India’s logistics sector is poised for accelerated growth, led by GDP revival, ramp up in transport infrastructure, e-commerce penetration, impending GST implementation, and other initiatives like ‘Make in India.’
This offers opportunities across the spectrum for companies in transportation, storage, distribution, and allied services. Empirical evidence suggests the Indian logistics industry grows at 1.5-2 times the GDP growth. Infrastructural bottlenecks that have stifled sector’s growth and promoted inefficiency are also being addressed by the government.
Building of dedicated rail freight corridors will promote efficient haulage of containerised cargo by rail. Also, setting up of various industrial corridors along the dedicated freight route will metamorphose the warehousing business– from small warehouses spread across the country to large, global-size warehouses concentrated in a few hubs.
The proposed new goods and services tax (GST) regime and e-commerce will alter the landscape in warehousing, supply chain management and third party logistics business. GST implementation will be a game-changing event for businesses and particularly for organized logistics players.
It is stated that the logistics requirement for e-commerce will grow as exponentially as e-commerce.
Indian logistics sector is estimated to have grown at a healthy 15% in the last five years. However, growth in sub-sectors varies, with the lowest being in basic trucking operations and highest in supply chain and e-tailing logistics. Some studies estimate the share of India’s logistics spend in GDP at 13 - 15% (versus 7-8% in developed countries), implying overall size of $180-220 bn (direct costs +wastages from inefficiencies). A comparison with other countries shows inefficiencies are high in the Indian logistics sector.
With the present government thrust and focus on movement of goods by sea, making use of the vast coastline as well as rivers it is envisaged that in time to come the movement of goods by road will be a lot less as compared to today.
Further, considering the government’s plans to link railway network directly to ports, this in turn will increase railway’s shares in logistic movement.
The focused efforts for increasing the ease of doing business in the country will definitely have long term positive impact. The reduction in the cost of doing business is as important as the simplification of processes. Foreign consumption is beyond our control, however domestic consumption substantially depends on the growth of the Indian economy while attention is always on national policies and partially on state governmental actions, all the cutting edge levels of governance, including the local self-government units like Municipalities and Panchayats, have a role in making India business friendly.
Infrastructural bottlenecks across modes (rail, road, waterways) have stifled the sector’s growth. Capacity constraints and inefficiencies can be noted from the high transit time in rail as key train routes operate at >110% utilisation, thus leading to an average speed of 25 km per hour. The road sector is fraught with inadequate and low-quality highway availability, thereby limiting the trucks’ size and impacting economies of operation. Despite being an economical mode of transport, railways have lost market share in freight movement to roads in the last few decades due to capacity constraints. Water transport is 6 - 7% although comparatively low it’s the most convenient and environmental friendly mode compared to the others. Compared to other countries, India’s rail share in goods transport is 35%, which has come down from 60% in 1980s and 48% in 1990s.
Also, low penetration of new technology in the supply chain process is resulting in damage of goods. India has the least warehouse capacity with modern facilities, and given the fragmented industry state (large share with unorganised players), investment in IT infrastructure is almost absent at required scale.
Another key constraint is administrative delays. Despite being a relatively low-cost country, logistics cost in India is higher due to administrative delays and bureaucratic led by paper work—leading to huge inventory investments and wastage—and a complex tax structure.
The maritime and logistics sectors are totally dependent on the rest of the economy, especially the manufacturing and the infrastructure sectors. Of course, the Indian economy does not function in isolation and the economic indicators have been unimpressive throughout the world, even in China. But there are several possible governmental interventions which could make India a better place for business, and a better place to live in.
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