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Sector impact: GST’s effect on roads, railways and ports

Sector impact: GST’s effect on roads, railways and ports

With the much-debated goods and services tax (GST) bill finally passed by the Rajya Sabha, the biggest tax reform since Independence will positively impact the logistics and surface transportation sectors.

GST aims to iron out a multi-layered indirect tax system, subsume all other indirect taxes and usher in a uniform tax structure. It was conceptualized in 2006 under the United Progressive Alliance-1 government.

Once the GST is rolled out, it will facilitate the interstate movement of goods. State-border check posts, which ensure material scrutiny and location-based tax compliance, often stretch the transit time in the process. These unproductive transit hours, as well as regulatory hurdles, delay overall manufacturing and trade. However, a unified tax and regulatory environment under the GST would help improve the delivery process and cut down on transport hassles. This will lead to a substantial reduction in distribution costs by 10-15%, thus reducing the final price of goods.

“As a direct impact, the GST should remove the need for interstate check posts; therefore, freight deliveries will be faster and truck utilisation will go up. It is going to have a positive impact on the roads and highways sector,” said transport economist G. Raghuram, who is also a professor at the Indian Institute of Management, Ahmedabad.

India’s national highway network is responsible for carrying 40% of the country’s traffic. The government had announced increasing the existing length of national highways from 97,135km to 200,000km.

Raghuram explained that state governments are not sure whether the trucks carrying goods are going to unload within the state or whether they are on interstate journey. That’s why transporters are stopped at checkpoints and a hugely complex tax compliance procedure is followed.

Comparing that scenario with the railways, Raghuram added, “Interestingly railways are currently exempt from interstate check posts as trains always travel between fixed destinations. So there will be minimal impact on the railways.”

India’s gross domestic product (GDP) expanded 7.9% in the January-March quarter, accelerating from a revised 7.2% in the previous three months. The country’s GDP growth is projected between 7% and 7.75% by the Economic Survey for the current financial year.

“GST will bring in the much-needed transparency and higher investments in the coming years, and we hope that a few percentage points to India’s GDP will be added through higher tax revenue and investments,” Chandrajit Banerjee, director general, Confederation of Indian Industries, a lobby group, said in a statement.

Analysts are of the view that the GST implementation will reduce the shipping and logistics costs.

“This translates to lower transit time and high rail-road utilisation by way of seamless inter-state movement of goods. Also, distribution and warehousing services will be rationally structured and centralised, which will reduce the logistics costs and benefit customers,” said Anil Yendluri, director and chief executive officer, Krishnapatnam Port Co. Ltd, in a statement

 




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