Government is incessantly coming up with ways to ensure an encouraging business climate in India and one of their initiatives is the GST, one of the biggest tax reform in Indian financial ecosystem, which strives to transform India’s multi-layered indirect tax system, into a single unified one. This in turn, liberates the nation from earlier bureaucratic snags, recuperating the ease of conducting business on a large scale. The changes proposed in this unique taxation system will reduce transportation cycle rotation, while enhance supply chain decisions. This will lead to consolidation of warehouses, helping the logistics and warehousing industry profit greatly.
As we know, Warehouses and logistics are an integral part of any organisations strategic business plan and operations. The warehousing sector acts as a catalyst in augmenting India’s manufacturing aspirations over the next decade. GST eliminates the entire chaos of stock transfers, posing as a boon to the warehousing industry and boosting general economy. With this, India is set to develop into a common market, free from any demarcation between the interstate and intrastate sales, ensuring a collective tax incidence with both the transactions being taxed on an equal scale. This comprehensiveness amongst warehousing turn impacts an important sector in hand- the Fast Moving Consumer Group or FMCG.
The FMCG sector of India comprises more than 50 percent of the food and beverage industry and another 30 percent from personal and household care, thereby spanning the entire rural and urban parts of the country. Distribution costs account from 2 to 7% of turnover for FMCG companies. Presently, the FMCG companies set up warehouses covering every state, engaging stock transfers amongst them, which in turn facilitate selling of goods to distributors locally. Under GST, local and interstate supply would be on a tax neutral ground, giving rise to a level playing field in favour of small start-ups. This would lead to India emerging as single largest common market, promoting opportunities for all sizes of organizations to capitulate on.
Incidentally, with GST into full effect, location of warehouses needs to be reconsidered. Many manufacturers have built their units in areas having tax holidays or incentives (Himachal, Uttaranchal etc.), an issue may not be relevant, post implementation. FMCG manufacturers using imported raw materials will have to revise their strategy, as imports would attract IGST and make the former less attractive, in comparison. Once the GST kicks, warehouses will gain market as manufacturer would invest more in directly selling from the warehouses rather than transferring to various outlets, in turn decreasing inconsistencies and eliminating the accumulation of unsold stocks. An increase in demand/supply will occur due to acceleration of customer expectations, in turn leading to better organized supply chains.
Also, well-organized treatment of larger volumes, owing to consolidated warehousing, would decree an amplified level of reliance on automation/ technology applications such as Enterprise Resource Planning (ERP) and Warehouse Management System (WMS). Skill set upgradation with increasing share of organized logistics setups will take place, leading to the ascension of demand for optimally experienced workforce across the supply chain ecosystem. This would enhanced the supply of skilled workforce, giving rise to a lowered level of unemployability and promoting further factions of skill development bodies to set up their bases .
Although, GST will be fundamental in streamlining tax procedures, its impact will only be understood after the announcement of the final draft of the GST law. With time, organizations would warm up to the implementation of GST, progressively utilizing it to bring semblance to the indecisive market. In spite of FMGC being the first to witness the impacts, its’ implementation would soon be widespread in invigorating the nation’s economy.
The article has been penned down by Niraj Hutheesingh, Founder Director, Cygnet