The Indian logistics sector employs more than 22 million people, and upgrading the sector will result in a 10% decrease in indirect logistics costs, resulting in a 5 to 8% increase in exports, signifying that India will roll out a stronger economy with firmer infrastructure. Currently, the Indian logistics industry accounts for 14.4% of the country’s GDP, but its overall cost is 14% of GDP, compared to the BRICS average of 11%. Though various studies claim varying logistics costs ranging from 8-14% of GDP, it is still highly debatable at this stage of transition. However, there is still a significant gap to close in order to pull the economy back.
When the Indian logistics market was valued at $250 billion US dollars in fiscal year 2021, it was anticipated that it would expand at a compound annual growth rate (CAGR) of 10 to 12 per cent, with a net worth of 380 billion in 2025. The economy has recovered since the pandemic, and the Reserve Bank of India (RBI) forecasted 7.2 per cent GDP growth for the fiscal year ending in March 2023., the actual of which remained around 7 per cent.
Logistics is the backbone of any strong economy, and it should have an unobstructed pipeline for a continuous flow of information and supply chain management and for India to be the world’s fastest-growing economy over the next few years, driving global growth, a single window clearance is required for logistics to move as smooth as possible.
Logistics Landscape: Major Issues & Concerns
Only 10% of Indian logistics is in the organised sector. It is one of the most fragmented and complex business entities in the country, with more than 20 government agencies, 40 PGAs, 37 export promotion councils, 10,000 products, and a market size of 160 billion dollars. It also includes 12 million employment bases, 200 shipping agencies, 36 logistics services, 129 ICDs, 168 CFSs, 50 IT ecosystems, and banks & insurance companies. EXIM also requires 81 authorities and 500 certifications. With almost all working as distinct corporations, sufficient to discourage any potential financing and investment.
In India, the logistics sector has been a neglected and abandoned child. It has merely been a means of conveying products and services. Storage, monitoring, freight clearance, documentation, and carrier and container knowledge were never sought or considered. This resulted in serious mismanagement and delayed information sharing, and the sector was never able to reach its full potential. There was no connection between railways, aircraft, waterways, and roadways, crippling the sector and causing a slew of known and unseen inefficiencies.
Additionally, the vast geographical diversity of India precluded the concentration of information in one location for quick perusal and seamless movement. However, this could have been sorted out, and the dissemination of information could have been simplified with a single point of contact. Needless to say, if this gets rolled out, both vendors and customers of logistics services will save a lot of time, shall remain informed about goods movement, and will be able to control various hidden expenses.
Compound Annual Growth Rate (CAGR).
As demand for products grows, goods traffic is estimated to reach 15.6 trillion tonne-km by 2050. This activity will stimulate growth in all kinds of freight transport, but particularly in road freight transport. This will result in goods vehicles travelling more than three trillion km on Indian highways by 2050.
To fulfil this need, India’s logistics system has been constantly improved. Between 2007 and 2016, India improved its score on the Logistics Performance Index (LPI), a World Bank tool used to assess a country’s logistics capabilities, from 3.07 to 3.42. This advancement was made possible by developing infrastructure, implementing policies and programmes such as Make in India, and combining technological and digital advancements in the logistics supply chain. However, there is still work to be done. Despite being one of the largest and fastest-growing logistics businesses in the world, India’s LPI ranks 38th in the world currently. This ranking can be improved by focusing on the report’s opportunity areas.
Policy Environment
India has a set of policies and market trends that can hasten the transition to effective, cost-efficient & economical, clean, and secure goods movement.
- Make in India: Make in India is an initiative that provides focussed investments to boost domestic manufacturing of products and infrastructure. The strategy attempts to mitigate India’s dependency on other countries for manufacturing capabilities and infrastructure.
- Digital India: The flagship program and initiative Digital India aims to convert India into a digitally enabled society and knowledge economy. The program’s objective is to facilitate the digitalization of the supply chain, which shall be instrumental in improving logistical efficiency.
- Logistics efficiency enhancement program (LEEP): Through infrastructure, technology, and process interventions, LEEP aims to improve freight transportation efficiency by reducing associated costs, transportation time, and logistical practices such as goods transfer and tracking.
- National logistics policy (DRAFT): The National Logistics Policy aims to boost India’s economic growth by making the logistics sector more efficient, seamless, and integrated. It also strives to reduce logistical costs as a share & proportion of GDP.
- Faster adoption and manufacturing of electric vehicles (FAME II): FAME II is a government of India subsidy programme designed to encourage the production and use of electric vehicles. FAME II policies are envisaged to encourage the adoption of EVs and accompanying charging infrastructure for goods and freight EVs.
- Bharat Stage (bs) emission norms: The Bharat Stage Emission Norms are emissions regulations established by the Government of India to reduce the criteria pollutant emissions from motor vehicles and enhance vehicle efficiency. BS VI has been in effect since April 2020.
Various other initiatives to improve logistics and infrastructure scenario in the country
- The Sagarmala Project
- The Bharatmala and Golden Quadilateral
- The Jal Marg Vikas Project (JMVP)
- National Infrastructure Pipeline
- UDAAN Scheme
- Hydrogen Energy Mission
PM Gati Shakti
The PM Gati Shakti, also known as the National Master Plan for Multi-modal Connectivity, is an ambitious plan unveiled by the Government of India in October 2021 for the creation of ‘Holistic Infrastructure’ across the country. The plan intends to break down departmental silos and implement more holistic and integrated project planning and execution in order to address multi-modal and last-mile connectivity challenges and issues. The plan envisions an ecosystem with synchronised and syndicated data flows that will raise productivity, improve supply-chain management, and create conditions for economic growth.
It promises to reshape the development of modern infrastructure through planning, implementation, and monitoring, while also reducing project time and cost overruns. It has been launched and established with the primary objective of bringing together seven economic engines, namely railways, roads, ports, waterways, airports, mass transportation, and logistics infrastructure, on a single platform for economic growth and sustainable development. The Master Plan’s benchmark is to have world-class modern infrastructure and logistics synergy among multiple means of movement – both of people and commodities – and project location. All plans under PM Gati Shakti have been proposed to untangle the logistics weave between the GoI and the State departments.
The Indian Chambers of Commerce believes that logistics is an ever-important area, from providing vital supplies to initiating and establishing international trade. The sector’s expansion and strengthening are a sign of a more promising future.
Unified Logistics Interface Platform (ULIP)
Following the pandemic, or perhaps before it, the industry’s business model was changing, gradually converging and becoming digitalized. ULIP is an indigenous API integration platform developed by exploiting the NICDC’s logistics Data Bank project, with the goal of creating a nationwide single window logistics platform for end-to-end visibility, and is in line with ‘PM GatiShakti’s vision. The virtual gateway has successfully linked with 30 systems from seven different Ministries via 100+ APIs, covering over 1600 fields.
It has reduced logistics costs and time, as iterated by Finance Minister Nirmala Sitharaman in her Budget Speech, and has removed time-consuming documentation. It is bringing efficiency and transparency to the logistics industry, making India more cost-competitive and ‘Atmanirbhar’ in the logistics sector.
The world today appears to consider India as a pioneer in strengthening the Logistics Industry, owing to its approach and perseverance. India ranks second overall in the ‘Agility Emerging Markets Logistics Index 2022’. Its ranking in the various parameters of this index, such as 14th for business fundamentals, 2nd for Domestic and International Logistics Opportunities, and 5th for Digital Readiness, demonstrate its growth momentum, accomplishments, and reliance on the sector in developing world-class industry-oriented infrastructure.
Sustainable Freight Transportation: The Railways
India, one of South Asia’s fastest-growing economies, is expanding its logistics infrastructure. The Indian government has begun an ambitious rail freight project aimed at helping the country in making a significant transition from highways to railways for freight transport. Additionally, the government’s Rail Logistics project serves as an incentive for more private-sector investment in the rail freight sector. Apart from improving inland cargo transportation efficiency, India’s revitalized rail freight sector is also improving sustainability by cutting greenhouse gas emissions.
Rail Freight Infrastructure: Modernisation
In India, the transport and logistics sector employs around 22 million people and accounts for about 5% of the country’s net GDP. Roadways currently account for a bigger share of inland freight movement in India, but the government has taken a number of important initiatives to bring a change in that. The World Bank has granted India a loan of $245 million USD to modernise its rail freight infrastructure. The new scheme would also benefit passenger trains in India as the rail lines will be decongested with goods trains travelling on dedicated routes. Integrating railways with the broader logistics ecosystem is also vital for lowering India’s high logistics costs, which are far higher compared to developed countries. The initiative is expected to increase the competitiveness of Indian firms.
Rail Logistics Project: The Scope
India has the world’s fourth-largest railway network. Nonetheless, trucking accounts for a whopping 71% of inland cargo transportation in the country. Aside from being time-consuming, road freight contributes to greenhouse gas emissions, accounting for nearly 95% of the country’s net carbon emissions from the freight transport sector. Trains account for only one-fifth of vehicle CO2 emissions. As a result, the rail freight industry reform will enable India to keep its pledge of becoming a zero-carbon emitter over the next ten years. The switch to rail freight is expected to reduce the emissions of 7.5 million tonnes of CO2 and other greenhouse gases. Massive investments in rail freight infrastructure shall help in increasing cargo speed, dependability, and sustainability.
Rail Freight Reinforcement
The Indian government is taking multiple steps to enhance the share of rail freight. To begin, they have increased the length of goods trains, increased axle loads, and increased locomotive speed. This contributes to the improvement of the current rail freight network. Further, the massive investment in the creation of a dedicated freight corridor is the most important step towards increasing the sector’s efficiency. In addition, modal integration across rail, road, and sea freight, as well as investments for better train-port-road integration, are important factors supporting the Indian rail freight industry. Finally, robust private sector investments and government-private partnership for project financing are seen as significant steps in this direction.
Dedicated Freight Corridors
The Indian government is investing in the development of dedicated freight corridors, which would allow freight trains to operate on exclusive tracks without having to wait for passenger trains to pass. The dedicated freight routes shall gradually reduce the cost of cargo transportation by deploying more powerful electricity-powered trains. The use of electric locomotives will also significantly minimise the environmental impact of the logistics industry.
Indian Railways intends to convert 10,000 kilometres of rail lines into high-speed dedicated freight lanes. This project will cost a total of $320 billion USD. There are at present, plans for five specific freight corridors, some of which are already operational and others which are still in the development stages.
The Western Dedicated Freight Corridor, which spans 1504 kilometres, is already partially operational. It begins in Dadri and concludes in the Port of Nava Sheva. The Eastern DFC, which spans 1873 kilometres, has already started operations. This corridor commences in Ludhiana and ends at Dankuni. In addition, the government announced the creation of three more dedicated freight corridors in the last union budget of 2021-2022: the East-West DFC, the North-South DFC, and the East Coast DFC. The Indian government has also suggested building a Southern DFC that will connect Goa and Chennai.
Summary & Conclusion
Logistics is crucial for a country’s economy. It refers to the overall method of controlling how resources are gathered, stored, and supplied to their final destination. Logistics management includes determining the efficiency and accessibility of prospective distributors and suppliers. With the underlying assumption of a robust logistics industry, it is a differentiating sector that can have a substantial impact on any country’s exports, hence contributing a significant competitive edge. The logistics industry encompasses all supply chain activities, namely transportation, inventory management, information flow, and customer service. It not only establishes the success of the country’s supply chain, but also has an impact on it on a global scale. The effectiveness of logistics contributes to the degree to which organisations can meet demand.
The logistics sector in India is predicted to account for 14.4% of GDP. The unorganised sector accounts for more than 90% of the logistics industry. Among the BRICS countries, the average logistics cost per GDP has been 11%. In the case of India, however, the cost share per GDP is 14%. Within the next five years, India plans to raise its ranking in the Logistics Performance Index to 25 and reduce logistics costs from 14% to 8% of GDP, resulting in a reduction of about forty per cent.
The National Logistics Policy established these objectives. This would ensure that the logistics industry serves as a growth engine for the country and plays a vital role in India’s transition to a USD 5 trillion economy. The government has taken several initiatives to enhance the logistics sector, including the following:
- Logistics Master Plan: The initiative adopts a geographical approach rather than an industrial approach. Under the strategy, several projects and activities are incorporated into the plan in order to broaden the mix of intermodal and/or multimodal transportation. A coordinated construction of required infrastructure (gas and utility pipelines, optical fibre cable networks) is correspondingly planned.
- National Logistics Policy: The goal of the proposed policy is to improve both the nation’s economy and corporate competitiveness by developing an integrated, seamless, effective, and cost-efficient logistics network that leverages best-in-class tools, procedures, and qualified staff. The strategy is expected to create a single-window e-logistics market and envisages to prioritise MSME skill development, competitiveness, and employment.
- National Logistics Law: A national logistics law has been drafted and is currently being reviewed. A unified legal framework for the concept of One Nation, One Contract would promote the One Nation, One Market purpose while also providing a flexible regulatory environment (one bill of lading across modes). The provisions of the law shall allow assigning of a unique logistics account number in place of time-consuming registration processes.
- National Multimodal Facilities and Warehousing: The National Grid of Logistics Parks and Terminals is being planned in order to promote intermodal and Multimodal Logistics Parks (MMLPs) as a distinct class of infrastructure.
- National Logistics Workforce Strategy: The government is establishing a national logistics workforce strategy to support the integrated skill development of professionals in the logistics sector. Building on the existing framework of skill development centres, which are currently based on modes of transportation, it is planned to enable cross-sectoral exchange of ideas and best practices, as well as create a workforce of professionals who shall be the driving force behind the nation’s logistics development. The approaches include a collaborative effort to examine and address current issues.
Shift to a Sustainable and clean freight transport system
Under a business-as-usual (BAU) scenario, India’s cumulative energy consumption from goods transport is expected to be around 5.8 billion tonnes of oil equivalent (TOE) between 2020 and 2050. However, under an efficient scenario, India can reduce its energy consumption by half through three potential opportunities:
- Increasing the share of rail transport
- Optimising truck use
- Promoting use of fuel-efficient vehicles and alternative fuels
These opportunities will also lead to the following benefits:
- Reduced logistics Costs – India has set an objective of minimising logistics expenses as a share of GDP from 13 per cent to 7.5 per cent over the next five years, which could save up to INR 10 lakh crore.
- Reduced carbon emissions and improved air quality – By 2050, India can save 10 gigatonnes of CO2, 500 kilogrammes of particulate matter (PM), and 15 million tonnes of nitrogen oxide (NOx) caused due to freight transportation.
- Lesser truck traffic on roads – Improved mode share and effective logistics can lower vehicular-freight activity by forty-eight per cent in 2050 compared to the BAU scenario.
This new freight paradigm will also result in better economic growth, more job opportunities, improved public health, and more logistics productivity, all of which will help India achieve many of its development goals.
Increasing Rail Network Capacity
Rail’s proportion of freight transportation in India has been seen declining since 1951. It was only 18% in 2020, compared to 71 per cent for roads. This has been because of insufficient rail capacity, particularly on some high-density routes. Several factors indicate that rail could be a cost-effective and efficient option for a significant portion of India’s freight transportation:
- Commodities mix with a large proportion of bulk goods, that is ideal for rail’s bulk-handling capabilities.
- Freight travel is frequently across longer distances, which lends itself to rail’s economies of scale over vehicle transport.
- Between the two low-carbon freight modes, rail and coastal, India’s geography makes rail more feasible in many areas of the country than coastal regions.
The importance and function of rail transportation are not only confined to large-scale freight. Rail can compete for a market share of higher value, non-bulk products by combining rail and road transport for containerized goods, a practice known as intermodal.
To increase the mode share of rail transport, India can prioritise the following solutions:
- Increase the capacity of the rail network
- Increase the proportion of multimodal transportation.
The following actions can support the deployment of these solutions:
- Improve existing network infrastructure by boosting axle loads, extending train length, and allowing trains to go faster.
- Develop specialised heavy-haul routes and dedicated freight corridors to expand network capacity.
- Identify and improve corridors with strong multimodal transport potential.
- Improve modal integration across rail, road, and water.
