logistics-industry-in-india

CONTEXT

As per official data, electronic permits required to transport goods within and across states rose over the last two weeks, but less than December.

PRESENT SCENARIO OF LOGISTICS SECTOR OF INDIA

  • India's logistic sector is valued at $160 billion and employs over 22 million people directly. It is expected to grow at a compounded annual growth rate (CAGR) of 10% to $215 billion by 2022.
  • Logistics costs have been estimated at 14% of India’s GDP relative to the Global average of about 8%.
    • The World Bank Logistics Index released in 2018 ranked India 44th-far behind the US at 14 and China at 26.
    • A10% decrease in indirect logistics costs has the potential to increase exports by 5–8%.
  • The Pandemic has further laid bare the weaknesses in the logistics industry-with 75% of companies in the sector experiencing disruptions and a majority lacking a contingency plan to deal with a problem of such magnitude.

 

CONSTRAINTS

  • Cost of logistics: The cost of logistics remains high due to challenges in accessing finance, infrastructure, poor connectivity and an unfavourable model mix.
  • Lack of coordination due to involvement of multiple stakeholders: there are four key components accounting for the majority of the logistic sector:
    • Transport
    • Warehousing
    • Freight forwarding
    • Value-added logistics
      • Each of these falls under different segments of regulatory oversight adding complexity into the system.
      • The presence of multiple agencies often leads to duplicate processes. Also non-uniform documentation across states adds to the transaction cost, however implementation of GST has simplified the requirements to some extent but there still remains room for improvement.
      • Countries with multiple agencies and logistics have reduced efficiency, coordination and competitiveness.
  • Warehousing capacity and fragmented structure: India’s current reported warehousing capacity is 108.75 million metric tonnes of which the private sector makes up less than 20%.
  • Lack of technology: The lack of technology adoption has also proven detrimental, adding to the competitiveness gap between India and its peers.
    • Lack of automation: there is a lack of a premium for technology-driven, automated logistics processes over traditional ones.
    • The slow adoption of supply chain technology, including artificial intelligence, blockchain, and IoT, remains a major shortcoming.
  • Competition and under-utilised capacity: there is a lack of level playing field between public and private sectors, as benefits provided to the public sector are not available for private players like container train operators or foreign vessel owners leading to limited competition and capacity underutilisation.

GROWTH POTENTIAL OF VARIOUS SECTORS

  • Strong growth supported by the government reforms, transportation sector development plans, growing retail sales and e-commerce sectors are likely to be the key drivers of the logistics industry in India in 2021.
  • The low entry barriers and less capital investment compared to setting up of asset-based business models have led to the rise of online free platforms and aggregators in the Indian logistics market.
  • Manufacturing in India holds a potential to contribute up to 25% -30% of the GDP by 2025 which would drive the growth of the warehousing segment in India.
  • E-commerce is another major segment expected to support growth of the logistics industry during the forecast period.
  • Port capacity is expected to grow at a CAGR 5% to 6% by 2022 thereby adding capacity of 275-325 MT.
  • There would be for the development of multimodal logistics parks, streamlined economic all routes for efficient freight movement and intermodal stations to connect various transportation modes to ensure service integration.
  • Cold chain logistics is poised to grow and India is currently witnessing the contribution of the sector in the Covid vaccine supply chain. Integrated cold chain and preservation infrastructure facilities from the farm gate to consumers would continue to grow.

WAY FORWARD

  • Green Logistics: logistic companies would need to reduce their carbon footprint along with rapid growth, with India targeting net zero emissions across the sectors, hence green logistics is said to be one of the key trends for future growth.
    • For instance India is introducing GPS enabled Toll to ensure zero wastage of fuel and resultant emissions across hundreds of Toll Plazas.
    • Modern logistics parks are built with solar rooftops and sell carbon-free electricity rather than consuming it.
    • E-commerce companies have committed to delivering 30% of shipments using Electric Vehicles.
  • Digitisation: pandemic has accelerated the adoption of digital technology and set the stage for the future.
    • The falling cost of technology such as Cloud computing, GPS trackers, IoT sensors now enables even smaller logistics companies to modernise their systems.
    • According to the World Economic Forum, Digital transformation of the logistic sector could translate into a value of $1.5 trillion for the participants and an additional $2.4 trillion worth of societal benefits by 2025.
    • India needs a thriving and efficient logistics sector to achieve its growth targets, and digitisation is central to delivering the same.

An ordinary quote by Benjamin Franklin holds great relevance in the strategy that one follows for the economic growth of a country which is “Beware of little expenses, a small leak will sink a great ship.”

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