In India, the logistics sector has been marred with inefficiencies, depriving the industry of achieving its full potential
The logistics sector makes up 14.4% of the country’s GDP, but it costs 14% of the GDP. The gap of $180 Bn per annum needs to be addressed to achieve the country’s dream of a $5 Tn economy
The Indian logistics industry is clearly spurred by a chain of policy changes and infrastructure upgrades
Logistics is the backbone of the economy. It affects all industries in three sectors – agriculture, manufacturing and services. In India, the logistics sector has been marred with inefficiencies, depriving the industry of achieving its full potential. The logistics sector makes up 14.4% of the country’s Gross Domestic Product (GDP), but it costs 14% of the GDP. The global average logistics cost to a country is approximately 8%. The gap of $180 Bn per annum needs to be addressed to achieve the country’s dream of a $5 Tn economy.
The largely informal or unorganised sector has contributed to the country’s growth, but its structural fragmentation has been neglected for far too long. In recent years, there has been a paradigm shift in the logistics sector with the move towards making it an organised sector.
The government of India institutionalised the Logistics Division under the Department of Commerce in 2017. The Department of Commerce here onwards became responsible for the integrated development of the logistics sector. The action plan includes integrated sector development through policy changes, improving existing procedures, identifying bottlenecks and gaps along with introducing technology. It is undoubtedly the right step towards the regularisation of the sector.
There have been several developments since then that have further triggered a much-needed shift in the sector.
Gati Shakti Programme
Taking its efforts toward improving the logistics sector, in 2021, the government introduced the PM Gati Shakti National Master Plan for Multi-Modal connectivity to various Economic Zones. The transformative approach toward economic development and sustainability is dependent on the railways, roads, ports, waterways, airports, mass transport, and logistics. The plan will achieve economic transformation, seamless multimodal connectivity, and logistics efficiency with technology adoption and speedier implementation.
One way the plan is moving towards digitalisation of the sector is through BISAG-N’s (Bhaskaracharya National Institute for Space Applications and Geoinformatics) Digital Master Planning tool. The tool made on Geographic Information System (GIS) platform will ensure dynamic mapping of all infrastructure projects. The real-time updates on the projects from across government departments will bring efficiency, transparency and speed to the projects.
Improving The Modal Mix
The Indian logistics sector has also been suffering due to high costs, resulting from the inefficient modal mix where trade takes place by road. The road infrastructure has improved over the years, but there needs to be a balance between rail, road and waterways. The dedicated freight corridors being operationalised in phases are increasing the share of rail in the modal mix. The share of waterways has been limited to 4% in India, much lesser compared to China and Europe, where it varies between 35% to 40%. To make an efficient modal mix, the Indian government has introduced the Sagarmala Programme.
The ambitious national initiative aims to transform India’s logistics sector’s performance by unlocking the country’s potential for waterways and coastlines. Sagarmala has been introduced with the vision to reduce logistics costs, which will lead to overall savings of INR 35K to INR 40K Crore per annum. It also aspires to reduce carbon emissions by 12.5 MT/annum by transportation. The Sagarmala project brings innovation, which will benefit the sector and the environment in the long run. India is the land of rivers and easy availability of ports. It’s high time to leverage these for economic benefits.
Alternate Fuels And Tech In Logistics
As India adopts extensive multimodal transport, the logistics sector cannot ignore the critical needs of this segment – sustainability and carbon neutrality. Alternative fuels are an opportunity for the sector to stand up for the global call for sustainability. These alternative fuels are storming the logistics industry, including biodiesel, electric fuel, ethanol, hydrogen, methanol and natural gas.
As the Indian logistics sector transforms, we need to remember that climate-neutral logistics is the future, and sustainable fuels will play a critical role in bringing down the impact of transport on climate change. There is a need for a smart strategy, infrastructure and expertise to achieve the vision of a climate-neutral future.
The advancement of technology has brought structuralisation to the sector. Tech innovation is enabling mechanisms like selecting supply chain partners, coordinating and end-to-end monitoring of delivery processes. Technologies like the Internet of Things, smartphones, augmented reality, cloud storage, big data analytics, computing, social media, among others are improving logistics operations’ efficiency.
With the digital collection, movement, storage, and analysis of data, new-age logistics companies are gaining a competitive advantage. As a result, transactions are completed faster, trucks are used more efficiently, customers and vendors have access to the supply chain, spot pricing is more efficient, service levels are standardised, and agents are disintermediated. Companies are quickly moving towards reducing cycle times to add value to their customers.
The Indian logistics industry is clearly spurred by a chain of policy changes and infrastructure upgrades. The sea of changes in the sector began with reforms like GST and the e-way bill. Furthermore, the development of support infrastructure is improving connectivity.
There is an overall shift in how the sector is perceived as a specialised function, not just as transportation or warehousing. The logistics market, currently at $250 Bn is expected to grow at 10-12% CAGR to $380 Bn by FY25 with pick up in demand. It will further improve India’s competitiveness.