The implementation of the Goods and Services Tax (GST) on 1 July 2017 marked a pivotal fiscal transformation for India. This GST reform replaced the complex structure of state-level levies and taxes with a unified national system, fundamentally altering the movement of goods across the nation. Initially conceived as a tax reform, it swiftly became a catalyst for a supply chain revolution, significantly impacting warehousing, transportation and logistics. Seven years later, the sector has undergone substantial changes, and with the introduction of GST 2.0 in September 2025, the reform is set to embark on a new phase. This phase promises reduced costs, more sustainable supply chains, and enhanced global competitiveness, while also introducing fresh challenges for delivery platforms, e-commerce, and gig workers.
Impact of GST on Transportation and Warehousing
The most noticeable impact of the GST was on the movement of goods across states and UTs. Prior to 2017, India’s highways were filled with checkpoints where trucks would wait for hours to complete paperwork and pay entry taxes. This not only caused delivery delays but also increased logistics costs owing to fuel wastage and idle time. With GST removing these obstacles, average transportation times decreased significantly by approximately 20 to 33%. A quicker truck turnaround enhances efficiency, enabling companies to reach larger markets (including rural areas) with smaller fleets. For a country as vast as India, this is a significant accomplishment.
The tax reform significantly altered the landscape of the warehousing sector. Previously, companies were required to operate small warehouses in each state to circumvent entry taxes, a system that was inefficient, increased costs, and resulted in redundant inventories. With the introduction of the GST, businesses shifted to consolidating their storage into large regional centres, utilising a hub-and-spoke distribution model. This change led to a reduction in distribution costs of 8-12% and enabled economies of scale that enhanced efficiency through central warehousing. Consequently, the warehousing industry has flourished and expanded at a remarkable CAGR of 23% over the last five years, with large central warehouses becoming prevalent near key markets.
Rise of Third-Party Logistics and E-commerce Growth
The introduction of GST led to a significant expansion of 3PL services. With the elimination of tax barriers, companies found it more efficient and economical to delegate logistics to specialized service providers. From 2020 to 2025, the 3PL industry experienced a strong annual growth rate of 11.5%, allowing businesses to concentrate on their core activities while depending on expert partners for transportation, warehousing, and supply chain management services. The emergence of larger warehouses facilitated the adoption of advanced technology, new warehouse management systems, robotics, and automation, which were previously impractical in small state level storage units, became feasible, leading to improved accuracy, reduced errors, and substantial savings in inventory expenses.
One of the most noticeable beneficiaries of the GST has been the e-commerce sector. By eliminating tax cascading and facilitating smoother interstate transactions, the GST enabled online retailers to aggressively expand into Tier II and III cities. Consumers benefited from a broader selection of products and quicker delivery times, whereas companies were able to streamline their inventory and reduce last-mile expenses. In many respects, the GST served as the unseen framework that fuelled the surge in India’s digital commerce.
GST 2.0: Towards Cost Efficiency and Sustainability
Although the initial phase of the GST brought about these structural transformations, GST 2.0, introduced in September 2025, aims for even greater achievements. The Indian economy is poised to confront the export challenge, largely due to the US tariff situation and the anticipated decline in dollar earnings. There could not be a more opportune moment than the present to stimulate domestic consumption; perhaps this urgency was a driving factor behind the swift implementation of GST reform. The supply chain, e-commerce, and logistics sectors play critical roles in this initiative. The logistics industry still represents nearly 14 % of India’s GDP, significantly higher than the global standard of 8%–10 %. To enhance India’s global competitiveness, it is crucial to alleviate this burden. The new reforms are designed to address this by focusing on reducing freight costs, promoting multimodal transportation, and advancing sustainability; for example, freight services are now subject to only 5 % GST, which decreases the expenses associated with road, rail, and multimodal transport. Fleet operators benefit from enhanced Input Tax Credit provisions, facilitating investments in modern vehicles, including electric ones. Taxes on vehicles, tires, and spare parts have been reduced from 28 % to 18 or even 5 %, lowering acquisition and maintenance costs and making fleet expansion more feasible.
Beyond cost savings, GST 2.0 aligns tax reforms with environmental objectives. By reducing GST rates on electric vehicles and renewable energy products, it encourages the adoption of green fleets and energy-efficient warehousing. Lower levies on multimodal services are anticipated to enhance the integration of rail, road, and inland waterways, thereby reducing India’s heavy reliance on road freight and improving its reliability. Additionally, the long-awaited GST Appellate Tribunal, expected to be fully operational by the end of 2025, aims to reduce litigation and simplify compliance. However, this situation is not ideal. While economists and industry analysts generally support GST 2.0 for its potential to lower logistics costs and align supply chains with sustainability goals, they also express some critical concerns about its design and impact on the economy. Delivery-based platforms, including food aggregators and quick commerce companies, are facing increased taxes. The new GST on delivery charges has increased from 5% to 18%, raising consumer bills and squeezing the thin margins. For a ₹30 delivery charge, the tax increased from ₹1.5 to ₹5.4, compelling platforms to either pass on costs to customers, absorb losses, or reduce payments to delivery executives.
The impact on platforms could be a significant tax burden due to the millions of deliveries conducted across India. This narrow margin may compel e-commerce or quick commerce companies to trim excesses, potentially affecting the benefits they offer to delivery partners or gig workers. Hence, these workers in the gig economy, who are essential to food delivery and grocery services, may encounter reduced earnings or increased workloads as companies implement such changes. Moreover, local or smaller regional quick-commerce players may struggle to withstand the increased tax burden, which could lead to losses, mergers, or an inability to compete effectively in the market. Additionally, in the freight industry, despite tax reductions, transitional rules regarding input credits could pose cash-flow issues, particularly for smaller operators with limited working capital. GST 2.0 should achieve its goals of reducing freight expenses and updating transportation fleets so that India may align more closely with global standards, thereby enhancing its role in international supply chains. The second phase of the GST initiative holds the potential for even more significant advantages by advocating sustainability and adopting multiple modes of transport. However, the disparity of tax levels on in-city deliveries, and their impact on consumers and gig workers, indicates that meticulous policy adjustments will be necessary.
This article is authored by Dr. Surya Prakash- Associate Professor, Great Lakes Institute of Management, Gurgaon. Disclaimer: All views in this article are the author’s own and do not necessarily reflect those of Logistics Insider.
