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Business News/ Industry / Infrastructure/  GST rollout may turn Nagpur into India’s warehouse

GST rollout may turn Nagpur into India’s warehouse

Nagpur, which is at the centre of the country, has seen a groundswell of investment from retailers and warehouse companies betting that the GST debut in July will transform the city's fortunes

A construction site for an elevated metro railway line in Nagpur. India is on the cusp of a tax reform that could turn the city of 2.4 million people into one of the nation’s biggest logistics hubs. Photo: BloombergPremium
A construction site for an elevated metro railway line in Nagpur. India is on the cusp of a tax reform that could turn the city of 2.4 million people into one of the nation’s biggest logistics hubs. Photo: Bloomberg

Toronto/Mumbai: The city known as zero mile in India is finally in the right place at the right time.

Nagpur is in the dead centre of the country, at the crossroads of busy road and rail corridors that bisect India east to west and north to south. Now, India is on the cusp of a sweeping tax overhaul that could turn the city of 2.4 million people into one of the nation’s biggest logistics hubs.

Known for its oranges, tiger sanctuaries and 45-degree Celsius (108 Fahrenheit) summer heat, Nagpur has seen a groundswell of investment from retailers and warehouse companies betting that the debut of Prime Minister Narendra Modi’s national goods and services tax (GST) on 1 July will transform the city’s fortunes.

“The revolution has started," said Manoj Muti, a supervisor at a warehouse in the city that stores goods of Patanjali Ayurved Ltd, one of the nation’s top organic-food producers.

The new tax will replace layers of provincial levies and unify India’s 29 states into a single market. Transport minister Nitin Gadkari said it could push economic growth into double digits by eliminating shipping delays across state borders and cutting corruption.

“There will be no need for border controls," Gadkari said in a 10 May interview in his home in New Delhi. “There will be smooth flow of transport from one state to another."

At present, trucks can queue for up to three kilometers to pay an entry fee at New Delhi’s 122 checkpoints. About 75% of the country’s road-hauling firms operated fleets of fewer than five trucks, according to a 2014 government report.

While the new GST won’t solve many structural problems of India’s transport network, it could trim logistics costs of companies producing non-bulk goods by as much as 20%, according to an estimate by Crisil Ltd., a Mumbai-based unit of S&P Global Inc.

That makes Nagpur on the vast Deccan plateau attractive as a central store for goods. Some 800 kilometers from either the Bay of Bengal to the east or the Arabian Sea to the west, and more than 1,000 kilometers from either Delhi to the north, or Chennai to the south, Nagpur has been at the center of the country’s trade routes for centuries.

Nearby coal reserves have long fuelled power stations and industries helping make it the country’s 13-largest metropolitan economy. But a tangle of provincial taxes to move goods across states have hampered its role as a centralized base for goods.

“The cost to move goods from port to the Mediterranean and China is cheaper than it is to move goods from here to port," said Sanjay Sharma, chief executive officer of Nagpur operations for Distribution Logistics Infrastructure Pvt. The former ship captain, 48, who used to steer vessels through the cool waters of Canada’s Great Lakes, now oversees the ramp up of a new logistics park in the sweltering, landlocked city.

The 30-hectare park has just been completed by DLI, a unit of London-listed investment fund Infrastructure India Plc. Surrounded by fields southwest of the city, its large, white, liquid storage tank is blinding in the sun, while rail cars wait in a dedicated siding near a line of trucks, ready to move containers of goods.

The country’s biggest shipping companies including Container Corp. of India Ltd, Mahindra Logistics Ltd and Transport Corp. of India Ltd are all setting up facilities in Nagpur, along with US-based Deere & Co.

It isn’t just an accident of geography that puts the city in a sweet spot. Nagpur is home to Hindu nationalist group Rashtriya Swayamsevak Sangh, the ideological parent of Modi’s ruling Bharatiya Janata Party. Transport minister Gadkari, who was elected from Nagpur, has said he is a member of the RSS, while Modi once worked for the organization, whose 57,000 branches across India provided grassroots support for his election.

Construction works are busy across Nagpur, including a $1.3 billion metro. A joint venture water project by Vishvaraj Infrastructure Ltd and Veolia Water SA of France would make Nagpur the first city in India to provide all residents, even slum-dwellers, with a continuous supply of clean water. And the city’s vendors of clothes, spices and famous Nagpur oranges will get a new wholesale market built by Vishvaraj.

“Political will is essential for change," said Arun Lakhani, chairman of Vishvaraj, sitting in his office as workers lay cable in the street outside. “With the GST and the free movement of goods, the very disadvantage of being at the center will be translated into a real economic advantage."

The change has been a long time coming for a city that has spent decades in the shadow of Maharashtra state’s premier economic center: Mumbai.

As early as 2002, the state conceived a special economic zone around a new airport, called the Multi-modal International Cargo Hub and Airport at Nagpur. Known as Mihan, it has already drawn some of the nation’s top technology firms, including Tata Consultancy Services Ltd and Infosys Ltd.

But controversies over land acquisition and delays mean the airport has yet to be expanded, while a recent visit to the rail connection showed only a handful of workers carrying stones in baskets on their heads in the time-honoured way.

Pirojshaw Sarkari, CEO of Mahindra Logistics, says Mihan needs to be fast-tracked, shipping clearances need to be put under one government department and electricity prices should fall.

And DLI’s Sharma says there are other problems GST won’t fix, including power and rail staff shortages, especially in the summer.

Rail freight remains at the mercy of India’s overcrowded rail network, where a trip from Mumbai to Nagpur can take 72 hours when it should take 18, according to DLI’s Sharma. Freight trains clank around the nation’s more than 66,000 kilometers of lines at an average speed of 24 kilometers per hour (15 mph). And despite huge improvements in the past two decades, the government is still spending billions to upgrade the world’s second-biggest road network.

Even with the new tax, trucks may still face delays at state borders due to the need to monitor details of shipments. A system of electronic scanners is supposed to speed up the process, but with the GST deadline looming, Gadkari said the tendering process for the scanners would only be completed “within a month."

For Nagpur, though, the GST is a step in the right direction.

In a warehouse the size of seven football fields run by Mumbai-based supply-chain company Future Group, CEO Kishore Biyani shows businessmen a 2.5-kilometer spiraling conveyor belt that sorts packages of Lee Cooper and other clothing brands into 40,000 cases per day.

“Now you can invest in large scale," Biyani said. “You don’t need to think small." Bloomberg

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Published: 17 May 2017, 11:31 AM IST
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