Presenting an in-depth report on the changes occurred after GST and demonetisation.
Last 12 months were quite turbulent for Indian industries having witnessed two major events. First came the surprise announcement of demonetisation of higher denomination currency and then the launch of Goods & Services Tax (GST) which was awaited for a long time. Both these events had a noteworthy impact on all industry sectors and especially entire manufacturing landscape was greatly influenced. Both these moves had short-term as well as have long-term impacts which have been the point of discussion in recent months.
Initial reports indicated that demonetisation took a toll on manufacturing performance. Cash-flow issues within companies had a negative effect on output and also resulted in a decline in purchasing. But this dip in new orders and production was marginal as many surveys showed only a mild decline in manufacturing production in the last month of 2016. Even after this decline, there was a positive contribution from the sector to overall GDP in Q3 of last financial year. In July 17, GST was introduced and there were a lot of confusions and complications brought in by this new regulatory framework. Even after four months of hustle after the launch of GST, businesses were still not able to completely streamline their processes and operating methods as per GST administration. But despite all this struggle business owners are looking GST implementations as a strategic opportunity to gain a competitive edge, streamline their current business methods and move towards higher profitability.
Change in rate of technology adoption
Kunal Pruthi, Consultant – Solutions and Business Development, The Hi-Tech Robotic Systemz Ltd says, “One of the significant impacts of enforcement of these reforms is the change in rate of technology adoption in manufacturing sector. With the inception of GST requirement of restructuring entire supply chain have come up. Prior to the launch of GST, companies tried to locate and design their warehouses in such a way so that they can steer away from implications of multiple state taxes.”
Now under GST regime, various taxes are unified under one umbrella and rates are also uniform across states. World Bank report “India Development Update” has estimated that GST is helping companies in taking decisions on warehousing and distribution without making any tax considerations. This is ultimately resulting in the consolidation of warehouses and further closure of smaller warehouses. “Since most of the smaller stock-transfer warehouses are now slowly merging with larger warehouses and with manufacturing setups, it is believed that this will usher the era of overall infrastructural transformations,” adds Pruthi.
GST effect: Before and after
According to Sanjib Chakraborty, Country Head, Hurco India Pvt Ltd, “There are many tangible and intangible benefits of GST and demonetisation in India. While GST help us to make business smooth, demonetisation will ensure to do make business clean. Before GST, the SMEs without having excise registration, used to pay 16.5 per cent (CVD + AD) to buy any capital goods. But now they will pay 18 per cent GST and can take the set-off of full 18 per cent GST which is a straight savings. Demonetisation will avoid cash dealing. Customer has to buy machine directly from machine tool builder or the authorised distributors which will ensure the supply of the right product at right price. While GST has started with immediate effect, demonetisation may take some more time to be effective across the market segment especially at grass-root level.”
Within a span of almost a year, the two unprecedented changes came into action named GST and demonetisation. As this two major changes implemented, from industries to SMEs, every single entity have been affected on multiple level. Maulik Patel, Executive Director, Sahajanand Laser Technology Ltd feels that, these decisions are mainly taken with intent to eliminate black money from the system and improvise tax proceedings. He says, “The change always comes with temporary inconvenience and tends to settle in long run. Since it is less than a year, there cannot be a measurable conclusion.”
He adds, “When it comes to machine tool industries, it is a backbone for countless industries; hence any change will ultimately influence entire manufacturing chain.”
Smooth and hassle-free delivery
Sydney Quadros, OEM Pipe Head, Industry Business Schneider Electric says, “Supply of goods will be smooth and hassle free. The GST or CGST or SGST model will ensure smooth flow of goods within the automation industry.”
He adds, “Supply chain management will undergo restructuring. The additional 1 per cent tax on supply of commodities, the supply of goods and services to oneself and input tax credit on inter-state sale may drive the necessity for supply chain restructuring. GST will help the automation industry to be seen as a unified market.”
On the other hand, Quadros further added, “Last year’s demonetisation initiative’s impact on the automation industry has not been quite favourable in the hindsight. Companies saw new work and output to plummet for the first time in 2016. In turn, quantities of purchases were scaled back and employment reduced. Meanwhile, input costs increased at a faster rate, whereas output charge inflation eased. The condition is seeing marked improvement now.”
Indirect tax applicable on machine tools was high
V. Anbu, Director General & CEO, IMTMA says, “The machine tool industry has been largely supportive of GST since it is expected to rein in improved tax compliance and facilitate ease of doing business and pave way for increased investments.”
He adds, “From customer’s standpoint the indirect tax applicable on machine tools was significantly high. It was attracting excise duty and value added tax depending on the state. There was also a cascading of taxes on account of levy of CST, input tax credit retention under value added tax, levy of entry tax, octroi, local body tax, and so on.”
Unorganised players getting better organised
Anil Chaudhry, Head Robotics and Solutions Industrial Automation Business Group, Delta Electronics India says, “Post demonetisation and GST, we are observing that unorganised players are getting better organised. With this shift the visibility of this sector (industrial automation) will increase among organised sector.” However he believes that, still the effect over complete value chain needs to be visible which will further boost the growth in this sector.
Understanding GST and implementing it
Umesh Mukkannavar, Managing Director, IDS Technologies India Pvt Ltd informs that his company has not witnessed any direct impact of GST. He says, “We dispatched control panels and batching software on 30th June and resumed dispatches on 2nd of July. There were no difficulties in understanding GST and implementing it.”
He added, “With regard to demonetisation, we had no impact as all our transactions were and are in official currencies. We don’t think that we faced any difficulties regarding demonetisation. Some industry segments and trading businesses which were traditionally cash driven would have to face the music of demonetisation, which is a welcome scenario from our perspective.”
Capital: All time challenge faced by SMEs
TRUMPF Group stands as one of the world’s leading machine tool companies and a pioneer into sheet metal technology. The policies for sheet metal industry have never been corporate driven but rather it has been limited to SMEs in India. Capital is always a challenge that SMEs experience. Pradeep Patil, Managing Director, TRUMPF India Pvt Ltd informs, “We hear from the customers that while recent policy decisions have impacted the order flow and effectively cash flow for them in the short term, they also are buoyant about these changes as they see streamlining of processes in the long term. As such they are seeking to adopt the change and invest for the upcoming ‘growth’ story to unfold and continue to explore investments.”
Things changed after GST
Nitin Wakode, Associate Vice President PSG, Onward Technologies Ltd, says, “GST has been a hanging like a sword over the heads of every businessman, trader or manufacturer. On the other hand demonetisation came in as big surprise, it was done without any notice or warning. This is kind of surprise check in economy to remove certain problems.”
Wakode outlines few things that changed after GST:
• Every business under GST is now digitally compliant.
• Entire India became one single tax market.
• Investors have gain substantial faith in Indian economy including World Bank and ranking agencies.
• Multi layer tax is gone.
• Grouping has made structure easy for accounting.
• Due to change in frequency GST return filing the taxes is being paid in time.
Over the period of time GST will slowly go down considering the coverage of businesses and collections. Controlling the prices of essential commodities so many other benefits will continue to shower upon consumers and business. “Demonetisation benefits are being witness not only by the business but common man as well. With this positive note economy will have robust and strong growth,” informs Wakode.
With the inception of GST requirement of restructuring entire supply chain have come up.
Kunal Pruthi, Consultant – Solutions and Business Development, The Hi-Tech Robotic Systemz Ltd.
While GST has started with immediate effect, demonetisation may take some more time to be effective across the market segment especially at grass-root level.
Sanjib Chakraborty, Country Head, Hurco India Pvt Ltd
When it comes to machine tool industries, it is a backbone for countless industries; hence the any change will ultimately influence entire manufacturing chain.
Maulik Patel, Executive Director, Sahajanand Laser Technology Ltd
The advantage of GST administration in the automation industry is non-accessibility of union or central tax credit over state taxes and vice versa.
Sydney Quadros, OEM Pipe Head, Industry Business Schneider Electric
From customer’s standpoint the indirect tax applicable on machine tools was significantly high.
V. Anbu, Director General & CEO, IMTMA
Post demonetisation and GST, we are observing that unorganised players getting better organise.
Anil Chaudhry, Head Robotics and Solutions Industrial Automation Business Group, Delta Electronics India
We hear from the customers that while recent policy decisions have impacted the order flow and effectively cash flow for them in the short term.
Pradeep Patil, Managing Director, TRUMPF India Pvt Ltd
With regard to demonetisation, we had no impact as all our transactions were and are in official currencies.
Umesh Mukkannavar, Managing Director, IDS Technologies India Pvt Ltd
Over the period of time GST will slowly go down considering the coverage of businesses and collections.
Nitin Wakode, Associate Vice President PSG, Onward Technologies Ltd