GST Rollout Will Drive Businesses Towards ERP, Automation

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Although the Goods and Services Tax (GST) has been delayed for the time being and is likely to be rolled out now by July 1, 2017, it should get implemented any time this year. It will bring in radical tax reforms and will affect everyone. One of the segments most affected would be small and medium enterprises (SMEs) and startups—the backbone of the Indian economy that employs around 40% of India’s workforce and contributes around 45% to the total manufacturing output. India has 26 million micro, small and medium enterprises (Source: Ministry of Micro, Small and Medium Enterprises). Globally, India has the fourth highest number of startups (3,100; NASSCOM report). The number is expected to increase further to 11,500 by 2020.

However, the adoption of modern technology, such as enterprise resource planning (ERP) software which provides end-to-end business solutions, is slow. According to a report by Confianzys Consulting Pvt., “The numbers reveal that at least among the SMEs in this sector, there is still very little awareness of the benefits that an ERP solution could confer. Perhaps the scale of operation and the nature of management too do not make ERP implementation imperative.”

Let’s take an example: Rajasthan is an SME hub, engaging largely in industrial and manufacturing activities. According to the Rajasthan Chamber of Commerce and Industry, the total number of SMEs in the state is around 3.35 lakh, providing employment to more than 14 lakh people. However, the percentage of MSMEs utilizing modern software such as ERP is low, around 42 percent, according to a survery done by Deskera, a global cloud-based business software provider.

“Software penetration is low overall, including the textile and marble industries of Rajasthan. We at Deskera want to help them make their businesses simpler, more user-friendly, and automated. Operational efficiency would increase and business processes would get streamlined,” said Somesh Misra, VP, Product, Deskera, while talking about the functionalities of Deskera ERP Cloud.

GST rollout makes transition to technology inevitable

However, now with the GST kicking in, such a transition to technology would become inevitable since there are several factors such as input credit, destination system, twin rates, exclusion, etc. which need automation to be fully functional. Factoring them in manually would be difficult, if not impossible. Moreover, companies already using ERP would have to modify it.  Looked at positively, this is a great opportunity for startups and enterprises to upgrade to ERP systems or upgrade the existing ones to GST compliance. For enterprises going for the ERP for the first time, they must ensure two things: that the software is cloud-based and that it is GST-compliant.

A GST-compliant Cloud ERP would ensure several advantages: taxes they need to pay, how tariffs would apply, the quantum of taxes as well as calculation procedures. Moreover, automation would remove chances of human error—as the smallest mistake could swell into an inflated tax bill. This can particularly hurt small businesses that are just starting out. However, if equipped with appropriate tools, enterprises can file tax returns properly and can even end up saving taxes.

Reasons for low technology penetration

Perhaps, companies are reluctant to go in for Cloud ERP software as they fear investing big amounts in a solution they are not sure about. However, they have some kind of interest in such business processes. For such companies, Software as a Service (SaaS) models are more suited. This is due to two reasons: (1) substantially lower front‐up costs of SaaS ERP and SaaS CRM; and (2) facility to pay‐as‐you‐go basis, ridding them of any apprehensions of getting trapped in long lock‐in agreements.

Enterprises widely use the ERP software in the West. In order to keep up with the fast-changing world, Indian enterprises too would need to keep abreast. The latest GST reform will only push them on to the high-technology growth trajectory.

[Disclaimer: The views expressed in this article are solely those of the authors and do not necessarily represent or reflect the views of Trivone Media Network's or that of CXOToday's.]