Union Budget 2010-11 has come up with a lot of positive steps for the logistics sector that will enable the sector to scale new heights in the coming years

Sumeet Nadkar, CFO and head-Logistics SBU, Kale Consultants Limited

Rollout of GST will clearly set forth two benefits for the industry:

·         It will result in improving efficiencies of supply chain and aid in bringing down costs

·         Tax structure at both state and Central levels will be much more rationalised and simplified

This is a welcome move considering the sector has been facing the issue of multiple taxation for sometime. Increased allocation for road transport by about 13% will prove to be beneficial for the logistics sector as the same would result in better infrastructure, thereby leading to efficient movement of goods within the country.

Other optimistic highlights

Other positive aspects that the sector can draw from this Budget include:

·         No hike in freight charges: The step is a positive one for the industry. Freight hike could have resulted in additional burden due to hike being passed on to customers, which would have adversely affected industry growth.

·         Desire to set up a new refrigerated container unit, auto-ancillary hubs and a door-to-door service for freight:  This is also a well-drawn positive from the Budget as such initiatives would allow companies to invest in this sector and open up more avenues for growth.

·         Exemption of customs duty for refrigeration units is a positive indicator for cold chain logistics companies as the import costs will now be lower for expanding the refrigerator fleet.

·         Central excise and service tax exemption for specified equipment for warehousing is a definite positive for logistics companies providing warehousing services.

Amongst these hosts of positives, there are certain dampeners too such as increase in Minimum Alternate Tax (MAT) rate from 15% to 18% and air travel being charged service tax at the rate of 10%. While MAT rate increase will negatively impact companies that fall in such tax-paying bracket due to higher tax incidence, service tax charged on air travel will lead to higher fares, thereby negatively impacting the growth of aviation companies in India.

Lack of policy initiatives on the technology front too has disappointed the sector, especially considering that technology adoption will be a key enabler and the way-forward for this fragmented industry. Fuel price increase too has been a dampener and is likely to result in increase in freight rates and have an adverse impact on the overall margins of logistics service providers’ business.

Having said this, the Budget fallout definitely seems to be tilted towards positive for the logistics sector. With various sector-specific policy initiatives announced in the Budget, the industry can look forward to sustained growth and better efficiencies in the coming financial year.

 
Sumeet Nadkar, CFO and head-Logistics SBU, Kale Consultants Limited, a leading solutions provider to the global airline, logistics and travel (ALT) industry