Published On : Wed, Oct 26th, 2016

GST pushes ecommerce biggies like Amazon, Flipkart to Nagpur!

nagpur-amazon-flipkartNagpur: Nagpur has been at the core advantage in terms of its geographical location. With the Goods and Services Tax scheduled to be introduced early next year, Nagpur is expected to reap its location advantage into profitable venture. The scene is evident as after Future Group set up a warehouse, many more companies are making up their minds to shift their logistical hub to the city.

Retailer Future Group has opened a warehouse on the outskirts of Nagpur three years ago to supply its supermarkets.

Nagpur has been already from benefiting the GST that will allow companies to move goods across state borders without being hamstrung by local levies. Property prices have surged as companies from Amazon to tractor maker John Deere have set up central facilities in the city to cut down on transport costs. E-commerce giant Flipkart and even guru-turned-businessman Baba Ramdev are setting up facilities in Nagpur.

“The advantage of Nagpur is simple. All metros (big cities) in the country are all about 900 kms (560 miles) from there,” said Rakesh Biyani, Future Group’s joint managing director.

Consultancy Alvarez & Marsal, which specialises in turnarounds and performance improvement, estimates firms can cut logistics costs by 25 per cent if they consolidate their warehouses in Nagpur.

Future Group is quadrupling the land it owns at the edge of the city, with plans to turn Nagpur into its biggest warehousing facility supplying more than 250 of its Big Bazaar supermarkets.

Mahindra Logistics, part-owned by cars-to-IT conglomerate Mahindra Group, has accelerated plans to buy more land in Nagpur since the new tax was approved in August. Land prices are up by as much as a fifth since April, real estate agents say, as developers snap up farmland.

Viren Thakkar, managing director of warehouse manager Logistics Park India, said he was getting three enquiries a week about Nagpur, up from one a month a year ago.

“I have started aggregating land parcels in the city, anticipating demand,” he said.

Nagpur has seen ambitious plans before. Almost a decade ago, the government was promoting plans to build an international metropolis here – then the global financial crisis hit and plans for export-oriented special economic zones were put on ice.

But since then, the country’s consumer goods market has blossomed, and so too has the pressure for better logistics hubs: the e-commerce industry, for example, has grown five-fold between 2013 and 2015, from $2.9 billion to $16 billion, Deloitte estimates.

Political Advantage

Nagpur is also in a rosy political spot. The city is home to Rashtriya Swayamsevak Sangh that underpins Prime Minister Narendra Modi’s ruling party, the Bharatiya Janata Party. The local MP is transport and shipping minister, Nitin Gadkari.

Nagpur-born Gadkari has said the government has sanctioned 250 billion rupees ($3.7 billion) worth of projects linked to the city since Modi came to power in 2014, including starting work on a new ring-road and acquiring land for a dry port with rail and road connections to Mumbai, the country’s biggest city and largest port 510 miles (825 km) to the west.

“Nagpur is the zero mile, where you can manufacture and distribute in the country and the logistics cost is less. There are huge opportunities,” Gadkari said in an interview at his office.

India’s ‘zero mile’ marker, the centre of the country, has been located in Nagpur since the British colonial era.
Gadkari said he wants to accelerate construction of a long-delayed international cargo hub and expanded the airport, spread over an area the size of 4,000 football fields, so that it provides 50,000 jobs by 2019, compared to 9,600 staff today.

What is not clear is how quickly these ambitious projects will be completed. While a new expressway to Mumbai has been approved, critics say construction will mean acquiring land from reluctant farmers – a slow process.

Gadkari’s international cargo hub has been partly constructed and some tenants have arrived. But the airport expansion has stalled, although a tender for the project is likely to be launched this year.

There is little question that the country needs an efficient hub.

The country, the world’s seventh-largest, is hampered by creaking infrastructure, with many roads and rail links dating to the colonial era. It has few cold storage networks, and cross-country transport is at glacial speeds.
Fractured tax systems among India’s 29 states and seven other territories have hardly helped.

Indian goods trucks wait days at checkposts at state borders for clearance and payment of local taxes before they can proceed. That has blocked movement of goods and encouraged firms to operate multiple warehouses across the country.

Mahesh Y Reddy, director general of the Infrastructure Industry and Logistics Federation of India, said it was sometimes cheaper to send goods from Mumbai’s port to Dubai than to Nagpur, less than half the distance away, because of delays in shifting goods onto trucks and then the slow haul through the interior of the country.
“Ultimately, it’s because of these inefficiencies that the likes of Nagpur do not become industrial hubs,” Reddy said, adding, “They remain as they are.”

Inputs : Business Standard