Warehousing cost for consumer durables and FMCG is likely to reduce by 25-50 per cent mainly on the back of the implementation of the goods and services tax (GST) regime even as states like Haryana and Assam are set to emerge as new hubs, Crisil said in a recent study.
According to the rating agency, owing to the implementation of GST, consolidation and tax benefits, warehousing cost for consumer durables is set to halve, while that for fast-moving consumer goods (FMCG) would fall by 25-30 per cent.
Consequently, the number of warehouses for consumer durables company has could reduce to 10-12 from a typical 25-30 and to 30-35 from 45-50 for FMCG companies. However, the size of warehouses will be become bigger, Crisil said.
As for warehousing hubs, the five major ones including Mumbai, National Capital Region (NCR), Bengaluru, Hyderabad and Kolkata, will retain their importance being major consumption centres for both consumer durables and FMCG, while Assam and Haryana would emerge as new hubs.
“NCR is expected to see maximum warehousing consolidation as the distance between states is only 250-300 km, which can be catered to from a consolidated hub. Earlier, warehouses were there in almost every state within NCR to save on tax. Now, Haryana is likely to emerge as a consolidated hub, rather than New Delhi or Ghaziabad in that region,” Crisil Research Senior Director Prasad Koparkar said.
The rating agency opined Haryana would be preferred as a consolidated hub for consumer durables and FMCG rather than New Delhi or Ghaziabad as the former is one of the highest consumption markets within NCR and is less than 300 km away from other major markets such as Punjab and Delhi, and 350-450 km from Rajasthan, Himachal Pradesh and Uttarakhand.
Besides, Haryana’s central location in NCR, land availability, cheaper land costs, key consumption market and connectivity with the Golden Quadrilateral make it the preferred location.
“Guwahati will emerge as a hub for FMCG following extension of excise duty benefits in the north-east. Many FMCG companies have expanded their manufacturing facilities in the region because it is centrally located and equidistant to key consumption markets. But high land costs and narrow roads in Guwahati, which often causes traffic, could be an inhibiting factor,” Crisil Research Director Binaifer Jehani said.
Contrary to expectations, Nagpur is unlikely to emerge as major warehouse hub in the near term for consumer durables and FMCG due to GST, because currently it is neither a major consumption market nor a major manufacturing hub.
Despite being in central India, it is more than 800 km from major consumption markets such as Mumbai, Delhi (NCR), Bengaluru, Chennai and Kolkata.