GST set to turn 'zero mile' city into India's warehouse

A warehouse operated by Future Supply Chain Solutions in Nagpur. The debut of Prime Minister Narendra Modi's national goods and services tax on July 1 will transform the city's fortunes as provincial taxes to move goods across states will be replaced
A warehouse operated by Future Supply Chain Solutions in Nagpur. The debut of Prime Minister Narendra Modi's national goods and services tax on July 1 will transform the city's fortunes as provincial taxes to move goods across states will be replaced by the GST, trimming logistics costs for companies.PHOTO: BLOOMBERG

New tax will help Nagpur, located at country's centre, appeal to firms as cost of moving goods decreases

MUMBAI • The city known as zero mile in India's Maharashtra state is finally in the right place at the right time.

Nagpur is in the dead centre of the country, at the crossroads of busy roads 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 deg C 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 July 1 would transform the city's fortunes.

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," he said in an interview on May 10 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 3km to pay an entry fee at New Delhi's 122 checkpoints.

While the new GST will not 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 per cent, according to an estimate by Crisil, a Mumbai-based credit rating company.

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

Nearby coal reserves have long fuelled power stations and industries helping to make it the country's 13th-largest metropolitan economy. But a tangle of provincial taxes to move goods across states has hampered its role as a centralised 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 Mr Sanjay Sharma, chief executive officer of Nagpur operations for Distribution Logistics Infrastructure (DLI), which oversees the ramp-up of a new logistics park in the sweltering, landlocked city.

The 30ha park has just been completed by DLI, a unit of London-listed investment fund Infrastructure India.

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

It is not just an accident of geography that puts the city in a sweet spot. Nagpur is home to Hindu nationalist group Rashtriya Swayamsevak Sangh (RSS), the ideological parent of Mr Modi's ruling Bharatiya Janata Party.

Mr Gadkari, who was elected from Nagpur, has said he is a member of the RSS, while Mr Modi once worked for the organisation, whose 57,000 branches across India provided grassroots support for his election.

With political clout comes development.

Construction works are busy across Nagpur, including a US$1.3 billion (S$1.8 billion) metro.

A joint venture water project by Vishvaraj Infrastructure 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.

"Political will is essential for change," said Mr Arun Lakhani, chairman of Vishvaraj, sitting in his office as workers lay cables in the street outside.

"With the GST and the free movement of goods, the very disadvantage of being at the centre will be translated into a real economic advantage."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on May 18, 2017, with the headline 'GST set to turn 'zero mile' city into India's warehouse'. Print Edition | Subscribe