Budget 2020: Regulatory relaxation, tax benefits and renewed focus to drive growth in warehousing sector
Constructing a warehouse involves huge capital investment with Grade-A quality construction costs between Rs 1,400- Rs 1,600 per square feet.
The growth prospects in the warehousing segment have led to the emergence of many organised players coming into this sector
Constructing a warehouse involves huge capital investment with Grade-A quality construction costs between Rs 1,400- Rs 1,600 per square feet
Availability of skilled manpower is another challenge for the sector in the way of scaling up the business
The GST has truly unclogged the growth spectrum of the domestic warehousing sector through consolidation. Sectors like e-commerce, retail, fast-moving consumer goods (FMCG) and pharmaceutical are driving the demand for quality big size warehouses (typically is more than 300,000 square feet of area and at least 10 metres clear height) in the country. The growth prospects in the warehousing segment have led to the emergence of many organised players coming into this sector. Moreover, renowned private equity (PE) players like Blackstone Group, Warburg Pincus, Morgan Stanley etc, have already started investing heavily in warehousing development.
However, as the warehousing sector is capital intensive, skilled labour intensive and depends on regulatory approvals and availability of land, the government, in the forthcoming Budget, should focus on addressing some sectorial concerns to help the warehousing sector achieve its growth potential.
The first and foremost concern is the time-consuming process of obtaining multiple approvals from various government departments for constructing a warehouse. Earlier, the demand space size for warehouses used to be 10,000-20,000 sqft which has shot up to big size warehousing space (200,000-400,000 square feet) — mainly due to the proliferation of e-commerce players, the government can propose certain relaxations in regulatory approvals to accelerate the pace of warehousing construction. Single window clearance facility with stipulated timelines for each approval can really help warehousing developers.
Constructing a warehouse involves huge capital investment with Grade-A quality construction costs between Rs 1,400- Rs 1,600 per square feet. So, the government can propose tax rebate to the warehousing companies so that they can invest more in constructing warehouses. The government should also take necessary policy initiatives to facilitate the better credit facility, low-interest rates and FDI into the warehousing sector so that the warehousing sector can grow and expand. Another way to offer support to the warehousing sector would be to offer tax rebates or incentives to the cement or steel sectors which will, in turn, help in lowering the cost of constructing warehouses. Cement and steel typically take up almost 60 percent of the construction cost. So, the reduced construction cost will fuel growth and profitability in the warehousing sector.
Accessibility to land remains a key challenge for private players in the warehousing sector. The process of acquiring a large chunk of land directly from the landowners especially the farmers are fraught with various legal, Land ceiling act and approval processes. Therefore, if the government proposes the creation of a land bank and allot land from that land bank to the private players to develop Grade - A warehouses, such policy initiative will not only help warehousing players circumvent the legal hassles but also give a much-needed impetus to the capacity building in the warehousing sector.
The government can think of rolling out PPP (public-private partnership) model in the warehousing sector to monetise the land parcels owned by the government itself. Under the PPP model based on the concept of revenue sharing, the private warehousing players can build warehouses while the government can also assist them in obtaining the required approvals to construct warehouses in those land parcels.
Availability of skilled manpower is another challenge for the sector in the way of scaling up the business. To address that concern, the government should propose higher budgetary outlay for its “The Skill India Mission” so that this notable government initiative to generate skilled manpower can further strengthen its focus in the logistics sector.
As the e-commerce sector is generating approximately 30-35 percent of the warehousing demand currently, the warehouses need to have top-class operational efficiency through integration of advanced technologies like robotics, AI, orbiters, etc. The aim is to deliver faster turnaround time and swift movement of the goods. To facilitate the improvement of the operational efficiency in the warehousing sector, the government can propose tax credit on the investment in technology.
There are some truly encouraging developments taking place for the warehousing sector. The commerce ministry is moving towards setting up exports hubs in various districts of the country. The creation of exports hubs will further drive demand for warehousing across the country. On the other hand, various warehousing hubs in seven key cities namely Mumbai, Delhi, Kolkata, Mumbai, Bengaluru, Hyderabad, Pune and Chennai are growing in scale. E-commerce players are penetrating to tier-2 and tier-3 cities. The government last year announced investment of Rs 100 lakh crore in the infrastructure sector over the next five years. The government needs to work towards removing bottlenecks to facilitate infrastructure growth. Some policy modifications, new initiatives and renewed focus in the forthcoming budget will go a long way in expanding warehousing growth bandwidth.
(The writer is General Manager (Land and Leasing), Allcargo Logistics)
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