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Construction : Interview | September 2015 | Source : Infrastructure Today

GST will be a game changer

The implementation of GST will change the way supply chains are operated by most companies in the country. There will be a need to establish larger and more integrated warehousing operations and end-to-end solutions, says Vikas Anand, Managing Director, DHL Supply Chain India.

Do you think the business climate or status of ease of doing business in India has improved since the start of the Modi Government?
India is a burgeoning economy and is emerging as one of the world´s leading markets. It expects to sustain strong growth over the coming years and strives to become one of the top three economies in the world by the middle of the century. The current government has been in power for about 15 months and is showing signs which indicate that it is very keen that India reaches its potential at the earliest. We see a lot of interesting proposals, like labour reforms and commitment to build ten thousand kilometres of highways this fiscal, being put forward by the government. These are positive steps being taken in trying to create a favourable environment for the industry to thrive and entrepreneurship to grow.

However, we still need to wait and watch. We are optimistic that in the next three years or so we shall see a proper roadmap taking shape which will set India on the path of long-term, sustainable growth. We are looking forward to the success of the ´Make In India´ campaign as well.

Around 13 per cent of the GDP is spent on the development of the logistics framework in the country. Despite this, the growth of the sector has been dismal. Can you state the reasons for this?
The logistics sector will play a major role in India, growing at over 10 per cent in the future. Connectivity and convenience will be the key to building greater sustainability and robustness in the economy. The industry can be seen working hard on mitigating the circumstances it finds itself in due to systemic and infrastructure related deficiencies. The central government has made efforts to build infrastructure, but the gestation period is very long. Till we evolve with faster and more efficient ways to address the lack of infrastructure, India would have to ride the wave and innovate in terms of addressing logistics and supply chain inefficiencies.

There are several reasons for the high spend on logistics in our country, as a percentage of GDP. Logistics and supply chain is a highly disorganised industry in India. The condition of roads, the road network itself, and vehicles (a large majority of which are owned by single individuals) that are not fuel efficient add to the supply chain cost. Everything from a shed to a godown to large storage facilities are considered to be ´warehouses´. More so, due to the current taxation structure, multiple warehouses exist, creating several points of stock transfers, leading to inefficient distribution channels.

Despite having a network of roads, rails, over hundreds of airports, 13 major and 200 non-major ports, what are the factors due to which the sector has not been able to provide the last mile connectivity? What should be done to achieve it?
Infrastructure development will be the cornerstone if any economic growth India is to be witnessed in the future. Logistics infrastructure, covering road, rail, waterways, and air network, will be the backbone of the economy. An ideal situation would be to have the adequate infrastructure capacity, riding on which the various modes could form a logistics chain for seamless flow of goods and services.

However, as stated above, what we currently have to make do is a highly unorganised and fragmented logistics and supply chain industry, which is undergoing consolidation at a rather slow pace.

To start off with, we could have a uniform tax that will help India become a hotspot for manufacturing, reduce the cost of production, lead to consolidation of warehouses, increase synergies in the supply chain, leading to reduction in costs and greater investment into ancillary services which would support last mile connectivity.

Why does cold chain, one of the highest growing markets, constitute a minor proportion to the growing logistics industry in India?
Cold chains have their own challenges. In India most of the cold chain development that has happened over the last couple of decades has happened at a Capex far higher than in most parts of the globe. Cold chains are capital-intensive, have high operational costs, and require trained manpower, both in terms of warehousing as well as transportation; the various logistics bottlenecks also contribute to the inflated cost to the consumer.

However, in the last five years, with regulatory changes and the development of the FTZ and road infrastructure getting better, cold chains are seeing a revolution in India.

As the clinical trials increase and organised retail catches on, cold chains will deliver sustained value to the customer and will become a critical part of the supply chain.

What would be the impact of Goods and Service Tax (GST) Bill for the warehousing and logistics industry?
GST will be a game changer for business and for players in the logistics and supply chain industry. The implementation of GST will change the way supply chains are operated by most companies in the country as it will bring upon the need to establish larger and more integrated warehousing operations and end to end solutions. These, in turn, will require more advanced IT solutions, larger and enhanced infrastructure along with better trained staffû both blue and white collar.

To what degree has the ´Make in India´ campaign helped the sector to achieve growth? In the future, how will it help to generate the momentum for the sector?
´Make in India´ is a great idea, a campaign which has been aimed at providing impetus to the manufacturing sector, and is attracting global attention and investment. With the objective of increasing the share of manufacturing in the GDP of the country, the government has planned to develop smart sustainable cities, logistics hubs, and residential townships. We see a huge opportunity for 3PL players like DHL to provide services such as lead logistics provider (LLP), inbound to manufacturing (I2M), vendor managed inventory (VMI), hubs and transportation, thus capturing the end-to-end supply chain needs of global manufacturers.

What opportunities do you envisage for the sector with fiscal 2015 and beyond, with the e-commerce sector gaining firm grip in India?
E-Commerce is rapidly growing and consumers go online at anytime, anywhere, to shop from anyplace. New marketplaces, sales and distribution channels and partners are emerging, controlling the consumer touch points and experience. The eCommerce trend is a structural growth trend for the logistics businesses. Understanding consumer and merchant needs is paramount to building a robust eCommerce value chain. This value chain needs to be dynamic to adapt to changing customer requirements. Deutsche Post DHL has been rising to the challenge with its recently formed PeP (Post-eCommerce-Parcel) division which puts a special focus on eCommerce and expansion offerings. Leveraging the strengths of all our divisions, we are supporting our customers to be successful in their eCommerce journey.

What changes, in terms of reforms or policies, would you expect from the government for bringing the sector on growth path?
GST will be the biggest game changer for the industry. Current supply chain structures in India are engineered to harness fiscal benefits arising from difference in tax structures across regions. A single unified tax on both ´goods´ and ´services´, with the objective of eliminating tax cascades, will bring about a transition from the existing origin-based to a destination-based taxation regime. Under the proposed taxation scenario, by using network strategy, every distribution-intensive company has an opportunity to re-look at their supply chain structure and gear up for the proposed tax reforms to align their supply chain distribution network to customer markets, moving away from tax issues.

With a majority government in place, one would hope that 2015 sees a lot of action on the goods & services tax (GST) implementation front. The introduction of GST will result in a simplification of distribution networks and the merging of smaller warehouses to regional centres. The outcome of this development will result in economies of scale being generated, where the location will no longer need to be fixed depending upon CST constraints, but can be decided based on demand and supply patterns, centre of gravity, long term logistics, and real estate considerations in short cost to serve basis.

 
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