GST Can Give a Push to Manufacturing and Logistics Sectors
Given the importance of the long-awaited Goods and Services Tax (GST) Bill for several key industries, its passage in this Budget season assumes greater significance than ever before, says Anuj Puri, Chairman & Country Head, JLL India, a leading market research analyst, who further feels that, the passing of the Bill will not only test the government’s management skills in both houses of the Parliament but also show its keenness in pushing economic reforms.
Over 20 years of experience in multi-disciplinary advisory and transactions ranging from real estate to social development projects, Anuj has expertise in planning, undertaking demand assessment studies and transaction services including marketing strategies based on technical analysis, feasibility studies, program requirement derivation and fund and investor sourcing.
Responsible for the overall direction, strategy and growth of the largest premier market research company in India, Anuj Puri currently oversees a team of over 4800 employees across 11 cities in India with an annual business turnover of over INR 800 crores.
Anuj speaks about the effect of GST on Indian economy, and benefits to manufacturing and logistics sectors. An excerpt...
How does GST help businesses grow particularly in manufacturing and logistics sectors?
GST can give a big push to the manufacturing as well as logistics and warehousing sectors, and has the potential to add 1-2 per cent to the country’s Gross Domestic Product (GDP) after a year of its implementation. Built into the value-added structure which would eliminate the cascading effect of tax-on-tax system, GST, by making compliances easy, will also improve tax collection and reduce the overall taxation levels.
According to a World Bank analysis, India is readying to scale up the Logistics Performance Index (LPI) further from its current 54th rank among 160 nations. Building efficient warehouses and improved transportation network are expected to help India improve its rank. Also, the advancement in technology aims to bring down the cost of logistics and warehousing.
Not only this would increase organized warehousing but also improve transportation lot size, reduce transit time, decrease the cost for logistics and manufacturers which will increases cash flow for them.
Will there be increase in the number of transportation and logistics hubs post GST?
GST will result in emergence of new hubs apart from the existing ones. We already have Chennai, Delhi-NCR, Ahmadabad, Mumbai, Hyderabad, Pune, Bangalore and Kolkata, all offer organized warehousing for manufacturers and logistics partners. Some of the emerging hubs which will bridge the gaps and increase the reach post GST for seamless transportation across India are Coimbatore, Belgaum, Bhubaneswar, Vijayawada, Goa, Jaipur, Kolhapur, Guwahati, Indore, Patna, Ranchi, Lucknow, Ludhiana, Nagpur, Vapi, Kanpur and Raipur.
What are the factors that decide the location of distribution centres?
Post GST, if any manufacturer has uniform consumer market/sales distribution and wants to build a single distribution centre (DC) to feed the entire country, the hub would be typically chosen near the country’s geometrical centre of gravity (CG). However, the market size and consumer demand of each product are very complex and different. Larger markets have the tendency to pull the CG toward it. In India, consumer demand is typically skewed more toward the northern, southern and western regions, thus the pull force of demand attraction shift the geometric centre away from eastern and little towards western direction.
What are the prospects of warehousing sector vis-à-vis GST implementation?
With the onset of GST, once the physical state boundaries lose their significance from the taxation point of view, supply chain dynamics would rule supreme for warehouse location selection. GST, once implemented, will look at re-engineering the supply chain architecture with fewer and larger strategically placed DCs along with smaller warehouses for daily milk runs.
Apart from harmonization of warehousing space, companies are also taking this opportunity to give high importance to operational efficiencies and safety standards in the new warehouses with the use of vertical racking, reach trucks, automated conveyor systems, fire sprinklers, hydrant systems, etc.
The emergence of high-tech warehouses has indeed complemented the growth of technology devices such as POS hand held computers, high range barcode scanners, and other supporting hardware and software. Thus, GST is expected not only to optimize the supply chain networks but also to bring in high-quality international standard warehouses in the Indian market and lead to emergence of new hubs.
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