budget 2017

Logistics sectors primary expectation from Budget 2017 is timely implementation of GST and Infrastructure Development in Special Economic Zones.

The Budget of 2017 has highlighted infrastructure development as a focus area. This covers highways, rural roads, and railways. These investments, aimed at improving connectivity through a multi-modal network, will not only have a beneficial direct impact on growth in Logistics sector, but will also boost the long-term productivity of the economy.

The industry also expects that the budget would propose to remove the minimum alternate tax for the players operating in the special economic zones of the country.

The country has notified five major industrial corridors – Delhi-Mumbai Industrial Corridor (DMIC), Amritsar-Kolkata Industrial Corridor (AKIC), Chennai-Bengaluru Industrial Corridor (CBIC), Visakhapatnam-Chennai Industrial Corridor (VCIC) and Bengaluru- Mumbai Economic Corridor (BMEC), spread across 15 states. Hence, the expectation of improving the infrastructure remains on priority for the sector.

With the industry going under transformation from traditional to digital mode of cash transactions the industry expects to see more incentives from the government for every cashless transaction in the budget.

The logistics market in India is expected to be worth US $307 billion by 2020. With less than 8% spent by the other developing countries, India spends around 14.4% of its GDP on logistics and transportation. The sector is expected to grow at a CAGR of 15-20 percent between FY2016-2020. This growth will be driven by infrastructure investment associated with logistics development plans (ports, logistics parks, highways, freight corridors and roads), domestic demand growth, and increase in trade. Automobile, aviation, pharmaceuticals, FMCG, and retail are the largest sectors which are driving growth in the logistics sector. With all this there is immense potential to realize given that this sector will alone create one million employment opportunities by 2021.

Challenges in the industry:

Even though India being a low-cost service provider, the logistics cost remains an alarming factor due to the regulatory and tax structure challenges system in the country.

On one hand, the increase in the number of un-organised players, aging infrastructure and inefficient usage of technology has been impacting the mechanism of logistics service providers. The industry can grow at a rate of 16% CAGR with provision of comprehensive and efficient infrastructure. Whereas on the other hand, the impending implementation of GST and lack of skill development has adversely affected the process of logistics in the country. The GST is expected to be implemented by April 1st, 2017 and is set to bring about uniform tax structure in the system. This will further enhance operational efficiency in the delivery system thus increasing the business growth potential.

Growth aspects in the industry:

The increase in investment from both public and private sectors year on year (y-o-y) will uplift the logistics sector to the next level. With a significant push on the improvement of infrastructure, adoption of technology and dedicated logistics corridor across all the modes (road, rail, air and sea) will improve the overall structure of the Indian logistics market.

Secondly, with India being the next manufacturing hub increase in trade with Asia, Europe, and North America will promote an increase in demand for the logistics services. This initiative by the movement will act as a major growth driver for both the public and private logistics players in the region. However, the timely implementation of the proposed GST is expected to reduce the overall logistics costs and also simplify the tax structure, making the operation robust.

Demonetisation and impact on the Indian logistics Industry:

The logistics industry is a dynamic component in the country’s growth wheel which has also recently witnessed the effect of demonetisation followed by remonetisation (issue of new currency notes). This sudden shift has significantly disrupted the overall business operations of logistics, automobile, FMCG, pharmaceuticals and agriculture sectors. Though this move by the government gave a temporary jolt but, in the long run, there will be an increment in the overall business coming in from the international players.

A part of the logistics industry is heavily dependent on COD (Cash on Delivery) mode of payment has plunged. It is only imperative that small to large vendors embrace this paradigm shift and reduce dependency on cash transactions. Demonetization, leading to digital ways of making payments, will erode the illicit ways of functioning in the sector. Digitization is a new reality which is critical to transforming India going forward. It will help to bring better regulation and governance in the industry.

To summarise, the industry needs better schemes under Make in India, Skill India, and Digital India initiatives, which would help in the boost of the upstream and downstream economic activities.