A tech-based financial compliance model for India’s logistics sector
The latest episode of Mint Navigating Compliance with Technology series, powered by Clear, shifts the spotlight to the logistics sector and the importance of a tech-led system of financial compliance to power future growth.
PremiumThe Logistics sector is the backbone of manufacturing and trading activities and has a pivotal role to play in developing economies like India. The government has often stressed on the importance of robust physical connectivity to meet the growing levels of consumption and demand and in achieving the government’s vision of a $5 trillion economy. In fact, the logistics industry in India is projected to grow at a CAGR of 10.7 per cent between 2020 and 2024.
The industry got a major push owing to a boost in e-commerce and growing popularity of same-day or next-day deliveries after the pandemic, which have resulted in a surge in the number of packages changing hands around the country and overseas. There have been changes on the financial side too, with the rolling out of GST which will expedite faster conversion of informal logistics setups to formal ones and also speed up freight movement at interstate borders due to dismantling of check-posts..
A virtual panel discussion titled, ‘Achieving Optimal Financial Compliance in the Logistics Sector’ presented by Livemint and Clear, discussed how the power of technology can be used to meet the financial compliance objectives of this sector.
Until a few years ago, logistics in India was a highly unstructured sector with a lot of small players. This changed with the advent of GST where a lot of large players came into the market, changing its demographics. “Large companies like us believe in a lot more compliances. And if we are compliant, so is the entire supply chain. That is a huge structural change," said Deepal Shah, Chief Financial Officer, All Cargo Logistics Ltd.
Compliance is one space where the government is ahead in terms of adoption of technology and the enterprise are playing catch-up to ensure that they are compliant. “We see three broad trends in terms of compliance – the first is a merging of supply chain and compliance functions, the government is becoming a lot more serious about compliance and are enabled by technology in doing so and thirdly, technology is being adopted not just in silos but at scale," said Swaroop Repaka, Director of Strategy, Clear.
GST has been a game changer for the logistics industry as players are not free to make decisions on supply chain management based on operational efficiencies. “With GST, about 16 different taxes have been compressed into one. Earlier, logistics players used to have warehouses in multiple states. But that is all gone," said Anand Chand, Group CFO & GM (Corporate Services), TM International Logistics Limited
The discussion touched upon the provision of e-way bill and how this has brought down check posts at state borders, enabling faster and seamless movement of goods between different states. Earlier, it could take even 14 hours for trucks to pass through some checkpoints.
“We have 600 of our own vehicles and another 2,000 that we have taken on a year on year contract basis. Delivering the material to customers on time used to be a big challenge earlier because of various naakas, chhungis across the country with different regulations for every State. After GST, and e-way bill, this has completely gone and trucks move seamlessly between states and turnaround time has increased tremendously," said Mukul Gupta, CFO, Om Logistics Limited.
Logistics players in India have been maintaining multiple warehouses to avoid CST levies and state taxes. Most of these warehouses run below capacity and reduce efficiencies. With GST, this is expected to change.
Data plays a very important role in offering the right insights to the business in the form of financial information, right from income statements to tax statements. With all the changes taking place, technology help with better data management.
“Data is cash or money from a company point of view. With so many compliances coming from the government, that are important to bring down risk and increase levels of security, and companies cannot be dependent on people for this. There is a need to implement good technologies to ensure that all the compliances are taken care of," said Parthasarathy Rangachari, Director for Finance & Admin, Hellmann Worldwide Logistics.
Two years ago, a virtual audit would have seemed impossible. But that is common. The cost of compliance has gone up and so has the cost of non-compliance. “I think technology is the only answer through which you can ensure that you don’t miss out on any compliances – tax or non-tax, and are efficient in managing your working capital, credit and GST, etc," said Shah.
While there has been a steep curve in the adoption of technology, a lot more can be done in this space. Looking into the future, Chand said: “Today, if you have businesses in 20 states, you need to file that number of compliances in each state. That needs to change. When we talk about one tax, one nation, then one reporting should suffice."
Added Gupta: “With the new GST regime coming in, we had a huge number of vendors and customers and ensuring compliance for all was a huge challenge."
India has been a major trade hub. But there are tax implications on trades and these also come under the ambit of GST norms. “When GST and e-invoicing were introduced, they were big game changers but I think we need to move on. Once the technology is in place, they need to place a trust in people as is seen internationally so that more MSMEs come under the tax head and bigger players can invest in India to make it the next big logistics hub," said Rangachari.
The future of the logistics industry in India seems bright but players will have to leverage the power of technology-led investments to strengthen compliances in the future.
“Logistics as an industry has been ahead in terms of adoption of technology. But they are still not fully there. We see three phases of tech adoption in the near future – the first is software led compliance with a better user experience, second is integrated compliance where the compliance platform is deeply integrated with ERP. The last wave is a lot more critical and is called real-time compliance," said Repaka.
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