumption. Indian Logistics Industry is expected to grow at a CAGR of 8.6 percent between 2015 and 2020. The Indian logistics industry is complex and under developed. Logistics costs are high due to poor physical and communication infrastructure; high dwell time at ports; low levels of containerization; and a multi-layered tax system, interstate tax system contributing to significant delays at state border crossing points. Demand for logistics : Traditional growth drivers : 1. Export, Import cargo. 3. Manufacturing ( Mainly Textile & Automobile) New growth drivers : 1. Organized retail. 2. IT & Telecommunication. Elements of logistics cost. Segmentation of Logistics. Challenges of logistics industry in India : Transport related challenge * over saturated traffic on railway networks * High Rail freight tariffs * Poor terminals * Uncertainty of time * Poor road qualities * disintegrated transport sector Port Issues * Regular congestion at ports * High turnaround time * Inadequate facilities Poor state of ICDs & CFS Complex tax regime Technology related issues. Way Forward : Despite all the challenges & bottlenecks However the ray of hope is that perceptions seem to be changing. The reason behind the changing perceptions appears to be mainly that government seems to very aggressive & wants to revive the industry & economy. Recent Budget shows some government stances on improving infrastructure which improve India’s logistics sector. Some of the key measures are : • Enhance government spending on infrastructure to stimulate economic growth. • Focus on building roads, highways and rural infrastructure. • Focus on the maritime sector as an important economical route for bulk transport with initiatives, such as Sagarmala, • Focus on the development of inland waterways for passenger and freight transport to decongest existing road traffic. • Expedite development of existing projects in transport infrastructure especially highways, railways & other new initiatives. • Revive government and private investments, the policy measures announced for developing the transport infrastructure including initiatives such as Bharatmala, Sagarmala, inland waterway development, schemes for incentivizing coastal shipping besides other initiative and policy. Impact of GST. Goods and service tax is a colligation of multiple taxes levied by both Central (i.e, excise duty, countervailing duty and service tax) and state (Value-added tax, Octroi and entry tax, luxury tax, etc) governments when an end-user purchases goods or services. It means same level of taxation would be charged on a specific product or service across the entire country irrespective of being manufactured and sold in different states. The planned dual GST model (central GST and state GST) proposes to replace around 29 state and federal taxes and tariffs for a single tax at the point of sale. How GST will impact Indian logistics industry : The following table will explain how GST will reduce about 20% of logistics cost & will make Indian economy more competitive. Conclusion : The Indian logistics sector continues to evolve, improve with the changing business environment. It is poor as compare to developed & developing countries. In developed countries like the US, logistics costs comprising transportation costs account for 7% to 9% of the cost of the final product, warehousing cost accounts for about 1% to 2% and inventory holding costs account for about 3% to 5%. In developing countries, logistics costs are estimated to be higher at around 15% to 25% of the final cost of the product due to lack of adequate logistics system. In India, logistics cost is around 13%, comparatively higher than the developed & other developing countries. To stay competitive we need efforts from all the ends. From both government & private sectors. With spending on infrastructure & implementation on GST Indian logistics industry will surely transform. Also with the use of technology & so many tech based companies transport industry is also integrating. Which ultimately benefit our logistics sector & economy. The future is bright for logistics industry in India- the expectation is that a tipping point for the industry will soon be reached which will propel it to greater heights. I have tried to summarize it in simple language. Please feel free to share/comment, we can discuss more about this in comment section.