India is a diverse country. Its diversity can be seen not only in its languages, culture, and religion but also in how products & services are taxed in the country. India has 29 states and 5 union territories with different tax structures and rates.
Tax structure had huge impact on deciding where companies need to set up their warehouses. It was not decided based on product market or supply chain optimization but to minimize the tax incurred in moving the products across different states.
Moving product from one state to another was like moving it from one country to another
But introduction of "Goods & Services Tax" (GST) System has changed rule of the game. There will be one tax across nation and all players will have same level field.
This is like bulldozing the boundaries across 36 small fields and merge them to provide one huge global field with immense opportunities for all.
We can say that warehousing industry is one of the sectors which will have maximum positive impact and GST can be proved to be a revolutionary step for the industry
GST will impact many aspects of warehousing industry
- It will lead to consolidation of warehouses across the country. It is assumed that a national company owns around 20-25 small - medium warehouses across country to minimize taxes in each state. Now companies will set up 6-7 high tech warehouses depending on their market and optimize the supply chain/inventory cost. Companies which were previously deciding their warehousing models on tax efficiency will try to adopt a more economical, demand-based hub-and-spoke model used globally.
- This will lead to more ultra-modern warehouses equipped with conveyors, RFID trackers & state of art warehouse management systems. The robotic systems of warehouse management will compete with the cheap labor force and will lead to gradual shift in automation of warehouses in India.
- There will be stiff competition between organized and unorganized warehousing section. This new tax structure will allow companies to move to more cost efficient optimized option rather than going for small warehouses for tax savings. The new ultra-modern automated warehouses will bring down the cost of warehousing, cost advantage that unorganized sector warehouses have will be challenged. This will either lead to unorganized sector going in joint venture with organized players to merge and develop modern warehouses or convert their warehouses for residential or commercial purposes.
- There will be huge investment in organized warehousing sector. Only 8% of Indian warehousing industry is organized. As explained above there will be huge demands for cost efficient warehouses, we expect there can be huge investment in same.
- There will be huge demands of warehousing in big cities and may effect adversely in smaller cities. Manufacturing, automobiles, pharmaceuticals, e-commerce will try to consolidate their warehouses in big cities like Mumbai, Delhi, Kolkata , Hyderabad, Bengaluru, Chennai. Also the cities in Central India will be hugely benefited as it will give better distribution option to companies to deliver their products in rest of India.
- This can lead to base expansion of many companies. As per the feedback received from some companies they will retain their current warehouses and will look to expand in other location so they are near to consumption center.
- Unorganised Warehousing the path Forward:Sooner or later there will be consolidation in this sector which will lead to redesigning of the operations along with changes in the physical infrastructure of these warehouses to catch-up with the demanding operational efficiency. Warehouse Management System along with other automation system will have demand and would pave the way of next revolution.
All said and done it will take minimum 6 months for the warehousing industry to come up in line with GST. It will depend upon the perfect execution of GST.
We hope it will revolutionize the warehousing industry and bring it at par with world standards.