Need to reduce taxes on fuel: Assocham

The Covid-induced supply chain disruptions hit the logistics industry hard. Now, the service providers are grappling with high diesel prices. Vineet Agarwal, Assocham president and MD, Transport Corporation of India Ltd., spoke to Vijay C Roy on a number of issues that are acting as stumbling blocks in the growth of the sector.

• What is the size of logistics sector?

India’s logistics sector is pegged at $215 billion. As per a study by India Brand Equity Foundation (IBEF), it is expected to attract investment worth $500 billion by 2025. The sector got infrastructure status in 2017 and is estimated to have employed up to 40 million people by 2020.

• How the Covid has hit the logistics sector?

The first quarter was challenging for all as the economy was more or less at a standstill baring essentials and few associated industries. The lockdown paralysed economic activity and the freight availability was also moderated. The entire supply chain came to a standstill with many truck drivers stranded on roads without food.

• What is the current demand?

The manufacturing, auto and construction sectors have bounced back. The good performance by the farm sector, flattening of the Covid curve and pickup in government spending has fuelled the economic recovery.

• How rising diesel prices has hit the sector?

Due of the rise in diesel prices, freight rates across several sectors have moved up. All long-term contracts have a fuel escalation clause but it is only the demand-supply mechanism that holds the key and determines market/spot rates of vehicles when it comes to road freight. Fuel constitutes 40-50% of the transportation cost and many are finding the transportation business unviable due to the rising diesel prices. Also, unlike other sectors, the transport industry did not get any stimulus from the government.

• How can we reduce freight cost?

The government should allow the logistics sector to claim input tax credit (ITC) on fuel purchases to help reduce the cost. Also, there is a need for coordinated and calibrated reduction in taxes both by the states and the Centre.