7 PM | A cargo of cash puts logistics in high gear |16th July, 2019

Context:logistics sector and its impact on Indian economy

Logistics is an integral activity for economic growth as it involves the management of flow of goods from place of origination to place of consumption. The sector comprises shipping, port-services, warehousing, rail, road and air freight, express cargo and other value added services. Over the last two decades, the Indian logistics sector has evolved from mere transportation services to fully integrated service providers.

Scope and need of the logistics sector in India:

  • Growth: The growth of economy and logistics sector goes hand-in-hand. The Logistics sector in INDIA has today become an area of priority. One prime reason for the same stems from the reason that years of high growth in the Indian economy have resulted in a significant rise in the volume of freight traffic moved. So the future growth target of Indian economy is nearly 8%, to achieve this growth logistics sector will be the key.
  • Employment potential: According to Economic-survey 2017-18, The Indian logistics industry which provides employment to more than 22 million people has grown at a compound annual growth rate (CAGR) of 7.8 per cent during the last five years. The logistics sector will be the sunrise sector for providing employment opportunities to growing workforce.
  • Logistics performance index: The Global Ranking of the World Bank’s 2016 Logistics Performance Index shows that India jumped to 35th rank in 2016 from 54th rank in 2014 in terms of overall logistics performance. India has improved its rank in all the six components of logistics performance index. So there is still scope to improve the ranking.
  • Agriculture sector: The annual value of harvest and post-harvest losses of major agricultural produces at the national level was of the order of Rs 92,651crore. This is more than the loan waivers announced recently. The main reason behind the loss is lack of storage and transportation facility in the country. While the government has been working on improving the road network in the industry, storage and warehousing facilities were not being created at the same pace.
  • Green supply chain management: Logistics companies in India are waking up to the global trend of offering green services to their customers and are showcasing what they do to reduce their carbon footprint. In India, the sector accounted for seven per cent of GHG emissions in 2007, and this is expected to double to 14 per cent by 2025, according to the Environment Ministry. So for the sustainable future need to focus on logistics sector.

Challenges of logistics sector in India:

  • Transport related challenges:
  • In India road has become predominant mode of transportation of freight cargo. Estimate of the modal movement of cargo highlights that in India nearly 60.2% of the cargo is moved by road, 32.1% by rail, and rest by the coastal shipping, airways and inland waterways. Pipelines constitute a very minor proportion. It is recognized that movement of long haul bulk traffic by road is less efficient than by rail.
  • Port sector: High turnaround times- Data from Indian ports association shows that ports in India suffer from high turnaround times for ships. JNPT, the premiere port in India, has more than two times the turnaround time of Colombo and Singapore ports because of congestion on berths and slow evacuation of cargos unloaded at berths.
  • Storage: State of cold storages is poor- Despite the significant requirement of cold storages from the retail sector, pharmaceutical and chemical sector and the farm sector, where it is estimated that up to 40% of the fruits and vegetables grown in India gets wasted, receptor needs to grow much faster to meet the needs.
  • Lower standardization: India’s logistics market has been impacted by lower standardization of cargos and containerization of logistics traffic, hampering the overall speed and thus increasing cost of movement.
  • Skill related challenges: As now courses focusing on logistic industry remain few and far between. Also logistic industry is still not looked at as the industry of choice for young graduates thereby making hiring of quality professional manpower challenging.
  • Project delays and over runs:As many as 369 infrastructure projects, each worth Rs 150crore or above, have shown cost overruns to the tune of over Rs 3.58lakhcrore owing to delays and other reasons. The brief reasons for time overruns as reported by various project implementing agencies are delays in land acquisition, forest clearance and supply of equipment. This led to logistics costs in India are one of the highest, at around 14 percent of GDP.

Government measures related to logistics sector in India:

  • Infrastructure status: While the government has been working on improving the road network in the industry, storage and warehousing facilities were not being created at the same pace.  So the government has granted infrastructure status to the logistics sector, including multi-modal logistics parks and cold chains. Infrastructure status for cold chains and warehousing facilities will provide a big boost to attracting private investment in this sector as the cost of funding it will be at a concessional rate and the players will have multiple instruments to raise the money through.
  • Initiatives by government:
  • Bharatmala project: is a new umbrella program for the highways sector that focuses on optimizing efficiency of freight and passenger movement across the country by bridging critical infrastructure gaps through effective interventions like development of Economic Corridors, Inter Corridors and Feeder Routes, National Corridor Efficiency Improvement, Border and International connectivity roads, Coastal and Port connectivity roads and Green-field expressways.
  • Sagarmala project: The Sagarmala initiative will address challenges by focusing on three pillars of development, namely (i) Supporting and enabling Port-led Development through appropriate policy and institutional interventions and providing for an institutional framework for ensuring inter-agency and ministries/departments/states’ collaboration for integrated development, (ii) Port Infrastructure Enhancement, including modernization and setting up of new ports, and (iii) Efficient Evacuation to and from hinterland. 
  • Dedicated freight corridors: The Dedicated Freight Corridors (DFC) will increase the speed of transportation through railways which compete with roads for the same freight. National highways constitute just two percent of the country’s road network but carry 40 percent of the traffic load; thus a better rail network will help reduce road congestion. Along this network, the government has planned to set up 34 mega logistics parks at investments of more than Rs 1lakhcrore. The Centre will take up projects in partnership with state governments and private companies. The government expects the Indian logistics sector to grow to USD 360 billion by 2032 from the current USD 115 billion.
  • Goods and Services Act: According to the rating agency ICRA, post GST implementation the savings in terms of truck turnaround time has been approximately 18-20 per cent. GST streamlined the process, by subsuming lot local taxes like Octrai which led to speed movement of goods and services.
  • Policy framework: The Indian government has announced that it is working at the policy in order to set up new logistics plan in the country. The intention is to devise the most cost-effective method to transport goods by the year 2035. The policy aims at preparing a proper integrated logistics plan. The new logistics division within the department of commerce is working on this national integrated plan, with the objective to identify and iron out any existing bottlenecks and gaps in the industry.

Way forward: The future of the Indian Logistics Industry lies ultimately in value propositions for the customer. Value solutions can be engineered only if the complex strands of supply-chain mesh together seamlessly. t. The cost-conscious Indian market first has to be made to appreciate the value of premium services first. This would result a reduction in cost down the line, which can only happen when most of the deficiencies mentioned above are removed. Logistics companies can leverage further economies of scale when operations are expanded. This may require industries to collaborate with logistics service providers to nurture their businesses, possibly in a way the automobile industry in India nurtured the auto-component companies. The future is bright for logistics industry in India- the expectation is that a tipping point for the industry will soon be reached which will propel it to greater heights.

Source: https://www.business-standard.com/article/economy-policy/a-cargo-of-cash-from-private-equity-investors-puts-logistics-in-high-gear-119071501463_1.html.

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