Get, Set, Transform!

Get, Set, Transform!

There is no doubt that the Goods and Services Tax (GST) is a game changer. But what do manufacturing professionals have to say about its impact on business? Let’s find out.

Interviewed by Mitalee Kurdekar

AkzoNobel India – Pradip Menon,CFO

First impressions about GST’s influence on your business
GST is indeed the biggest tax reform since independence in the spirit of ‘One Nation, One Market, One Tax’ for the benefit of our national economy. As such, the impact on our business has been on materials. The Coatings business was subject to an overall tax rate of ~25% prior to GST. Post GST, the tax rate has moved up to 28%. After reckoning the benefits coming through from the GST regulation, we see this as broadly neutral/marginally negative for the business. However, what we have seen in the first quarter of the fiscal year 2017-18 is a sharp reduction in stock holding in the dealer/distributor network for our B2C business as a transition to the go live of GST. This has been accompanied with deep discounting to bring down overall stocks in the chain. Our B2B business is relatively unaffected by the change.

Preparedness of your business partners in the value chain
Generally, the larger corporate customers and vendors are business-ready for GST. However, we still have challenges with small or medium size customers and vendors.
Several small/medium size customers are still unregistered or they are into the process of getting their registration number. We see transitional issues for a period of 3-6 months in terms of rework etc. as the various parts of the supply chain grapple with an understanding of the new law.
However, we see these as transitory and our confidence remains strong that the economy and business will recover in the second half of the fiscal year.

Bharat Bijlee – Sandeep Tilak, VP, finance & corporate strategy

First impressions about GST’s influence on your business
The initial few weeks or months were expected to spring surprises, but the transition has been much smoother than anticipated and that’s a positive. In the longer run, more streamlined processes should lead to overall supply chain efficiency and, hence, a better business environment.

Preparedness of your business partners in the value chain

Our vendors are in the process of aligning to GST processes but it is taking time, especially for the smaller ones. The larger the partner, the more the level of preparedness. Yet, there are a few major interlinked business model issues that are still being clarified. Business has been slow for the last month and the uptick will take some time.

Supply chain and logistics improvements planned

We are looking at several aspects of supply chain including stock points, warehousing strategies, and logistics arrangements, along with our business model changes as applicable.
Time taken before its back to business as usual
Personally, I would expect a quarter at least for things to settle down and customers to have to confidence to start ordering again.

Long-term impact of GST on your industry
It is very difficult to say since our industry is reeling under lack of capital formation in the country as a bigger issue. In the long run, GST therefore, will anyway get factored in before the macroeconomic conditions revive.

Dormer Tools India – Gautam Ahuja, MD

Supply chain and logistics improvements planned
The main advantage of GST is that the product can be sold anywhere in India, but the price will remain the same, since the GST is the same. Businesses are no longer restricted to selling within the state, but can also now sell in far off states, where they did not venture earlier. Thus, this will lead to increased opportunity as well as intense competition, which will ultimately benefit the consumer.
Dormer already has an all India presence with our distributors spread across many states. Our logistics partner is also equipped to deliver anywhere in India.

Time taken before its back to business as usual
The fluidity is for businesses who were dealing in cash, but not for compliant companies. Most businesses have registered and are doing business as usual. There could be some hiccups for a couple of months, but beyond that the business should grow even more. The unorganised sector may lose out on the opportunity. Hence, the ‘real’ growth may not be there, but definitely ‘reported’ growth would be there.

Long-term impact of GST on your industry
GST has been launched in India for ‘Ease of Doing Business’ and this will attract more investment, thereby creating more jobs and ultimately increasing the GDP growth of India. The indirect tax collection will go up significantly, and more and more small businesses register under GST. This money will again come into circulation, since the Government will use this for the development of the nation. It is said that GST has the capability to increase the GDP growth by 2%, thereby making India the fastest growing nation again.

Global Ocean Group – Brijesh Lohia,MD

First impressions about GST’s influence on your business
With GST in place, growth in between 2016-20 is guaranteed for the logistics industry hunting for different supply chain models and working on the ERP system. This transformation will occur through the promotion of manufacturing & trade and improved investment climate. The acting growth drivers will be transportation and logistics-related infrastructure such as dedicated freight corridors, logistics parks, free trade warehousing zones and container freight stations.
GST will eradicate India from its bureaucratic web, making it a single tax nation and improving the business scenario. India becomes one big market, which will have fewer and larger warehouses. Adoption of the hub-and-spoke model in segments such as warehousing, cold chain, container freight stations and inland container depots will take birth. It will contribute in terms of savings in cost and time, stoppage of wastage and lower delay. It will therefore lead to greater economies of scale for transport operators and more companies outsourcing their logistics operations.

Long-term impact of GST on your industry
The unified tax system is expected to bring change on a larger scale, removing distortions created by different taxes and duty structures imposed across India. In the last couple of years, as the Honourable Prime Minister of India, Narendra Modi, has made GST a priority, investors have put $ 1.5 billion in the warehousing business. Companies that have previously based storage models on tax efficiency can move to the much more cost efficient, demand-based hub-and-spoke model used globally.

Godrej Consumer Products – Sunil Kataria, business head, India & SAARC

First impressions about GST’s influence on your business
The timely implementation of GST has been a welcome move by the government. The industry is committed to passing on the benefits of the lower rates to consumers as it will help drive demand. We have dropped the prices in our soaps portfolio by 6-8%. In some of our other categories, where the GST rates have gone up like in the case of hair colours, we don’t intend to increase prices.

We did see some destocking in the wholesale channel in the second half of June. This has not persisted in July. However, in some pockets, like with certain wholesalers, the pickup has been lower given the GST migration. However, we are confident that the pickup will improve in subsequent weeks. Consumer demand is looking robust, on the back of a good monsoon, and so, it is only a matter of time before the sales growth improves as the channel adjusts to operating in a post-GST scenario.

Supply chain and logistics improvements planned

The implementation of the GST has enabled us to improve our service levels to our customers through optimising and streamlining our supply chain. We expect to consolidate our C&FA (Clearing and Forwarding Agent) footprint and reduce the number of C&FAs by around 15%. Some of our C&FAs could also be relocated to ensure optimal service delivery. Over time, holding other things constant, we expect GST to enable a more efficient and effective supply chain with around a 10% reduction in warehousing, transportation and inventory holding costs.

Hindustan Coca-Cola Beverages – Harsh Bhutani, CFO

Preparedness of your business partners in the value chain
Our employees at HCCB were working tirelessly over the last several months to ensure that our systems were geared for the launch of GST. We had also carried out enablement, sensitisation and capability-building sessions for our business partners. In more than 70 sessions, 100 trainers of HCCB conducted countrywide capability-building sessions for our 4,000 strong distributor base.

The training teams were positioned in teams of three across respective geographies, based on their language proficiency and relationships with the distributors. The three members of each training team were each an expert in the domain of (1) finance and taxation (2) sales and distribution (3) training imparting techniques. Hence we believe HCCB’s business-partners are well-prepared for the implications of GST. We believe the impact on our business will be positive in the current financial year.

Long-term impact of GST on your industry
From an Indian beverage industry perspective, we were disappointed with sweetened aerated water and flavoured water being placed in the highest tax slab rate of 28% combined with an additional cess of 12%. The effective tax rate of 40% on these products under the GST regime is against the stated policy of maintaining parity with the existing weighted average tax, which is significantly below 40%.
Now that GST has already been implemented, from an HCCB perspective, we will pass on the taxation benefits to the consumers and make all attempts to absorb the maximum impact of the escalation of tax in some categories of our beverage portfolio.

VE Commercial Vehicles – Vinod Aggarwal, MD & CEO

First impressions about GST’s influence on your business
The influence on business will be positive in the long run, despite some immediate hiccups. It will bring in efficiencies in the logistics and distribution system of the economy. The immediate impact is positive for the customers, as can be seen in the reduction in taxes on an average basis. We have passed the expected benefits in the form of price reduction to our customers. The reduction in prices ranges from 1.5% to 5% for most of the product categories.

Time taken before its back to business as usual
The industry has gone through several disruptions in the past nine months, one after the other, such as demonetisation, followed by a clean cut on the BS IV implementation date, and lastly with the GST implementation. Even though all these changes may be good in the long run, they create major discontinuity for the customer, which impacts sentiment and, as a result, the industry. The result is for everyone to see. The commercial vehicles (CV) industry growth has dropped by more than 25% in the Q1 of 2017-18.

However, we expect positivity to return in the next few months as things start stabilising.

After GST, we are optimistic about the overall industry outlook in the upcoming quarters. Having said this, we may continue to witness muted growth in the months of July and August. However, demand is expected to pick up with the beginning of the festive season, from September.

A good monsoon, the Government’s focus on investment in infrastructure and the expected vehicle scrappage policy will further trigger a demand push in the latter half of the year.

Walter Tools India – Brajesh Kumar, MD

First impressions about GST’s influence on your business
We witness the start of a new tax regime with the introduction of GST, with an objective to transform the tax structure in India. Its implementation heralds a new era in indirect tax administration, as it infuses a fundamental change in the basic concepts and practices of indirect tax administration.
There have been many expectations with the introduction of the GST. It surely would simplify the complex tax structure and eliminate the hindrances in abiding by taxation obligations. It would also ease the way companies do business.

Time taken before its back to business as usual
GST is purported to bring in the ‘One Nation, One Tax’ system, but its effect on various industries will be slightly different.
GST is a path-breaking change in the country’s tax system. With GST being implemented effective 1st July 2017, the industry has very well accepted the new tax reform. However, teething problems regarding GST are being handled and the system would take 2-3 years to stabilise.

Long-term impact of GST on your industry
With the elimination of multiple tax rates and cascading impact of tax, GST is expected to improve overall efficiency.
The GST framework is expected to bring greater transparency and simplicity in tax administration and compliance.
Tax uniformity across states would facilitate free movement of goods and services, with better compliance.

Categories: Features