INDIA’S LOGISTICS SECTOR

LOGISTICS SECTOR

• The logistics industry comprises all supply chain activities, mainly transportation, inventory management, the flow of information, and customer service. 
• Logistics is essential for the economy of a country. It pertains to the general method of controlling how resources are obtained, housed, and delivered to their ultimate location. 
• It is a differentiating sector that can largely affect any country’s exports, thereby adding a significant competitive edge, with the underlying assumption of a robust logistics sector. 
• It determines the success of not only the country’s supply chain but also influences it on a global scale.

TYPES OF LOGISTICS

1. Forward logistics

• Forward logistics refers to the movement of the goods from the manufacturer to customers

2. Reverse logistics

• Reverse logistics refer to moving products and materials back into the supply chain post-delivery.

LOGISTICS PERFORMANCE INDEX (LPI) 

• It is an interactive benchmarking tool  by world bank created to help countries identify the challenges and opportunities they face in their performance on trade logistics and what they can do to improve their performance. 
• It analyses countries through six components:

• The efficiency of customs and border management clearance.
• The quality of trade- and transport-related infrastructure.
• The ease of arranging competitively priced international shipments.
• The competence and quality of logistics services.
• The ability to track and trace consignments. 
• The frequency with which shipments reach consignees within the scheduled or expected delivery time.

• India’s performance has drastically improved from 2014 when it was ranked 54th on the LPI.
• According to World Bank’s Logistic Performance Index (LPI) 2023, India has climbed six places, ranking 38th in the 139 countries index, as a result of significant investments in both soft and hard infrastructure as well as technology.

FACTORS  IN INDIA'S IMPROVED LOGISTICS PERFORMANCE

1. PM Gati Shakti Initiative

• The introduction of the PM Gati Shakti initiative, a National Master Plan for multimodal connectivity, aims to reduce logistics costs and stimulate economic growth by 2024-25.

2. National Logistics Policy 2022

• Launched in 2022, the National Logistics Policy focuses on enhancing last-mile delivery, addressing transport-related challenges, saving time and costs for the manufacturing sector, and overall efficiency improvement.

3. Infrastructure Development

• Government investments in both hard and soft trade-related infrastructure have contributed to improvements in international shipments.

4. Role of Technology

• Technology plays a pivotal role, with the implementation of a supply chain visibility platform and the use of radio frequency identification tags contributing to substantial reductions in delays.
• Emerging economies like India are leapfrogging advanced countries due to modernization and digitalization.

5. Dwell Time Improvement

• India has achieved a very low dwell time of 2.6 days, surpassing industrialized countries like the US and Germany.
• This indicates efficiency in logistics performance.

SIGNIFICANCE OF LOGISTICS SECTOR IN INDIA

1. Economic contribution

• According to the Logistics Skill Council, the Indian logistics sector is valued at $150 billion, contributing 14.4% of the country’s GDP.

2. Employment generation

• The Indian logistics industry provides employment to more than 22 million people.

3. High growth potential

• According to ICRA, the sector has grown at a CAGR of 7.8% during the last five years and is expected to grow at 10.5% until 2025.

4. Export promotion

• Improving the logistics sector in India would facilitate a 10% decrease in indirect logistics cost leading to a growth of 5-8% in exports.

5. Multiplier effect

• Leading industries such as automotive components, pharmaceuticals, cement, textiles, FMCG and e-commerce depend hugely on warehousing and logistics.

6. Supply chain resiliency

• A good logistics ecosystem leads to effective movement of goods and optimizes the efficiency of supply chains.

7. To minimize agricultural wastage

• India loses almost 16% of its agricultural output due to improper logistics and supply chain limitations.

ISSUES WITH INDIA'S LOGISTICS SECTOR

1. Logistics Cost

• Logistics costs in India range from 14-18% of GDP, higher than the global benchmark of 8%.
• The Economic Survey 2022-23 emphasizes the need for cost reduction in the logistics sector.

2. Modal Mix Discrepancies

• The freight movement in India is heavily skewed towards road transport (65%), leading to congestion, pollution, and increased logistics costs.
• Railways, despite being more cost-effective, have been losing freight share.

3. Warehousing and Taxation Discrepancies

• There are challenges related to warehousing, transit times, and taxation that impact the efficiency of the logistics sector.

4. Performance Disparities Among States

• While India's overall logistics performance has improved, there are disparities among states, emphasizing the need for ongoing efforts to enhance logistics efficiency at the state level.

5. Multiple regulatory compliances

• Different rules and regulations at different stages are enforced by national, regional and local authorities.
•  It causes time overruns and disruption in supply chains.

6. Complicated tax regime

• Multiple state and central tax compliances lead to considerable loss of time in transit on roads due to which freight movement often gets delayed.

7. Lack of formalization in the sector

• The logistics industry in India is highly fragmented with a large number of unorganized players. Only 10-15% of the sector is owned by organized players.

8. Absence of skilled labour

• Lack of adequate training institutions has led to a shortfall in skilled management and client service personnel.

GOVERNMENT INITIATIVES FOR INDIA’S LOGISTICS SECTOR

1. National Logistics Policy 2022

• Government has unveiled National Logistics Policy (NLP) with the aim of promoting the seamless movement of goods and enhancing the competitiveness of the industry.

• Key features of NLP 2022

• Multi-modal integration

• The National Logistics Policy (NLP) aims to shift logistics from road dependence to railways and waterways by synergizing flagship projects like Sagarmala, Bharatmala, and PM GatiShakti National Master Plan.

• Ease of doing business

• Ease of Logistics (ELOG)  Dashboard simplifies business procedures, and empowered group of secretaries (EGoS) monitors National Logistics Policy implementation for efficiency.

• Use of technology and digitization

• The integration of Digital System (IDS) into 30 systems across seven departments and the implementation of Unified Logistics Interface Platform (ULIP) enable seamless monitoring of cargo movement in the logistics sector.

• Three targets under NLP 2022 are

• First, to reduce cost of logistics in India to be comparable to global benchmarks by 2030.
• Second, improve the Logistics Performance Index ranking, to be among top 25 countries by 2030.
• Third, create data driven decision support mechanism for an efficient logistics ecosystem.

2. Multi Modal Logistics Park (MMLP)

• Freight aggregation and distribution hubs to bring down overall freight transportation costs.
• Road, air, railways, and waterways connectivity to facilitate smooth transition of freight across transportation modes and reduce lead times.
• Services like customs clearance and warehouse management systems to reduce inventory holding costs.
• Modern mechanized warehousing space.

3. PM GatiShakti National Master Plan

• It aims to create roads linked to railway lines that will further feed into major and minor ports, leading to the efficient movement of goods, especially from the frontiers.
• It will provide real-time visibility to fill the gap in the movement of goods, reduce costs and enhance the ease of doing business.

4. Industrial corridors

• To promote manufacturing clusters by connecting them to ports and consumption hubs via roads, railways and inland waterways.

5. National Logistics Efficiency and Advancement Predictability and Safety Act (NLEAPS)

• To modernize and formalize the logistics services and promote digitization in the sector.
• To reduce the logistics cost from the present 14% of GDP to less than 10% of GDP.

6. 100% FDI through automatic route

• In the storage and warehousing sector.