IMPACT OF 'GOODS AND SERVICES TAX (GST) ROLLOUT ON THE INDIAN

LOGISTICS SECTOR
Ashwathej Purushothaman
13jgbs-apurushothaman@jgu.edu.in
Saroj Koul
skoul@jgu.edu.in
Center for Supply Chain and Logistics Management
Jindal Global Business School, NCR, India
Abstract
Implementation of Goods and Services Tax (GST) would ease the movement of goods and
services across the states and reduce the cost of doing business. Less tax and fall in
transportation cost will also benefit e-commerce companies tremendously leading to higher
profits. GST rollout creates the opportunity for redesigning entire transportation networks
with global standards for ensuring high efficiency. This research will focus on how the 'Make
in India' campaign can reshape the future of supply chain and logistics sector with emphasis
on warehousing and transportation industry in the purview of the GST rollout in the country.
Keywords: Goods and Services Tax (GST), Supply chain, Logistics, Transportation,
Warehousing
Introduction
India trades around 7500-8000 products to 190 countries and imports around 6000 products
from 140 countries. India exported products worth US$310.3 billion and imported $447.9
billion in the year 2015 with a trade deficit of -137.6 billion (exhibit 1). India failed to
convert the trade deficit into trade surplus from the past years due to slow paced increase in
exports. This is due to various factors ranging from stringent laws, poor infrastructure, lack
of investments in manufacturing sector, lack of policy reforms, high cost of operation,
incompetent logistics sector and prevailing twofold tax structure. The country has an
enormous potential to be leader in global trade in the future if above mentioned problems are
addressed by involving all the stakeholders such as government, policy analysts, industries
and regulatory bodies.
The Make in India campaign is launched with the purpose of transforming India into a
manufacturing hub by facilitating foreign investments. It aims to raise manufacturings
contribution to the countrys GDP from 15 percent to 25 percent, endeavouring to be at par
with developing countries like China (31percent) and Korea (35 percent) [BCG-CII, 2014].
One of the crucial factors that have a direct impact on Make in India campaign is the
efficiency of the supply chain and logistics sector; influencing the supply of raw materials,
spare parts and finals goods. At the same time abolition of prevailing multilayer tax system
through implementation of Goods and Service Tax (GST) Bill is essential for logistics sector
to attain maximum agility, efficiency & effectiveness. Thus, successful implementation of

GST will promote logistic & manufacturing sector. As a result exports will raise and will
have positive impact on the domestic economy. The constant growth in the long run will lead
to trade surplus enhancing the overall economy.

Exhibit 1: Foreign Trade in India from 2001-2015 (in billion)

Year
Export
Import
Trade Deficit
2001

42.5

54.5

-12.0

2002
2003

44.5
48.3

53.8
61.6

-9.3
-13.3

2004

57.24

74.15

-16.91

2005

69.18

89.33

-20.15

2006

76.23

113.1

-36.87

2007

112

187.9

-75.9

2008

176.4

305.5

-129.1

2009

168.2

274.3

-106.1

2010

201.1

327

-125.9

2011

299.4

461.4

-162

2012

298.4

500.4

-202

2013

313.2

467.5

-154.3

2014

318.2

462.9

-144.7

2015

310.3

446.9

-137.6

1. Logistics Sector in India

India loses approximately 65 billion dollars per year due to inept supply chain process. The
key reasons behind the poor supply chain performance in the country from past decades are
poor & inadequate logistic infrastructure, warehousing facilities, poor packaging & IT
infrastructure, unskilled labour, twofold tax system, lack of investments & Public Sector
Partnerships, existence of large number of unorganized players and lack of integration among
the supply chain players. At the same time this sector also needs standardised enforcement
regulations throughout the country to eradicate unethical practices done by various supply
chain players.
Logistics sector has an enormous influence on the domestic and global trade of any nation.
This sector undertakes movement of materials, information & funds from one business to
another, or from a business to the final customer. Logistics consists of activities such as
transportation, warehousing, packaging, controlling inventory, order processing, material
handling, distribution, demand management & forecasting. Integration among all these
activities with state-of-art information technology is essential for creating a unified process
and the successful performance of logistic sector. Synchronizes of all these activities make a
supply chain and are considered as a part of the system.

The logistics sector in India has evolved drastically from being a labour intensive during 50s
to the existing technology oriented system. Conventionally, business organizations in India
managed their own logistics necessities in-house. The nation then steadily progressed from
the period where the business organizations outsourced their logistics necessities to focus on
their core competencies and overcome their problems caused by lack of investments in
advanced logistic technologies, skilled workforce & various other requirements. As a result
Indian companies started outsourcing transportation and warehousing to Third-Party
Logistics (3PL) service providers. With the growing demand, the 3PL providers started
undertaking integrated logistics services together with various other value added services
such as packing, labelling etc.
Currently logistics sector in India is growing yearly at the rate of 8-10 percent and is valued
at 6750 billion in India. But this sector is extremely disintegrated with substantial number of
unorganized players existing in the country (organized sector accounts for less than 10
percent of logistics market in India) [WTO, 2015]. As a result Indian logistic sector was
unable to transform into a vital contributor of a proficient supply chain system from the
previous decades. Indias trade logistics performance is ranked at 46 th position in the world
far below its competitors such as Mexico, Indonesia and Turkey [World Bank, 2014a]. Poor
logistic performance is also one of the reasons why India is ranked 130th out of 189 countries
in the Ease of Doing Business Ranking published by World Bank Group in 2016. The list is
topped by nations like Singapore which invests heavily on developing disruptive innovations
in their logistic management techniques and infrastructure. These involves designing of
pioneering logistic management models for enhanced management of inventory,
unconventional methods for controlling supply chain output and sophisticated information
technology to provide real time information related to supply chain for undertaking quick &
agile decisions.
Thus, efficiency, effective and agility in logistics sector are vital for overall cost
minimization, improving lead time & flexibility, ensuring quality & consumer satisfaction
and increasing the overall profitability as high as possible.
1.1 Indian Transportation Industry
Transportation is vital sub-function of logistics. It is responsible for creating place & time
utility in the supply chain management. The largest constituent of logistics cost is
transportation. Transportation contributes to 40 percent of logistic cost in India (exhibit 2).
Roads, railways, ports and airports are the major infrastructure requirements for efficient &
effective performance of the transportation sector in India. Even after having a huge
landmass of 3.29 million square km, the Indian transportation infrastructure consisting of
roads, railways, seaports and airports is very poor as compared with various other nations.

Exhibit 2: Elements of Logistic Cost in India

The transportation sector in India from the past decades has been a bottleneck in driving the
economic growth because of the poor infrastructure, lack of road connectivity & several taxes
levied at toll booths and inter-state check points throughout the country. At present there are
several taxes imposed by central and state governments in India. Taxes imposed by central
government are in the form excise duty, Central Sales tax, Customs Duty, Service Tax etc.
and then there are various state imposed levies in the form of Octroi, Value added Tax,
Entertainment Tax etc. This twofold tax system impedes productivity and growth.
Cargo trucks in India cover an average distance of around 250-280 km per day. It is less than
400 km per day which is the global average and far lower than 700 km, the distance covered
by truck in United States per day [World Bank, 2014b]. This sluggish transit of freight lead to
loss in productivity because 60 percent of the freight transit in India is done through surface
carriage - roads. This is because of poor connectivity & multi-level tax structure prevailing
in the nation rather than ineptitude of the logistic providers. The elongated waiting at tolls &
checkpoints for tax collection, paper works & impediment by the officials results in high
logistics charges, putting additional price burden on the consumers. Such inept and
inconsistent transportation systems have an adverse effect on the Indian exports. As per the
World Bank estimation of 2015, organizations in India can lessen the overall logistics
expenditure by 30-40 percent by abolition of several check posts and toll booths. These
elongated halts at tolls & interstate check points also spoil goods before reaching the ultimate
destination leading to loss for business organizations and logistics providers. Cold chain and
perishable cargo face a spoilage rate of around 20-25 percent due to long transit times.
Goods and Services Tax (GST) rollout would eradicate the predominant tax system and will
transform the nation into a unified market [GST (Bill), 2015]. As a result the transition time
of goods and services across the states will diminish and decrease the overall cost of doing
business in the country.
As a result transportation sector in India will emphasis on attaining efficiency, effectiveness
& agility rather than tax saving. Truck productivity would also progress by 12 percent if the

distance increases by 20 percent per day leading to overall improvement in logistics sector
[GST (Bill), 2015]. With GST rollout there would be surge in competitiveness of domestic
products and services in the global market due to fall in the cost of manufacturing as a result
of less transportation cost to the ports/airports leading to higher efficiency[KPMG-CII
(2010)]. This will have a positive impact on the export sector in the country. Less tax and fall
in transportation cost will also benefit e-commerce companies tremendously leading to higher
profits. Also, e-commerce companies will cut down their delivery charges which will benefit
the customers. In order to increase more efficiency the government must also build high
efficient rail networks solely for transportation of cargos across major cities and ports. Hence,
the transportation industry in India will witness an intense transformation with GST rollout
[KPMG-CII (2010)] as it creates the opportunity for redesigning entire transportation
networks with global standards for ensuring high efficiency.
1.2 Indian Warehousing Industry
In addition to transportation, warehousing is one of the crucial constituents of logistics
management as it ensures that commodities are appropriately handled, warehoused and
distributed. Warehouses in India are disseminated across several places with poor
infrastructure, obsolete technologies, space restraints, design, rodents, pilferage, unskilled
workforce and inadequate access to transportation leading to loss of goods. One-third of the
food production in India is written-off as per the estimates of UN Food and Agriculture
Organization due to poor storage facilities [FOASTAT, 2015]. Further, most warehouses are
public, controlled by the Government and not able to adjust to the demand. The absence of
private players is also a concern. Material handling is the essential part of warehousing
industry and contributes to major share of the total warehousing cost. In India, there is a
severe deficiency in this system in terms of equipment and technology, leading to
inappropriate staking, loading, storing and damage of goods. About 82 percent of the entire
warehousing space in the country is not mechanized and those which are mechanized are just
semi-automated with only forklifts and hydraulic pallet trucks. Implementation of advanced
Warehouse Management System (WMS), material handling, IT-driven solutions and skilled
workforce are necessary for increasing the competitiveness of the Indian warehousing
industry. An efficient warehouse can decrease 15-20 percent of the overall cost in the entire
supply chain process.
But warehousing industry is unorganized with disseminated
warehouses throughout the country and was unsuccessful in transforming the overall supply
chain process. India is one of the countries with lowest warehouse capacity furnished with
sophisticated technologies. The key causes impeding the development of warehousing sector
are cost & acquisition of viable land, obsolete technologies & nonexistence of mechanization,
lack of appropriate scale and quality, space & temperature constraints, pilferage, rodents,
unskilled workforce, dual tax system and archaic laws implemented by municipalities &
state as well as central government. As a result warehousing industry witnessed absence of
Public Private Partnerships and was also unable to attract Foreign Direct Investment for
infrastructural upgradation. Due to archaic laws and frequently varying guidelines it is
tremendously challenging to acquire land to build a warehouse at strategic hubs with state of

art infrastructure. The disruption between framing and instigating guidelines owing to the
absence of precise data & international warehousing standards is also a key concern.
A collective tactic is necessary between all stakeholders such as the government and its
agencies, policy-makers, corporates, investors; logistics service providers, raw material
suppliers and sellers to resolve this capacity deficit. The implementation of GST would
integrate the predominant smaller warehouses into a single large warehouse at strategic hubs
and few regional distribution hubs (hub & spoke model) with state-of-the-art infrastructure,
universal standards and skilled workforce which are not affordable in disseminated
warehouses. Decrease in tax burden and buffer stock would eradicate the need for smaller
warehouses. As a result the warehousing sector in India will witness the emergence of private
players with advanced technologies and state-of-the-art infrastructure.
1.3 Cold Chain
Cold chain market in India is projected to be grown at a CAGR of 16.09 percent by 2020 and
would be worth $ 8.57 billion as per the reports of Emerson. Refrigerated storage market
contributes to small market share in overall cold chain and is expected to grow at a CAGR of
15 percent in the coming 5-6 years. However the major contributor of cold chain market in
the country is refrigerated transportation market which is expected to nurture at a CAGR rate
of 17 percent in the coming 5-6 years. Indian cold chain industry is triggered by the rapid
growth of fast food industry, e-commerce, agriculture & food processing industries. Cold
chains has a crucial role in transition and storage of perishable vegetable, fruits, dairy
products & meat were continuous regulation in temperature is required as per the atmospheric
conditions. Cold chain in India accounts for 16 percent of warehousing & transportation
sector. Currently the country has approximately 6500 cold storage facilities with capacity of
32.68 MMT. But the country requires around 65 MMT. As a result, huge amount of goods are
damaged every year leading to huge loss. The overall loss is worth around INR 130 billion.
Cold chain sector in the country is extremely disseminated with more than 3500 companies
whereas the organized enterprises consist merely of about 30 players. The key reason behind
the substandard performance of the cold chain sector in the country is frequently interrupted
power supply as cold chains owners are unable to invest in adopting highly sophisticated
generators for the power back up due to lack of capital & high operating cost. As a result,
cold chain owners are inept to adjust the temperature as per the requirement. Various other
causes for the poor performance of cold chain sector include capacity deficit, untrained
operators, and poor layout design. The inferior cold chain deteriorates the quality of the
product and value. In the case of agriculture and consumable products, the deterioration in
quality may keep the health of the final customers at risk. Thus, profound understanding of
the temperature and humidity requirements is essential among the operators to sustain the
overall quality of different types of products.
2. Good & Services Tax
Current Indian tax system is very complex due to twofold structure with tax levied by central
as well as state government & municipalities. Central level taxes exists in the form of Central

Sales Tax (CST), Customs duty, Service tax, and Excise duty etc., and then the State level
taxes in the form of Value Added Tax (VAT), Entry Tax, Stamp duty, Land revenue, Luxury
tax, State excise etc., and then there also exist municipality tax in the form of Octroi. This
prevailing tax system has hindered the overall profitability of the business organizations and
logistic sector. As a result logistics companies had to build small and disseminated
warehouses across the regions where they do the trade to reduce the total cost by saving taxes
rather than attaining agility, efficiency & effectiveness. This restricted investments and entry
of private players into the warehousing sector with state-of-the-art infrastructure.
Goods and Service Tax (GST) rollout would empower India to transform into a unified
market place and would be a significant indirect tax reform in the country. Amalgamation of
numerous Central and State levies into a single tax would diminish the cascading or twofold
taxation in a substantial way. Existing tax burden on the consumers will also reduce by 25-30
percent. As per the governance system existing in India, GST would be levied simultaneously
in the form of Central GST and State GST. It will eradicate all other taxes existing in the
country from previous decades. As a result India markets will be more accessible, compatible,
synchronized with growth focused taxation system. Overall tax revenue will rise due to better
compliance. GST implementation will empower the supplier at each & every stage to set-off
the tariffs charged at former phases in the overall supply chain process. Thus, the final
consumers will have to bear only the GST charged by the ultimate seller in the supply chain.
GST rollout will lead to transformation of transportation & warehousing sector in India. New
strategic hubs will be located to build warehouses for empowering the transportation and
other logistics services across the country. The new taxation system would lessen the focus of
warehousing providers for saving tax through establishing smaller warehouses. Logistics
service providers will be able to operate in full potential to gain efficiency & effectives by
taking advantage of economies of scale. Implementation of GST would amalgamate the
smaller warehouses to form large & proficient warehouses at few strategic hubs with
ultramodern infrastructure, design and skilled workforce which are not possible in smaller
and dispersed warehouses. As a result, the logistics industry will witness entry of organized
players with focus on attaining agility, efficiency & effectiveness rather than reducing overall
cost by evading multiple taxes. Overall logistic system in the country will experience a major
transformation with change in procurement, delivery and warehousing techniques according
to global standards. The transformation in overall logistics sector in the country would
positively impact on the overall economy.
Initially GST might have a mixed effect on the Indian economy. Sudden increase in tax rate
on service industries with no immediate pass-through of lower tariffs on final goods to
consumers may lessen overall consumption rate and growth. Economy may also experience
minor growth in inflation at the standard rate of 18 percent but it will be a one-time effect. In
the long run, the economy will experience greater productivity by transforming the country
into unified national market. Unified tax system and abolition of inter-state hurdles will
ensure smooth flow of goods & services. It will boost growth rate through investments. As
per the recent reports of National Council of Applied Economic Research, GST

implementation will surge the growth rate from 0.9% to 1.7% while the Ministry of Finance
predicts an improvement of minimum 0.5 percent.
Therefore, GST implementation will reform the skewed logistics sector in India.
3. Make in India Campaign
India is a nation with vast natural resources. Labour is abundant and skilled as well as
unskilled labour is available easily with lack of job opportunities & unemployment among
the educated class of the nation. The rank of India is poor on the "ease of doing business
index". This is due to various regulations implemented by the central & state governments,
regulatory bodies & municipalities, poor trade infrastructure, lack of road and rail
connectivity, lack of investments & attraction of FDI, twofold tax system and non-conducive
labour laws prevailing in the country. This is one of the main bottlenecks hindering the
growth of manufacturing sector in India.
It is critical for India to transform the nation into a manufacturing hub with the emergence of
Asia as the major outsourcing destination in the world. As a result government of India
launched Make in India Campaign in the year 2014 with the objective of strengthening &
reviving the domestic manufacturing industries through attracting foreign investments into
the Indian economy.
Presently manufacturing sector in the country contributes just over 15% to the national GDP.
The vision of this campaign is to increase this to 25% contribution as compared with other
developing countries of Asia. The successful implementation of Make in India Campaign,
attract foreign direct investment, generate jobs, revive the service sector and transform India
into a global manufacturing hub.
Following are the 25 priority sectors identified by the Indian Government for attracting FDI
through Make in India Campaign:
Automobiles
Biotechnology
Defence manufacturing
Food Processing
Media and Entertainment
Pharmaceuticals
Renewable Energy
Textiles and garments
Wellness

Automobile Components
Chemicals
Electrical Machinery
IT & BPM
Mining
Ports
Roads and highways
Thermal Power

Aviation
Constructions
Electronic Systems
Leather
Oil & Gas
Railways
Space
Tourism and Hospitality

Logistic sector and unified market with GST rollout will play a major role in the success of
the Make in India Campaign. Logistics management is a vital part of business processes for
any manufacturing company, involved in the process of receiving, storing, and allocating raw
materials for use in production. Poor logistic infrastructure & connectivity is one of the main
reasons behind the mediocre performance of the manufacturing sector. Prevailing twofold tax

system further worsens the situation by causing delay in transition of raw materials to the
factories and finished goods to the final destination. Robust & agile logistics service is
crucial for manufacturing sector of India to attain elite position in the global trade.
Manufacturing has to depend on agile & efficient logistics service for making India a global
power in terms of exports and lessening the dependence on imports. These goods would be of
different types & categories and would require various logistical competencies to transit them
to the ultimate destination. Make in India Campaign will be a distant dream in the absence of
highly efficient, effective & agile logistics sector. As a result logistics sector requires constant
transformation to attain of growth for the Make in India Campaign to succeed.
At the same time GST rollout is also crucial as it will reduce the freight time by 30-40
percent and logistic cost by 20-30 percent. This would revive the manufacturing by 3-4
percent leading to progress in overall economy and increase in jobs.
Thus, transformation in logistic sector & GST rollout should go hand in hand. Post GST,
India supply chain industry must be prepared to redesign the entire logistics network &
connectivity from the viewpoint of trade to support Make in India strategy. The redesigning
of logistics network must unify the elements of transportation, warehousing, information
technology, well skilled workforce & logistic service providers. Otherwise the faults in
current logistic sector & network would become the vulnerabilities of Make in India
campaign.

4. Findings:
a) Prevailing challenges in the logistics sector faced by India are self-induced and are
not because of any geographical or terrestrial constraints.
b) Inland waterways & Free Trade Warehousing Zones are still in its nascent stage and
remain to be unexplored.
c) Due to existence of large number of unorganized players there is an absence of
accurate data regarding overall number of warehouses and transportation service
providers.
d) There is an absence of standardised national regulations in logistics sector in India.
e) Sophisticated & well interlinked transportation, warehousing, IT infrastructure &
unified national market will trigger economic growth and global trade.
f) Reduction in overall logistics cost due to GST implementation will make Indian
products more competitive at domestic as well as international market resulting in
trade surplus.
g) Technology will be a play crucial role in establishing robust logistic system through
facilitating overall coordination & collaboration.

h) Implementation of GST will be one the biggest fiscal reform in the Indian economy. It
will enhance the performance of logistics service thereby boosting the manufacturing
sector and will lead to successful implementation of Make in India Campaign.
i) Dedicated Freight Corridors and Golden Quadrilateral will be key growth drivers for
the Indian logistics industries in future if utilized with proper planning.

5. Recommendations
a) Clear road map for Make in India Campaign should be drawn for enhancing overall
performance manufacturing and logistics sector post GST period.
b) Uniform Nationwide Policies, Laws & Regulations should be implemented in the
manufacturing and logistics sector.
c) Advanced information technologies i.e. RFID should be adopted to increase the
visibility of the goods during transition and eradicate the possibility of theft.
d) Proper training programs have to be designed & implemented to address the current
skill gap in the Indian logistics sector.
e) Accurate data base regarding service providers, warehouses, vehicles, manufacturing
hubs etc. should be created to enhance the decision making in the logistics sector.
f) Government should relax the norms for acquisition of land for building warehouses at
key strategic hubs.

6. Research Limitations
This study will be carried out only by examining the secondary data published in journals,
magazines, newspaper, industrial & government sources, internet etc. More research is
required in quantitative terms for getting the detailed analysis.
7. Conclusion
The implementation of GST will witness the raise of organized logistics providers in
transportation and warehousing sector with global standards, sophisticated technologies and
well trained workforce leading to development in overall logistics and supply chain industry.
It will enable the country to realize its potential as an international trading hub leading to
success of Make in India campaign launched by Government of India.
Therefore Make in India campaign with GST implementation will play a crucial role in the
transformation of the presently struggling and fragmented logistics and supply chain industry
in India with lot of scope for supply chain innovations, reengineering of transportation
networks with less cycle time, consolidation of present and emergence of new warehouses
with state-of-the-art infrastructure. The sector will create numerous employment
opportunities in the country and witness high demand for skilled workforce.

8. References
a) BCG-CII (2014). Make In India: Turning Vision into Reality; CII 13th Manufacturing
Summit 2014. Online:
http://www.bcgindia.com/documents/file176705.pdf
(Accessed 25-December, 2015).
b) Government of India, Goods and Services Tax Bill 2015 - (GST Bill, 2015)
c) KPMG-CII (2010): "Report on Goods and Services Tax Survey: Industry expectations
and perceptions".
d) Poddar, S., and Ahmed, E., (2009): "GST Reforms and Intergovernmental
Considerations in India", Working Paper No. 1/2009-DEA, Department of Economic
Affairs, Ministry of Finance, Government of India.
e) World Bank, 2014
--2014a. Connecting to complete 2014: trade logistics in the global economy - The
logistics performance index and its indicators. Washington, DC: World Bank Group.
--2014b. The World Development Indicators 2014.
f) Food and Agriculture Organization Data sets (FAOSTAT) Online:
http://faostat3.fao.org/home/E (Accessed 1-January, 2016).
g) GST will significantly help develop cold chains: Ravichandran Purushothaman,
Business Today (13th May 2015).
h) Special report on One Nation, One Tax, The Times of India (4th August 2016).
i) The Indian Warehousing Industry: An Overview, EY (October 2014).

j) Transportation & Logistics 2030, PWC (2015).

k) Logistics in India, KPMG (2015).
l) Human Resource and Skill Requirements in the Logistics, Transportation and
Warehousing Sector (2013-17, 2017-22).
m) Report on warehousing in India, Study commissioned by the Warehousing
Development and Regulatory Authority, National Institute of Public Finance And
Policy (September 2015).
n) Warehousing In India - Changing Gears to Meet Future Challenges, The Dollar
Business.
o) Cold Storage Market in India 2015 2020, Novonous Intelligence Redefined (14th
July 2015).
p) The Logistics Sector in India: Overview and Challenges, Pankaj Chandra & Nimit
Jain, IIM Ahmedabad (March 2007).
q) Logistics in India: Challenges and Scope, S. Ramachandran, Mayur S Nakhava,
Kumar Pratik, International Review of Research in Emerging Markets and the Global
Economy (2005 Vol 1:Issue2).