Modi 2.0 has stepped into the office for the second innings with a thumping victory and a tech-oriented manifesto and the logistics industry is pinning high hopes from the government for startup reforms in the sector. Logistics plays a pivotal role in the growth and development of a nation, the reason why it is called the lifeline of any country.
A robust logistics sector helps in delivering everything from consumer goods to building materials, equipment to accessories, and so forth in a time-efficient and cost-effective manner.
Need For Startup Reforms In Logistics Sector
Lately, new-age startups have started addressing the wide-ranging challenges of the sector. They have been eliminating bottlenecks such as that of slow goods movement, operational visibility, scattered demand, SLA violations, and so on with their solutions.
However, the cost of logistics is far from optimal in India. The nation spends around 14% of its GDP on logistics costs. Whereas, this cost is around 7.5% in the US. This indicates a massive room for startup reforms within the sector to eliminate the existing voids… and this is precisely what’s happening at present.
The previous regime of government had spearheaded multiple reforms including Digital India, Startup India, Skill India, Jan Dhan Yojana (Financial Inclusion), Multimodal Logistics Park, GST, and so on. Once again, everyone is anticipating a reform-driven performance to drive our nation forward on the path of global prominence from Modi 2.0.
Steps Taken So Far By The Government
The Ministry of Commerce and Industry is simultaneously developing a National Logistics Portal to ascertain the ease of trading in domestic and international markets. It has also proposed a World Trade Organisation (WTO)-compliant export incentive scheme for goods shipments to replace the existing MEIS.
At present, exporters of goods avail incentives under the Merchandise Exports from India Scheme (MEIS). In this scheme, the government provides duty benefits depending on the product and the receiving country. The new scheme will be based on the nature of refund of un-rebated state and central taxes on inputs consumed during exports in all sectors.
This refund mechanism will be along the lines of Rebate of State Levies (ROSL). It will include all unrebated taxes in the price of goods and the computed refund will then be extended to an exporter using the drawback route.
Expectations From Logistics Sector
There is an expectation from Modi 2.0 for increased inclusion of the startup and SME sector into government logistics policy and decision-making exercises, for instance, focused groups, advisory bodies and other forums. This would help in the furtherance of the government’s vision to promote entrepreneurship, attract foreign capital, creating jobs and pushing the make-in-India initiative.
On the GST front, the government can allow full GST credit, further relax timelines and frequency of GST returns, simply return filing procedures and pace up the GST assessments and litigations for startups.
On the direct taxation front, we expect extended tax holidays or sops for the logistics and ecommerce sector. The government should reduce the domestic corporate taxation rates, especially for the smaller companies including startups. While recently CBDT has directed taxmen to withdraw select appeals in a time-bound manner, there is a lot that needs to be done to end tax terrorism in India.
For instance, the process of assessments/enquiries/appeals/notices should be completely and mandatorily automated, made time-bound and should be delinked with the name and contact credentials of assesses. While some of these measures are part of an ambitious government project but their implementation and timing hold the key.
Availability of collateral free financing for startups is another key expectation. Most technology start-ups operate on an asset-light model, bringing in a lot of efficiencies and multiplying a developing country’s potential with limited financial resources.
However, they are not able to secure adequate funds from our domestic financial ecosystem due to current RBI norms and thus have to dilute stakes to the foreign investors leading to the flight of domestic GDP abroad.
The Ministry has proposed to set up a separate logistics department which will be headed by a secretary with a view to enhance the growth of the sector, which will act as a fundamental catalyst for boosting exports, imports, and hence, the overall economy.
This is a job easier said than done. Our country’s logistics sector comprises more than 20 government agencies, 40 partnering government agencies (PGAs), 10,000 commodities, 37 export promotion councils, 500 certifications, 200 shipping agencies, 36 logistics services, 168 CFSs, 50 IT ecosystems/banks/insurance agencies, and 129 ICDs.
Collectively, making the market worth more than $160 Bn. Still, given the massive rooms for reform in this massive jigsaw puzzle, our current government can unlock $55 Bn of market worth as also indicated by the Economic Survey of 2017-18, thereby making the logistics sector worth $215 Bn. The biggest benefit will perhaps be that it will dramatically reduce the costs of logistics operations and drive our national economy towards its double-digit growth rate.