India, logistics

The layered levy system imposed by various local governments will be replaced by a federal consumption tax and is expected to smoothen businesses dealings. Source: Shutterstock/Saikat Paul

India’s new tax plan could boost logistics and e-commerce economy

WITH the introduction of a new federal consumption tax, India’s e-commerce market is expected to get a major boost as courier companies such as Deutsche DHL Group prepare to take advantage of the new opportunities opening up in one of the fastest growing economies in the world.

The new goods and services tax is expected to take hold on July 1, and will be a widespread rule that will replace the tangle of various taxes levied in different states across India. Previously, governments at various levels would impose their own levies on businesses, making running a business in the South Asian continent a nightmare for many.

The streamlining of the tax code will likely draw more logistics firms such as DHL to begin expanding their warehouse capacities, as noted by the company’s India managing director Vikas Anand who spoke to Bloomberg in an interview.

“We see business-to-consumer as the next big challenge, a big growth area and we really want to tap into that through businesses such as modern retail,” Mumbai-based Vikas said. He said “multiple opportunities” will likely open up for companies in various industries across the Indian states.

This bodes well for India’s huge e-commerce scene, which has already caught fire and is drawing investors from all over the globe who want to capitalize on the country’s 1.3 billion population. It’s a region where homegrown brands tend to do very well, as is the case in China, and where foreign companies struggle due to cultural differences and the overwhelming complexity of administrative systems as exemplified in its layered tax system.

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E-commerce would benefit greatly from the consolidation of the laws, especially in the new-ish digital economy. India registers roughly 1.2 million daily digital transactions, and that number is expected to leap by an annual 31 percent in the next three years, as reported by KPMG.

That number is expected to run parallel with an increase of total warehousing space by 35 percent to 839 million by 2020, and that’s just in the seven largest markets. Overall, logistics firms are expected to reap many benefits from the rise of e-commerce market, with DHL Supply Chain reporting a 30 percent annual rise in their sales margins, which is double the industry average. That pace is expected to stabilize at its current level.

According to Anand, DHL controls roughly eight to 10 percent of India’s total contract-logistics market.

DHL intends to plug more than US$100 million in additional capacity, with around 65 percent going into warehousing, said Anand to Bloomberg. The current goal is to grow capacity to more than 10 million square feet by 2020, with the majority of the new infrastructure focused on urban-based clients.