JLL, India’s largest real estate services firm, in their latest report, note the impact of Goods and Services Tax (GST) on the warehousing and logistics sector in India. The report says that GST is playing a pivotal role in boosting both the Hub amd Spoke model as well as the growth of the Multi-Modal Logistics Park (MMLP). As a result of which, India will see over 20 percent CAGR in warehousing and will have approximately 25 new MMLPs in the next few years.
The report, launched during the 8th India Warehousing Show 2018, says that GST has provided a great leap forward for the sector in India. The advancement in technologies and infrastructure, along with Government’s support through policy initiatives has paved the way for positive improvements. In the early stages of evolution, India is showing tremendous potential for development which can be seen in its improvement in global rankings as well.
The report estimates that warehousing space in India will increase by 112 percent by end of 2021. Of the same, Grade A warehousing space is expected to grow by over 170 percent while Grade B will grow by approximately 85 percent from 2017-2021. The growth of Grade A warehousing space will be a direct out com of the implementation of GST as it blurs out the boundaries for set up.
The most prominent impact of GST on the warehousing sector as identified by JLL India are as below:
– Hub and Spoke to Rule: Organizations will now be able to explore a different distribution model from the traditional carrying and forwarding (C&F) distributor based models. Growing demand for Larger Hubs/ Regional Distribution Centre as well as Smaller ‘Spoke’ warehouses.
– Consolidation: Post GST, the focus would shift on efficiency rather than tax saving through smaller warehouses. Companies to re-structure their warehousing portfolio to bring in larger and ‘supply-chain’ efficient warehouses, typically built to their specific warehouse requirements.
– Quicker Supply: State-border check points for scrutiny and location based tax compliance, which accounts for almost 60 percent of a truck’s transit time, can hugely reduce, thus quicker supply.
– Efficient and Larger Warehouses Efficient warehouse management is expected to boost the sector as the warehouses are expected to have ‘economies of scale’ thus increasing Per Cubic Metre storage efficiency of warehouses.
– Larger Investments: Warehousing developers investing in larger logistic parks and buying land at strategic locations.
– More Organized Logistics Players: Existing organized warehousing developers can expect significant increase in demand. More organized players are expected to enter the sector.
– Reduced cost to customers: Reduction in tax cascading may lead to lower cost of production and distribution which can be eventually passed on to the consumers.
Ramesh Nair, CEO and Country Head, JLL India said, “Implementation of GST has had a positive effect on warehousing activities in India due to diminishing state boundaries and has made way for cost and operationally efficient Hub and Spoke Model. Further, the Government’s support through policy initiatives like establishment of logistics division, granting Logistics an ‘infrastructure status’ and establishment of MMLPs; is paving way for positive improvements and boosting the growth of the logistics industry. The warehousing sector is expected to grow at an average CAGR of over 20 percent in the next three years (2018-2020).”
Ramesh further added, “Implementation of GST has shifted the end user demand and developer supply from inefficient, low quality redundant warehouses to large box, good quality Grade A warehouse.”
In an earlier report JLL India had estimated that close to Rs 45,000 crore will be invested in creating storage facilities across India from 2018-2020. In these three years, different categories of warehousing will also create jobs to the tune of 200,000 at different levels of specifications and specialisations.