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India’s Logistics Sector

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November 23, 2022

What is the issue?

  1. The government’s initiatives like Make in India, Atmanirbhar Bharat and PLI scheme are an attempt to expand the high-value manufacturing base of India.
  2. But there is a need to strengthen the supply chain logistics sector of India.

What is the status of India’s Logistics Sector?

  • India’s logistics are estimated to account for about 14.4% of GDP.
  • More than 22 million people rely on it for their income.
  • The Department of Commerce's logistics division for India was established in 2017 and was given the responsibility of the Integrated Development of Logistics Sector.
  • Overall, India’s logistics sector consists of 37 export promotion councils, 40 Participating Government Agencies (PGAs), 20 government agencies, 10,000 commodities and 500 certifications.
  • In 2019, the Indian logistics sector was valued at Rs. 15.1 lakh crore (US$ 190 billion).
  • The unorganised sector amounts to 99% of the logistics sector that includes
    1. Owners of less than five trucks,
    2. Brokers or transport companies' affiliates,
    3. Small-scale warehouse owners, among others.
  • The development of the logistics sector is also reflected by the fact that India scored 90.3% in the UNESCAP’s Global Survey on Digital and Sustainable Trade Facilitation conducted in 2021.
  • This is an exceptional improvement from the score it secured in 2019 of 78.5%, brought about by gains in the scores of five important indicators.
  • The score has shown a consistent improvement, with scores of 63.4% and 67.7% secured in 2015 and 2017, respectively.

What is the current need for the manufacturing sector?

  • The supply chain, which depends not only on strong infrastructure like modern roads, ports, railways, airports, etc. and also on seamless usage, has been an impediment.
  • Despite sizeable investments in these sectors, there is a need to integrate the supply chain logistics with the support of information technology.
  • Post-Covid, nations have started to strategize for China+1 for a reliable supply chain.
  • India too is pushing ahead to enhance high-tech manufacturing, not merely as China+1 but ‘Minus China’.
  • But it has led to the realisation that a transformation is required in India’s logistics framework, primarily to bring down the logistics costs from 12-14% to the international benchmark of 6-8% of GDP.

What is the allied issue?

  • An allied issue that also impacts costs is slow timelines for supply chain development, as various government departments/agencies work in silos.
  • For example, on many busy routes, the potential efficiency of rail cargo movement in terms of speed and energy costs is nullified by the unpredictability of delivery time.
  • Recently, goods with highest time-sensitivity have seen the fastest increase in trade.
  • Falling communication costs have resulted in fragmentation of services into components supplied from across the world for assembly and sale to final consumers.
  • To provide optimised cost and time efficiency, intermodal logistics is inevitable.

What is Railways’ predicament?

  • Railways out-prices itself in freight business by cross-subsidising passenger travel.
  • Its legacy serves limited commodities like steel, cement, fertilisers and other bulk cargo which excessively increases overall costs for rail freight customers.
  • Railways has been losing most of the low-density, high-value cargo due to lack of multimodal facilities and customised fleet of wagons.
  • A sub-optimal rail-road mix in freight movement is detrimental to the economy as a whole.
  • Beyond a threshold distance, movement by rail is the most cost-effective.
  • But it has lost share to road, primarily due to lack of flexibility in its operation and its pricing.

What are the government initiatives?

  • Recent major initiatives of the government are
    1. The $2 trillion Gati Shakti scheme to integrate government arms with a common portal for single-window access to services, and
    2. The National Logistics Policy (NLP).
  • After pushing aggressively for local manufacturing, the government must gear up for another transformation to advance manufacturing.
  • Leading companies from Apple to Mercedes have already increased their manufacturing base in India.
  • This should help reinvent the country’s logistics sector to further boost India’s local manufacturing.
  • Besides the objective to reduce the cost of logistics to single digit by 2030, the policy sets two other key targets:
    1. Improving the logistics performance index ranking to be among top 25 countries by 2030 and
    2. Creating a data-driven decision support mechanism for an efficient logistics ecosystem.

What must Railways do?

  • The NLP aims to provide integrated logistics by convergence of traditional transport infrastructure with each other, backed by a robust IT backbone.
  • Rail must gain pre-eminence as the preferred mode even as the ideal role of road in first and last-mile and door-to-door service continues.
  • It is envisaged that rail’s overall modal share of freight transport should be increased to 50% from the present 26%.
  • At the heart of the Railways’ freight strategy is creation of high-volume and speed freight corridors, calibrating the services to create a critical mass of wagons carrying piecemeal general goods in train loads, in partnership with other players.
  • To meet customer expectations, rail freight service would need to be fast, reliable and flexible, working in hub-and-spoke networks.
  • Logistics has shifted from being a cost centre to being a centre creating value by leveraging the optimal modal mix, which includes promoting sectors other than rail and road.
  • The NLP with PM’s Gati Shakti launch has the potential to turn India into a global factory besides benefiting MSMEs and farmers as well.
  • The key now lies in coordinated, effective and speedy implementation.

Reference

  1. Business Line | Missing links in India’s logistics
  2. IBEF | India’s growing Logistics sector
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