Budget 2024: Logistics Startups Banking On Infrastructure Push To Power Growth

As finance minister (FM) Nirmala Sitharaman prepares to present the first Union Budget of the third term of the Prime Minister Narendra Modi-led government on July 23, the general expectation is that the FM will choose policy continuity.

While some announcements with an eye on political objectives are also expected, economists and businesses believe that these announcements can give further impetus to the fast-growing economy. For instance, any move to spur consumer spending will benefit businesses and startups, at least in the short term.

In terms of policy continuity, the infrastructure sector is likely to emerge as the biggest beneficiary as the Modi government has focussed on higher capital expenditure for infrastructure and job creation. 

While the burgeoning Indian startup ecosystem has plenty of expectations from FM Sitharaman, there is also a realisation that there might not be many announcements directly linked to startups. For instance, the interim Budget for 2024-25 didn’t have many big announcements specifically for startups. However, the FM did announce INR 1 Lakh Cr corpus to fuel R&D in sunrise sectors, which would benefit both startups as well as well-established enterprises.

As such, ahead of the Union Budget 2024-25, the startup ecosystem is looking at the expected announcements on the broader themes to ride on the India growth story. Within this, the logistics startups are banking on the expected push for infrastructure creation to give an impetus to their growth.

Here’s What The Logistics Industry Wants:

• Enhanced Railways, Roads & Ports Connectivity
• Simplifying Ecommerce Export Policies And Setting Up Of Export Hubs 
• Increase Capital Expenditure For Infrastructure Projects
• Simplifying Regulatory Frameworks And Ensuring A Level Playing Field
• Strong Push For EVs To Transition Towards Green Logistics
• Institute Policy To Formalise Gig Worker Employment For Logistics Sector
• Leverage Tech To Build & Bolster A Unified Logistics Platform

Push For Infra

It is pertinent to note that in the interim budget, the FM proposed a capital expenditure of INR 11.1 Lakh Cr, nearly 3.4% of India’s GDP. 

Most of the logistics players Inc42 spoke to called for the announcement of measures to build ports, roads, and airports, as well as digital infrastructure, in the upcoming Budget to reduce logistics costs. 

“Strengthening ports, roads, and airports, alongside advanced digital infrastructure, will significantly reduce logistics costs from 13-14% of GDP to 8%. This improvement will streamline supply chains, reduce delivery times, and enhance operational efficiency for ecommerce firms. Such efficiency is crucial as it allows businesses to compete more effectively on a larger scale,” said Shiprocket chief financial officer (CFO) Tanmay Kumar.

Echoing the sentiment, managing director (MD) and CEO of Mahindra Logistics, Rampraveen Swaminathan, said that a renewed focus on automation and digitisation across the logistics value chain would be crucial to achieving higher efficiencies and reduced costs.

Emiza founder and CEO Ajay Rao said, “The logistics sector would greatly benefit from enhanced connectivity of railways, roads, and ports. Prioritising infrastructural development can reduce logistic costs, improve supply chain efficiency,and foster economic growth by establishing robust and integrated transport networks”.

The logistics players are clearly pinning their hopes on the FM boosting capex spending to bolster infrastructure to pave the way for lower logistics costs. 

As per the Economic Survey 2022-23, logistics costs in India stood in the range of 14-18% of the GDP against the global benchmark of 8%. The country also featured on the 38th spot out of 139 countries in the 2023 edition of the World Bank’s Logistics Performance Index (LPI).

Strengthening connectivity by improving and building new infrastructure will also help Indian ecommerce platforms. 

The Logistics Domino Effect 

The logistics sector has a direct bearing on segments like ecommerce and even the gig economy, which have risen to prominence in the past decade on the back of India’s smartphone boom. It is these emerging areas that the logistics sector wants the Budget to focus on. 

An industry executive, on the condition of anonymity, told Inc42 that the Budget should focus on expediting policies such as the National Logistics Policy (NLP) and the Unified Logistics Interface Platform (ULIP) to create a unified logistics ecosystem. 

The executive added that leveraging synergies of these tech platforms with projects such as state-backed Open Network for Digital Commerce (ONDC) will help boost the Indian ecommerce sector as well. 

Besides improving logistics, Emiza’s Rao believes that simplifying export policies and setting up export hubs can help spur ecommerce exports. “We hope the Budget introduces measures to make ecommerce exports more accessible and efficient, driving growth and diversification in the export sector,” he said. 

Mahindra Logistics’ Swaminathan foresees the Budget significantly boosting infrastructure investments, particularly in multi-modal transport and advanced warehousing. He also expects the Centre to continue the emphasis on green energy and strong EV infrastructure to accelerate transition towards green logistics. 

He also sought measures to address the skill development gap to meet the demands of modern logistics. While calling for establishing a comprehensive regulatory framework in the Budget to support the gig economy, he also sought prioritising the formalisation of last-mile delivery employment to build a “fair, inclusive, and innovative logistics landscape”.

Smitha Shetty, the Asia Pacific (APAC) regional director of supply chain management platform Achilles Information, expects the government to continue its focus on investments in distribution networks and global value chain linkages.

The Logistics Wishlist 

Moving on, logistics players want the Budget 2024 to offer tax sops, increase ease of doing business, and establish incubators in Tier II & III cities to foster startups in the sector. 

“The 2024 Budget presents a crucial opportunity to solidify India’s economic foundation. Budgetary support for startups, like extending the window for claiming tax benefits, increasing ease of doing business, and setting up incubators in Tier II & III cities, can further accelerate the growth of startups and Make in India,” said Vahan.ai cofounder and CEO Madhav Krishna.

On similar lines, Allcargo Gati’s chief commercial officer (CCO) Uday Sharma said, “Apart from infrastructure development, the budget needs to propose measures to strengthen the digital economy and skill development to build an enabling startup ecosystem. An empowered startup ecosystem benefits industries with innovations and fresh ideas”.

Achilles’ Shetty told Inc42 that the homegrown logistics startups are looking at the Centre to scrap the contentious angel tax, launch domestic investment schemes, and simplify taxation regime in the upcoming Budget. 

While there is no dearth of demands from the sector, the ball is now in the finance ministry’s court.