ROLLOUT OF GST - WILL IT GET THE GO-AHEAD THIS SESSION?

By Research Desk
about 8 years ago

 

By Ruma Dubey

The monsoon session has begun and the PM has been saying very optimistic things about the Bill getting through in this session. And about time too!

GST will come soon, one day for sure! Online retailing is the current “big thing” in India. Put both of these together and what do you get? Surely, logistic companies are set for some boom times ahead. A mere nod from the Cabinet for GST had sent stocks like Gati, AllCargo, Snowman, Gateway Distriparks, Container Corp and the entire pack soaring. Indeed they are looking at much better times, beyond being just oil containers. This universal, nationwide tax is expected to be much easy, lower and will ensure faster movement of goods and inventories, which in turn will mean more business for logistics companies.

There is as such tremendous activity in the sector with most companies ramping up capacities, scouting around for PE and strategic investors to take advantage of this tax. IPOs from TVS Logistcis and Mahindra Logistics are also being widely anticipated.  And there are already major bigwigs from abroad, like Japan's NYK , Nippon Express, Europe's FM Logistics, Rhenus Logistics, Panalpina and Damco which have started talking to companies to get into a formal tie-up. Yes, next few months could see a bevy of activity in this sector.

To a large extent, the logistic companies are also being driven by the surging demand in the e-retailers need to have more warehouses, more planes and more people to deliver on time. GST is most certainly a big reason but at the same time, online shopping is also changing the entire fabric of this sector. But the big question facing one and all – is India ready for the big revamp in logistics infrastructure?

When we talk about logistics infrastructure, we actually mean three things –

1: Transportation – includes road, rail air, sea, express, cold chain and project logistics.

2: Storage – includes godowns, warehouses, ports, container freight centers, logistics parks, inland container depots.

3: Services – includes freight forwarding, Third and Fourth Party Logistics (3PL / 4PL), courier services.

And as per those in the industry, over the next few months, we could see the biggest investments coming into express logistics, cold chain, modern warehousing, logistic parks, ports and 3PL/4PL. These are the areas where one should keep an eye out for news about some foreign fund picking up stake or strategic tie-ups.

When we talk about an overhaul in the entire sector due to GST, what exactly are we talking about? Or from a more specific market point of view, why exactly could the market celebrate GST? It is not just about more expansions and investments coming into the sector but there are quite a few others too who will stand to gain.  Logistics companies is a given but then there are others too who will bask in this “GST” glory.

Auto sector is expected to be a big gainer as duties under GST are expected to bring down the duty by almost half. In fact the auto sector will end up being the biggest beneficiary of GST.  Specifically in this sector, M&M, with its profile of multi vehicles – right from sports to tractors, would stand to gain the most.

Naturally, the retail sector will be a big gainer not just due to increased demand on account of fast transport and better logistics, but also due to overall tax rates coming down. Not to mention the big benefits of e-commerce which these companies will be reaping. Roll out of GST will also be a big leveler as it will now be able to bring India’s burgeoning unorganized sector into the tax gambit, probably for the first time ever. This will mean that those facing the stiffest competition from the unorganized sector – tiles, garments, beverages, FMCGs, footwear, leather, plywood, paints, adhesives, consumer durables sectors; all get an advantage finally. It will mean though that the small scale unorganized sector will go through some tough times, with the biggies gaining more advantage over the smaller ones.

And yes, the big losers will be alcohol, tobacco and petroleum companies as they are currently outside the purview of GST.

GST is indeed a game changer and it will change a lot of things in India, for the good. Probably we needed something like GST to overhaul our logistic infrastructure facilities. It’s a long uphill climb but at least we have begun the hike.

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