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The National Democratic Alliance (NDA) government is exploring how it can leverage technology to set up a logistics architecture on the lines of Aadhaar and link it to the goods and services tax (GST) network database.
The effort is aimed at reducing logistics costs and improving the economy’s competitive edge, as the government prepares to roll out GST from 1 July.
Radio Frequency Identification (RFID) tags on vehicles for electronic toll collection and global positioning system (GPS) devices may provide the building block for this initiative, which will help in accessing information related to the consignment, vehicle, driver and location, thereby enabling verification, according to a report prepared by consulting firm A.T. Kearney for the ministry of road transport and highways.
India has been grappling with high logistics costs of 16-18% (as a percentage of cost of the product), which make its exports uncompetitive vis-à-vis those of China, where logistics costs make up 8-10%. India’s logistics cost as a percentage of its gross domestic product was 13-14% in 2014. The World Bank’s Logistics Performance Index (LPI) ranked India at the 54th position (2014), with the country losing $6.6 billion every year in transportation delays for freight, according to a study by the Indian Institute of Management, Calcutta. googletag.cmd.push(function() { googletag.display('div-gpt-ad-1492578481854-0'); });
The report, which studied such (logistics) systems across Hungary, Turkey, the US, Germany and Japan recommended that technology be used to set up modules such as Vahan Aadhaar, Logistics Park Information System (LPIS), and Road and Traffic Information System (RTIS). “A.T. Kearney India, in its report on economic corridors, has suggested to the ministry for road transport and highways to introduce a common system to link GSTN database with Vahan and Sarathi, to allow for more streamlined movement of goods in the country,” an A.T. Kearney spokesperson said in an emailed response.
The Sarathi database is envisioned as a centralized repository of driver-related information. LPIS and RTIS will provide a central interface to handle consignment traceability, reservations of resources and services; and storage and dissemination of information about road and traffic conditions, respectively. These will help in the simplification of documentation and procedures during the inter-state freight movement and also help in curbing the illegal movement of goods.
“Vahan Aadhaar seeks to achieve a paradigm shift in road transport documentation through technology and provide a common interface for all documentation needs…This concept will comprehensively capture all aspects of end-to-end movement of freight in a single system,” said the report titled Logistics Efficiency Enhancement Program, reviewed by Mint.
The government has over the last few months moved swiftly to link many government schemes with Aadhaar. It has linked Aadhaar to the Permanent Account Number (PAN) used in filing of tax returns, and even for procuring a driving licence and vehicle registration number.“The road ministry is focusing on various facets of infrastructure development to reduce logistics costs like economic corridors, logistics parks and integration of all four modes of transportation like road, rail, air and water. So this Vahan Aadhar is one of the components of the overall plan. The consulting agency has suggested Vahan Aadhaar as a solution, but the ministry is yet to take a final call on it as different stakeholders are involved,” said a government official aware of the plan, requesting anonymity.
India plans to set up 35 multi-modal logistics parks at an investment of Rs50,000 crore and develop 50 economic corridors. It has an investment template in place which involves roping in state governments and the private sector to set up special vehicles for project implementation. Queries emailed to the spokespersons for the road transport ministry on 26 May remained unanswered.
Analysts say GST will have a multiplier effect. “GST will be a game changer and can usher in significant efficiencies and benefits in the transportation and logistics chains,” ratings agency Crisil Ltd wrote in a 22 May report. The present documentation is complex, primarily due to different formats used across various states and departments, separate physical checks for each authority (such as transport and commercial tax), insufficient use of technology and inadequate information technology infrastructure.
“This enables the development of a robust database of goods movement in the country, that significantly improves tracking and traceability of goods while they are moving (one of the critical parameters of the LPI index). Further, it also helps policymakers to develop a view of evolving transport needs and therefore better plan infrastructure investments,” said Anshuman Sinha, principal, A.T. Kearney India, in an emailed response.
Logistics
Logistics is the spine of all industries, globally. This industry is worth over a $1 trillion dollars, accounting for approximately 10 per cent of total amount spent on all goods and services combined. Despite its size, logistics is an unorganized sector, vis- à-vis mining, retail and pharma.
The state of Indian logistics is better when compared with other developing nations while India could be at par with the current benchmarks set by USA in a decade. With the commencement of GST, the logistics industry will undergo a lot of changes. Certain segments within logistics are going to have a very positive impact because of GST. Three of the organized segments which we believe will have the biggest positive impact is warehousing, e-commerce logistics and less than truckload companies. However, GST is going to be highly challenging for full truckload companies who will face difficulties to comply with the e-way bill rules on time.
The announced GST rates are as expected and its impact on e-commerce merchants, exporters and importers is minimal. Despite the total tax percent on logistics is rising, the net impact on logistics businesses would be positive due to the input credit claimable on expenses which couldn’t be claimed for in the past.
For most logistics services like e-commerce logistics, warehousing and air freight (export), the tax rate is 18%, which is an increase from the current 15% which includes service tax and cess. Services like ocean freight and road transportation are in the 5% slab. Yet, a few essential services which haven’t been exempted will be discussed by the logistics trade bodies with the government.
For the trucking sector, the most critical changes are the modified e-waybill rules, which will impact operations of almost all entities in the supply chain. The current e-waybill rules aren’t practical to implement and leaves a major room for loopholes. We believe there will be modified rules announced after the GST council meeting in June.
Once GST comes in, a lot of non-ecommerce players which are traditional businesses are going to change their entire supply chain strategy. Today, you need to have big warehouses in every state, because of the regulation and because of the entire tax planning. So now you can work with another warehouses.
The old exemptions and reverse charge rules have been continued and that’s positive. As an example, the shipper will be paying GST on behalf of the trucking company who transports goods, like today. The most critical modifications which we wait for are the modified e-waybill rules, which will impact operations all companies in our sector.
Despite these positive news, a few essential services haven’t been exempted and will be discussed by the logistics trade bodies with the government. For the unorganized sector, a lot of handholding will be required and it will at least take a minimum of six months for the unorganized sector to fully understand the gap that they have between their operations and the compliance need.
Predicts drop in costs
“For multi-service logistics and contract businesses, the service tax could even be 12 per cent or most likely 18 per cent, though clarity will be in the gazette notification on service tax,” said IFTRT, which has been predicting a 4-10 per cent drop in logistics costs. The transport research body said that on present revised assessment, on the basis of past experience on service tax that is now merged with the GST regime, the input tax credit benefit — even when the service tax rate is at 18 per cent under the new GST regime — will neutralise the 18 per cent tax for the third and fourth party logistics players.
Single common market
The new GST business practices will allow borderless trade with India being single common market. Hence, logistics firms stand to gain if they own fleet, warehouses, loading and unloading equipment to make supply chain efficient. If the so-called logistics firms work as intermediaries or commission agents, then the rate for them has been fixed at five per cent. This is at an effective 4.75 per cent in the service tax regime — which in many cases, was charged at 15 per cent to customers and under-reported to service tax authorities by depositing 4.75 per cent only.The same has been the case with several established packers, movers and relocators, courier firms, and goods movers, who allegedly charged customers a service tax of 15 per cent while their books reflected 4.75 per cent.
Consolidation likely
It is now hoped that with large number of anomalies corrected with regard to service tax rates on transportation/logistics, the ‘fly by night’ operators may vanish from the market. The phase of consolidation, modernisation and upgradation may gradually usher in during the post-GST regime, said IFTRT. Also, seamless movement of goods carriers through toll booths due fastTAGs or Electric Toll Collection and lifting of inter-state border check posts will boost full round trips by 25-30 per cent in next four-five quarters post-GST, it added.