National logistics policy is giving impression about Government of India concern and understanding over export costing. It is also understood from the NLP that GOI (Government of India) is poised to take all steps to remove regulatory hurdles and doing everything to increase logistics efficiency to reduce cost of export, but the GST on export freight is an opposite action, and is reverse to the spirit of the policy.
It is well understood that GST on export freight is not cost and reversal in the form of ITC (input tax credit) is available, but the duration for which 18% GST is spent by logistics service provider is a cost to logistics service provider and it is loaded in the offered freight to exports. Be it AIR CARGO AGENT or a SHIPPING AGENT usually give Freight credit indirectly financing logistics cost of exports by way of providing credit from 30 days to 90 days and this additional load of GST by way of 18% will aggravate cash flow issues. In order to mitigate the cash flow issue of 18%, he will approach lender/ bank to bridge the gap and this additional credit will have cost. If we calculate present market rate of money, it will automatically make freight costlier between 2 to 3%, which will be added to the logistics cost.
As per the national logistics policy, Government of India is putting effort is to reduce logistics cost from 13 to 14% to 7 to 8% of global standard but additional cost due to GST will jeopardise such efforts. GST Levy on exports will also increases compliance cost as full input credit is permitted which not fetch any additional revenues to the Government of India but would increase compliance cost to the taxpayers.
National Logistics Policy – An initiative of inclusive development – Kamal Jain, Director, Cargomen Logistics
The Government of India (GOI) has recently been making great efforts to boost the growth of export industry. To tap this opportunity in the export industry, our produce needs to be competitive, in terms of costing. GOI realises that one of the important and variable cost elements of an export product is its logistics cost (the costs to take a product from the point of production to the point of consumption).
Objectives of the National Logistics Policy
To work on the same, the National Logistics Policy (NLP) has been designed which can significantly reduce by developing better efficiency and alignment among stakeholders of the entire supply chain, be it infrastructure, services (digital systems/ processes/ regulatory framework),or human resources.
To reduce the logistics cost, GOI has made a three-way transformative step by launching NLP by introducing ULIP (Unified Logistics Integrated Platform) and CLAP (Comprehensive Logistics Action Plan).
A)Reduce the logistics cost in India to be comparable to the global benchmark by 2030 Presently Indian logistics is around 13-14 percent of GDP, which is much higher than global than the standard 7-8 percent in developed economies. Hence GOI will work to reduce the same.
B) Logistics Performance Index ranking – endeavour to be among the top 25 countries by 2030. Logistics performance is judged based on the turnaround time of clearance at port, ship loading and unloading, cost and efficiency at the terminal, and regulatory framework, which constitutes trade compliance.
C) Create a data-driven decision support mechanism for an efficient logistics ecosystem. All stakeholders in the supply chain operate in their respective systems (digital / processes), leading to non-alignment and higher cost and turnaround time of delivery.
Components of the Three-way action plan to develop logistics efficiency
Step 1 – Developing Infrastructure Multimodal logistics parks will be designed focusing on Industrial growth. The park will make our product more competitive by providing Warehouses, Railway sidings, ICD, CFS, Cold storages, and other ancillary requirements of industrial development.
Step 2- Developing Services (Digital System, Processes, Regulatory framework) By creating the ULIP (Unified logistics Integrated Platform), an effort has been made to create interoperability within the system having various stakeholders in the supply chain. The Policy has also brought CLAP (Comprehensive logistics action plan) that will provide all the required data.
Step 3- Human resource In recent times, India has become the back bone of the world due to its inherent skill set and low cost of operations. The country has also been known as the planning centre for the global supply chain. The Government has decided to have more skill development centres in the logistics vertical with central and state participation.
The GOI aims to achieve the ambitious target of developing logistics efficiency in line with global standards. These efforts will be a game changer for the Indian Economy, similar in lines to what UPI did for day to day payments.
Though there have been various efforts in the last 20 years for digitisation and IT Implementation, not much has been achieved so far. However, this time we are seeing a lot of energy focus and accountability from the government in relation to logistics implementation.
The Policy demands efforts from each stakeholder, and the new initiatives are creating accountability and binding these operators, giving them an opportunity for nation-building.
It feels inspiring to witness that Mera Bharat Badal Raha hai!
Free Trade Agreements – Vital for Logistics Industry and Economic Growth – Dr.GBRK Prasad, Mentor and Advisor, Cargomen Logistics
The recently signed agreement between India and UAE is a path breaking novel approach and goes many steps ahead in promoting harmonious world trade. Though in scope, it is relevant to the two signatories, but it lays foundation and inspiring for other countries also to come to the negotiating table and agreed upon mutually.
Currently if we see the trade scenario, Pharma is a major earner of revenues for India through its export base. Adding to this is Covid situation boosts also multiplies export revenues for its Indian made vaccines. India has exported US$ 3.89 billion of bulk drugs & drug intermediates in FY20 and US$ 4.43 billion in FY21. So, the decision makers should work out a strategy leveraging the export potential of Pharma to tying up with other imports from Major producing countries. Countries across the globe which have strategic advantage built through their dedicated efforts like India in Pharma Industry as well as China, should plan to identify partner countries for promoting trade in Agricultural products as well as items of personal consumption across the globe.
Fortunately or unfortunately, the equation of producer versus marketer to consumers is currently drawn in favour of either of them should be restructured in a way to benefit the consumer. This is essentially the free trade principle on which global trade has survived for past so many decades. Earlier the data on cost to producer stage to cost to consumer studies are not predominantly known select economists or experts. But now through internet technologies enables us to check and verify the prices stage wise and select what is good for consumer. For example, price of Amazon products stage wise can be analysed to see how trade is developing across product groups. Recently I have a chance to look and set up pricing for a product to get fixed for sale in Amazon. The subject item is sold by producer at Rs. 100 becomes say when Amazon sells at Rs. 150. There is 50 percent extra cost due to distribution and logistics efficiency of Amazon. This makes it imperative to streamline and see solutions to reduce this difference over a period of time year on year basis. Amazon is particularly good at developing solutions and showing the path both to producers and consumers.
In India, historically supply chain and logistics has played a key role which was always favouring the marketer. With trade getting centralized through companies like Amazon, this balance is slowly coming in favour of producer. This is imperative to do study when companies like ITC or organized sector got into making Items of daily consumption, availability improved and prices have also come down and producer has started earning more money for his labours. Second important angle which is important depends upon foresight of Government Authorities in promoting global trade is emphasis on reducing the duty structure. Customs duty needs to comes down as a strategic tool to promote internal consumption levels by availing them at cheaper prices. This will give boost to the economy in many folds. If import levels or export levels go up in a country due to reduction of duties, there will be secondary benefit of employment generation in logistics sector and distribution sector. About 90% of India’s goods exports to the UAE are likely to be covered by the FTA. It will help create about a million jobs in India.
To the best of my knowledge, connecting to airports, seaports; enables movement of goods as result of FTA and this starts accruing good results in employment and wage earning potential indirectly to common masses of the country. Therefore, Government Policy makers should identify sectors and classify them as agriculture, manufacturing, distribution and logistics, etc, and see how FTA agreements with many countries can be used to drive internal consumption of masses and as well employment generation also. They should avoid looking at revenue as to how government will be affected in its spend expenditure base. There should be published study to be shared as to how per capita income can go up by reducing government revenues by duty reductions both in direct and indirect taxes. Did we assume liberalization would work in a way to promote employment and per capita income levels? It was a good move to drive productivity improvement across sector of economy. So there should more and more FTAs with multiple partner countries to stimulate both partners economy by facilitating global trade.
What is not noticed in signing FTAs more is the decision makers may follow which items should be encouraged for less duty structure. This approach helps, I feel items which are imported with less duty and again reprocessed and reworked for export should be given maximum encouragement. These group of items bring double benefits to economy. Similarly, next set of items which have bias for more domestic consumption should be encouraged for less duties for spin off benefits accruing as these will improved per capita income standards and generate more employment opportunities directly and indirectly. For example, gold imported from UAE and then processed into jewellery and then exported to countries has multiple benefits to unfold. Similarly, intermediates and API imports and processing to export formulations is a success story in Pharma industry. So, the Government can take bold initiatives to reduce duties on such products without fear of Revenues reducing and so on.
With the changing business trends, global trade and economic development, how has been the role of a logistics service provider (LSP) diversified? Read here.
– Dr GBRK Prasad, Mentor and Advisor, Cargomen Logistics
As Internet breaks the barrier of physical distance, global trade happens due to continuous and efficient interaction of producer, logistics service provider (LSP) and customer. The point of production or manufacturing can be vastly at a distant place, whereas the LSP provides a service to producer to move to customer place. So the point is to view the role of LSP and see how best he can optimize and bring both the producer and consumer together by faster means.
LSPs role in B2B
All of us have seen a world where Amazon, Swiggy, etc and similar companies serving and improving service levels to a standard never heard of earlier. In this context, LSP provides services to both these two sectors: B2B and B2C. Now this article looks at how and what best B2B segment can be better served by LSPs considering what their peers have done in B2C segments likes of Amazon, Swiggy, etc. The key differentiator will be in having right metrics to measure the service levels and constant effort to improve the same considering what is happening in global space including B2C. The key focus is on service levels as well as cost of services. These two parameters have inverse relation to each other and therefore require a balancing act by the management.
Right Infrastructure is the key
The art of management of LSP is really tricky and the key factor that measures success of a LSP is in having right infrastructure. For instance, if a LSP serves Pan-India basis transport of goods from producer to customer as a C&F agent; the question is what should be the transport budget for a big size company of stature. For say, Rs 250 crore is the transport budget. Then the next question is having a right rate contract for 2 years period with well defined movement matrix from production site to warehouse site or customer site in a matrix form. Deploying assets of movement of vehicles and owning or leasing at right places is very important.
Government’s role is vital
As companies have evolved their working rhythm over a period of years and fine tuned it, new LSP bidding for business have to play cards well by choosing right asset mix and skilled and efficient labour force. What is not realized is LSP business is game winner for political votes as it generates employment opportunities for masses over the country. This earning capacity is unmatched and ensures growth of economy. LSP business is much more employment generative. Amazon for example has 1.6 million on roll. Can you imagine this figure for other manufacturing company of this scale?
So my article focus is that Central /government finance minister, in this budget realized and stressed importance of Gati Shakti, clearly highlighting priority for LSP business, but corresponding incentives are not there in tax benefits for more employment generating companies. Investment is given incentive in taxes but employment and paying salaries also should get tax benefits, and I feel that right incentive scheme will galvanise both employment as well as generate profit for LSP businesses.
Air transport needs to be encouraged
Another parameter that government can influence is to encourage transport of goods by air. As this has galvanizing influence to move goods in shortest possible time to destinations across India, it is better that government reduces tax element in total air freight gradually over a period of time and not treat it as luxury. Government can do a sensitive analysis how much revenue increases by reducing the tax element gradually. This measure alone can trigger an economic growth beyond double digits which is what we really need. The two parameters can be linked and government should encourage balanced development of the nation through right incentives and punitive measures for promoting LSP businesses.
(The author has beneficial relationship with Cargomen Logistics India Private Limited.)
Cargomen Logistics has always been at the forefront when it comes to supporting the country to fight Corona. One such endeavour taken at Cargomen is to “support the corporates”.
Due to pandemic Cargomen customers are constantly looking for support from their vendor partners including how the incoming goods like import documentation will be handled, DTA receipts filing for goods received at their SEZ locations, due to vehicular restrictions how to transport the goods, how to arrange the labour for material handling, where to store the goods since the factories and sites were closed Cargomen Logisticians are up and running, and the business continuity plans we have in place have prevented significant disruption to work productivity or customer service.
Client Pain Areas
Lockdown imposition causing and vehicle movement restrictions as a result of the state-imposed curfew and suspension of all transport services Air, Rail and Road (except transportation of essential goods). Progressive shutdowns/ restrictions imposed on services
Delivery for essential services only permitted
Employees spread across remote locations were not able to come to pick up assets from offices
Clients were facing challenges in delivering the IT assets to their employees at remote locations
Delayed response due to restrictions on physical movement of personnel and Availability of Govt. officials at concerned officials
Arranged Transport solutions for various remote delivery locations
Arranged Charter freight to pick goods from and major cities
Facilitated customers from our warehouse for hyperlocal deliveries
Created 3 warehouses at Hyderabad, Bengaluru, Delhi for customers enabling their employees to collect and deposit IT assets. Warehouses adhere to the security standards customised for client
Delivered IT assets at remote locations for employees during pandemic
Created centralised Document Service centre to handle DTA receipts
Our office staff continues to work remotely e.g. Staff working from home and they have been issued necessary IT Infra to support your business.
We have multiple sites or back up sites that can provide service should our primary site have to shut.
We have adequate resiliency should staff need to go into quarantine or become ill.
Fully functional Document Service Centre (DSC) to meet the BCP enabling our customers to meet documentation & clearance of shipments
Fully operational warehouses at 3 locations compliant with client standards
Managed more then 30000 IT assets during pandemic
40000+ DTA, temporary removal and clearance jobs managed during pandemic
It is aptly said, “When there is a will, there is a way” and this is what Cargomen did to lend support in the tough times of pandemic.