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
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
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.
 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

0 2015 2016 2017 2018 2020 2021

TOTAL LOGISTIC
MARKET: REVENUE 120.4 132.3 145.4 159
FORCASTS AT 9.9% FOR
TOTAL
LOGISTICS MARKET
INDIA 2014-2017
FORE CASTED FOR
178.3 301.8
2020 AT 12.17
5 9
CAGR
TOTAL LOGISTICS
75.19
MARKET IN INDIA WAS
US$75.19BN, APPROX
6.2%

120.4 0

TOTAL LOGISTIC MARKET:

REVENUE

FORCASTS AT 9.9% FOR

TOTAL
2015

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.

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
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.
 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.

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 Currently, each of India’s 29 states Not applicable. Uniform taxation and
taxes goods that move across their no varying tax structures would be
borders at different rates apart allowed across states.
from that Corporate state tax of
2% i s levied for
inter-state goods transfer.

Nature of
the industry Current interstate taxation has
resulted in a large number of
unorganized players in this
industry.
Resulting in fragmented industry.
With the introduction of GST, there is
likely to be major consolidation in the
industry. It could see the
emergence of major large players who
can span the entire logistics chain.

Logistic Due to trade barriers such as entry
time taxes, local body taxes, OCTROI
and other hurdles, trucks l ie idle for
30 to 40% as per industry estimates
during their
delivery schedule.
Improvement in the logistic time after
phasing out the border check posts
resulting in improvement in operational
efficiency through quicker and increased
number of deliveries along with
reduction in logistic cost during the
transit. As per world bank estimation
Indian corporates can save upto 30-40%
of logistic costs incurred due to
stoppages at various tolls and check
posts.
Cost The existing interstate taxation GST tax will be levied on transportation
system has forced the companies to of goods and full credit will be available
create and maintain warehouses in on interstate transactions. Logistic costs
each state. Currently, there are are expected to be decreased by 1.5-
around 20-30 2.00% of sales on account of
warehouses per company, one in optimization of
every state, in warehouses leading to lower inventory
costs which
addition to this 20-30 Carry &
Forwarding agents per state making are set up across states to avoid paying
the supply chain longer and 2% corporate sales tax and phasing out
inefficient. of interstate sales tax.
There is immense 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.
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 5 OOO
PRODUCTIO 2000 5000
ADD: PROFIT 7000 2000
MARGIN MAFT. 840 7000
PRICE
ADD:EXCISE DUTY@12%
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
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
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
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.
 • 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.
  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.
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.
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
Scenario: A Intrastate Stocks
Transfer Sale

Margi
n Input Price Total Full
before Tax Price
Supply Lande d (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
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

Landed Margin Input Price Total Full

Supply Cost (INR) VAT before Tax Price

GST
Chain Point

(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.
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%

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 resu

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
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.
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
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
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.
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
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
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
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.
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.
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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