Thread by @oarhtanirs

GST has 2 aspects to it
1. Rate where multiple indirect taxes subsumed into 1 rate making it administratively much easier 2 manage &
2. the impact of it on biz.

since a lot hs bn discussed on rate aspect by now I wud like share my thoughts abt impact of GST on biz.

1/n

I will share this majorly frm mfg perspective as that is where the impact will be widely felt.
Its imp 2 u/s how indian mfg industry was structured in pre GST era.
a full container load from chennai 2 delhi used to take @ 14-16 days.

2/n

and this is a stretch that goes majorly thru the plains & has golden quadrilateral connectivity.
the delay was majorly on count of border stoppages & state regulations.
now imagine the time it would take to reach material to every nook n corner of country.

3/n

this prolonged logistics timeframe shaped up the mfgr model in the country which was primarily "multiple factories at multiple locations"

what this means is a cmpy wud set up factory in a region to serve primarily that region thereby cutting down on logistics hassles.

4/n

If it has PAN India customer base then it would look to set up another unit in another region to serve that region thereby keeping down logistics cost, time n issues to bare minimum.

5/n

Inorder 2 generate employment in state, certain states would incentivize industries 2 set up units in their states. These could be with tax holidays for 10 yrs or incentives in sm other form

some entities wud set up a w/h in another region whch thy wud feed frm main plant.

6/n

either ways, this was an extremely costly affair and indian manufacturers were paying thru the roof for the logistics cost n warehousing n other overheads costs

7/n

this meant our mfgrs werent globally competitive & hence our exports were always sluggish & v nvr became a global supplier in the truest sense

Also note that this model required huge nos of commercial vehicles which explains the surge in CV's sales over past few decades..
8/n

so what changed post GST?

with removal of border hassles, transportation across the country has become seamless with travel times reducing by as much as 30-40% on certain sectors

the improvement in quality of roads since GST has also added to reduced travel time

9/n

the incentives provided by the states will phase out after a specific period after which it wont be extended n GST would take over 100%

10/n

This enables the manufacturers to now re-look at their business model & consolidate multiple small factories operating from multiple places to MEGA factory operating from 1 or 2 places & supply to PAN India using a warehouse / direct delivery model

11/n

this gives the manufacturers the economies of scale which is of vital essence for being competitive in manufacturing which china has mastered

this will help manufacturers to cut down a lot on their expenses which will eventually help to make their base price lower..

12/n

a lower base price + lowering GST rate has a double dip effect on the overall product costing & products manufactured in India wl become competitive

this can help us to target global markets

with softening real int rates we are ideally suited to take off in this direction

13/n

the current US-China trade war also presents an ideal scenario for our manufacturers to fast track this.

This shift in biz model could result in loss of jobs at few places but addition of jobs in consolidated location but one neednt panic due to this.

14/n

the location for consolidation wud b based purely on factors like - law & order, climatic conditions, availability of water, sanitation, electricity, skilled & unskilled manpower

states wl compete on meaningful parameters & wl b sprucing up things in their state.

15/n

how soon will all this happen???

It’s a work in progress. while many manufacturers are already in the process of this shift, there are many who would be evaluating this change but it wilI happen sooner or later

16/n

These are interesting times and we are in initial stages of execution of actions post big bang reforms taken up during Modi 1.0
key is to not get bogged down by every slow down but be assured that these will take us leaps ahead in times to come..

17/17