Budget 2016: What's In Store For Transport And Logistics Sector?

The 2015-16 Union Budget had an emphasis on infrastructure, with increased allocation and overall policy initiatives for infrastructure sector - roadways, Foreign Direct Investment (FDI) in railways, labor reforms, corporatization of ports, PPP model in infrastructure development.

As India prepares for a transition to the next level of the logistics growth trajectory, the government is expected to announce infrastructural changes, and regulatory policies and measures to chalk the roadmap for the sector in the coming years. In my opinion, the following key recommendations can help provide the much-needed impetus to the sector:

Infrastructure development: financing schemes for highways and road construction projects, the development of an action plan to decongest airports and seaports, shifting cargo-clearance activities to inland ports or airport locations, in addition to improving hinterland connectivity, would be crucial steps toward developing sound infrastructure. Increased adoption of technology would further help the logistics sector to be more efficient. The government is expected to continue to facilitate development of waterways and logistics parks for faster and efficient movement of cargo.

Expedite decision making: The introduction of a single-window clearance system to ensure speedy approvals and timely execution of infrastructure projects would bring transparency in the overall working system.

Improved modal mix: Policy-based push to channelize the movement of commodities to suitable modes of transportation would improve the modal mix. Further, the government could look at diverting the transportation of bulk commodities from road to other appropriate modes, such as railways and waterways, thereby freeing up capacity for fast-moving goods.

Warehousing: Launch of new policies to set up free trade warehousing zones in India, in addition to infrastructure development for cold chain logistics.

Skilled workforce: Chart out a clear, time-based roadmap, identify the output and financial outlays for skill development projects focusing on transportation, warehousing and cold chain sectors. This would include setting up of aeronautical and maritime universities that focus on providing sector-specific knowledge and exposure to individuals.

Private investments: Policy-driven promotions of the Public-Private Partnership model for infrastructure development in the transportation sector, along with plug-and-play projects.

GST: The introduction of GST is eagerly awaited by the trade and industry and one expects this to be introduced in 2016-17 financial year

Taxation: The government should provide clarity on the various direct tax issues, such as:

-procedural tax assessment for regular and occasional shipping business;
-exclude service tax portion to levy presumptive tax on income earned by foreign shipping clients;
-eligibility of tax holidays for CFS / ICDs located in Ports;
-eligibility of tax holidays for MRO, Ground handling, cargo and ATF Infrastructure co-located at an airport (draft National Civil Aviation Policy 2015 issued by Ministry of Civil Aviation, Government of India has also supported tax holidays for MRO, Ground handling, cargo and ATF Infrastructure co-located at an airport); and
-transfer pricing on outbound/inbound leg of freight forwarding transaction, which are currently in litigation before several tribunals and High Courts.

It should also provide a clear roadmap for corporate tax reduction and removal of MAT.

Additionally, the sector anticipates the government to provide clarity on tax incentives - such as infrastructure status for port support services and extension of tax incentives for all warehouse facilities.

While the sector expects several regulatory and functional developments, some of the key ones discussed above could provide a strong base to further develop logistics in the country. While it is imperative for the policymakers to accelerate implementation, other stakeholders - including service providers, users and industry bodies - would need to work in collaboration to achieve inclusive growth.

Overall, the focus of the forthcoming Union Budget is expected to address pending issues from the previous budget, address the regulatory concerns and facilitate rapid growth of the sector.

(The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG in India)