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GST implications on warehouses - India

The Indian government implemented a Goods and Services Tax (GST) which simplified the tax structure and brought uniformity in rates across the country.

June 18, 2018

Nagpur, an industrial city in India’s Vidarbha region, is one of the country’s emerging logistics and warehousing hubs.

A shift in the tax regime is one of the big reasons for its success.

Last July, the Indian government implemented a Goods and Services Tax (GST) which simplified the tax structure and brought uniformity in rates across the country.

The streamlined approach has encouraged the hub-and-spoke model in warehousing, where large central distribution centres connect with smaller nodes closer to where goods are being delivered.

The model had previously struggled to gain traction as a result of different tax structures across the country’s states. Instead, companies preferred to have multiple small warehouses across different states to minimise operational costs.

“Since the implementation of GST, virtual boundaries have become obsolete and location has become important,” explains N Srinivas, Managing Director, Industrial Services at JLL India.

Cities like Nagpur are starting to see the change.

Nagpur was already home to Orange City Logistics Park, Plusgrow Logistics and Warehousing and Logistics Park. 3PL occupiers are also exploring new locations, while developers have been busy building greenfield and brownfield warehouses across the city.

Nagpur’s story is not an isolated case. A number of Indian cities, including Guwahati, Lucknow, and Coimbatore, are also witnessing a surge in development of large, high-quality warehouses.

Total warehouse space in eight primary locations in India is expected to reach 204 million square feet by the end of 2019, up from 139.8 million square feet in 2017, according to the latest report from JLL.

National level developers such as IndoSpace, Embassy Parks, ESR, Assetz-Logos are just some of the well-known names exploring options across the country. And, according to Srinivas, cities with strong connectivity are set to benefit the most as they become hubs for goods that can be transported around the country.

Warehouses in the country have increasingly become a necessity for a number of sectors that are driven by consumer demand as well as manufacturing growth including: e-commerce, distribution, retail, automobile, and so-called Fast Moving Consumer Goods.

Ease of trade across states under the GST regime has helped companies across these sectors in inventory management and to better forecast product requirement across front end stores.

India is ranked 35 out of 160 countries on the World Bank’s Logistics Performance Index (LPI). Between 2014 and 2016, country’s ranking has moved up by 19 spots.

“The sector will continue to witness growth,” Srinivas says.

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