From the point of origin to the point of consumption, the flow of goods is managed by the logistics sector, which comprises of transportation, warehousing, and some other services. The dependency on shipment alone is above 70% out of which road transport takes 60% of the load. At an average speed of 20-40 KmpH driving, 300-400 Kms per day around half a crore truck drivers hold the job of supporting this system. But wait, are these numbers right? In America and other developed countries, the same compared to almost 85 KmpH and 700-800 Kms per day. Undoubtedly, “America runs on wheels”.
A transport system is a lifeline for an economy. Manufacturing and retail sectors highly depend on it. For a developing country like ours, economic growth is directly proportional to the rate at which the flow of goods takes place. But the factors that we will discuss below obstruct that flow.
Problems Faced By Logistics Sector
- Firstly, administrative delays which are caused by procedural formalities by the various State borders check posts. Trucks have to stop multiple times for filling forms, have their documents checked, physical checking of their vehicles (often 4-5 times) and consignments by RTO and traffic police as well as to pay highway tolls and taxes (as reported by The Indian Warehousing Industry: An Overview, October 2013 – EY and CII Report). These formalities take hours and to top that they are not allowed entering into the cities before 10.p.m. Thus, if any unprecedented delays take place due to the formalities mentioned above, they have to wait for hours to get the next regulatory clearance.
- Secondly, non-administrative delays consist of breakdowns, criminal activities on the highways, etc. It’s a different story, and we won’t discuss it in this article.
Reasons For Implications On Logistics Sector
Traditionally, check posts were just for monitoring the movement of goods and preventing smuggling and illegitimacies. But, as the need arose, it transformed its purposes to support the State and Central governments by collecting revenue, through VAT, CST and ET, too.
While moving goods across the State borders, the goods carriers encounter various formalities and taxes which are not the same in all 29 States. There are multiple taxes which are not centralised as they are taxes imposed by the State. These cause a lack of procedural clarity and levy of taxes numerous times. These all add up to unnecessary delays and logistics costs, which decreases customer satisfaction and wastage of goods like perishables, among other things and making India’s logistics sector expensive, even though India is a country known for its low-cost services.
What do the traders and manufacturers do to avoid these costs?
They place multiple warehouses within a particular State to keep their inventories filled up to avoid the flow of goods multiple times across borders. But this causes strategic disadvantages, increases the cost of warehousing and decreases capital input per warehouse and thus, lacks technology integration. These end up making the logistic companies highly inefficient.
There are other problems such as, lack of exchange of information between the parties which incidentally leaves the parties unprepared for the deliveries. It has caused domination of unorganised players over these warehouses because of its highly scattered placement. But as the industry is proliferating led by e-commerce, initiatives like “Make in India,” 100% FDI on warehouses, national integrated logistic policy, etc. organised players are rapidly surfacing the sector. These players don’t tolerate such obsolete ways of business and are very quick in adopting modern technology and management systems to maintain speed and accuracy at which they deliver goods to their customers.
But still, these are not enough for the industry as there remain other external problems such as lack of technology implementation in the tax monitoring system and lack of a unified tax structure.
GST On Logistics Sector And Warehousing Sector
GST or Goods and Service Tax has dissolved the old indirect tax structure (such as VAT, CST, customs, excise tax, etc.).
GST on Logistics Sector And Warehousing Sector is applicable at the place of supply, thus, has phased out the burden of cost and delays at the check posts. The deliveries are quicker and increased in number. It has helped “Make India Great Again”.
- The lack of procedural clarity and multiple-taxation has been knocked off because of the unification of taxation.
- Due to the easement of cross-border transport, the warehouses are placed more strategically (closer to manufacturing/import/export locations, etc.). There is no need for multiple warehouses (in a State), and it has decreased the cost of inventory and increase control over them.
- GST on Logistics Sector And Warehousing Sector has increased transparency and accountability.