What is the backbone of manufacturing and trading activities in India? The answer is logistics. In a high-demand country like India, logistics plays a critical role.
In other words, a well-optimized logistics and supply chain enable delivery of the right items in the right quantities at the right time to the right place for the right price in the right condition to the right customer.
Your logistics depend, to a large extent, on your warehousing capabilities. Your warehousing capabilities, in turn, depend on the ease of doing business in your country. A major part of the same is the taxation system and, precisely, GST.
GST: The Explaination
GST is a destination-based tax that is levied on every value addition. The Goods and Service Tax Act was passed in Parliament on 29th March 2017 and came into effect on 1st July 2017.
Earlier, logistics businesses had to maintain multiple warehouses across states to avoid CST levy and state entry taxes. As a result, most of them couldn’t operate at their total capacity.
With the introduction of GST, many operational inefficiencies of warehousing are decreasing. India is progressing towards becoming a single market wherein goods can move freely.
GST has many benefits for all the stakeholders, eCommerce sellers as well as the end consumers. Let’s understand the impact of GST on warehousing in India.
Positive Impact Of GST On Warehousing In India
Reduced Warehouses
The main impact of GST on warehousing in India has been in the form of the reduced number of warehouses. Tax efficiencies often affect warehouse quantity and location more than operating efficiencies. Under GST, it is no longer mandatory to have warehouses in each state where a business is operational.
Therefore, you can merge small warehouses with big warehouses at strategic locations and reduce labor and transportation costs.
More Third Party Logistics
The Indian 3PL market is expected to register a growth rate of over 11.5% during the forecast period of 2020-2025. As discussed, merging small warehouses with big warehouses means accommodating more inventory and maintaining technologically advanced systems.
Inventory Management
The previous tax structure in India resulted in confusing warehousing decisions like setting up enormous inventory and, at times, running out of stock during unexpected demand. Thanks to GST, inventory efficiencies have been reduced due to lesser stocking points and fewer stockouts.
You can also take advantage of economies of scale and do better demand forecasting, thereby ensuring that your supply chain is up and running. This is yet another significant impact of GST on warehousing in India.
Faster Operations
Your order fulfillment time decreases due to the operational efficiency in your warehouses. As there’s no need to build warehouses in each state anymore, you can organize your warehouses easily and save your order-to-ship time.
Lesser Costs
Complexity is the enemy of cost control. GST has brought in an opportunity for organizing the currently unorganized setup of warehouses in India. An efficient and well-managed supply chain will ensure lesser order fulfillment costs.
Now that you’ve understood the impact of GST on warehousing in India, you must also ensure that you reap all these benefits by adopting an efficient & technologically advanced warehousing system.
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