GST Rate Cut to Ease Logistics Costs, Spur Economic Growth

A reduction in the cost of logistics would have cascading effects, such as making manufacturing more competitive

- Manas Pimpalkhare & Subhash Narayan

The GST Council's decision to reduce the levy on goods carriers from 28% to 18% is likely to reduce the country's logistics costs, a key factor in improving the country's total economic output and reducing prices.

A reduction in the cost of logistics would have cascading effects, such as making the manufacturing sector more competitive, something that's especially important amid global economic uncertainty and a 50% tariff from the U.S.

Union minister of road transport and highways Nitin Gadkari has said several times that while India's logistics costs have fallen over the years, they need to be lower still.

His goal is to reduce India's logistics costs to 9% of gross domestic product (GDP), he told Mint in July.

At a CII event in New Delhi on Monday, Gadkari said India's logistics costs are currently around 10-11% of GDP—down from 11-15% earlier—compared to 8% for China and about 12% for the U.S., U.K., and Europe. This improvement was driven by the better quality of roads, he said.

The GST cut on goods carriers will lower acquisition costs, and allow fleets to be upgraded faster and maintained better, according to manufacturers and sector experts.