Big growth on the cards for India’s logistics sector, but challenges persist: GS1 Report

In 1996, the Ministry of Commerce and Industry, along with industry bodies like CII, FICCI, ASSOCHAM, FIEO, IMC, BIS, Spices Board, APEDA, and IIP, set up European Article Numbers (EAN) India, to enable Indian exporters adopt global barcoding standards. The EAN was later renamed as the GS1.

In a comprehensive concept paper developed by the GS1 India, the critical challenges faced by the Indian logistics sector and the potential for improvement and growth have been discussed. It establishes that the country’s logistics and supply chain sector is estimated to grow to USD 350 billion by 2025, but not without addressing the persistent challenges that badger the industry.

The report highlighted the key parameters where India is lagging, wrt global benchmarks, as the following –

  • Higher logistics costs: India spends 13-14% of its GDP on logistics costs, compared to the global average of around 8% of GDP.
  • Competitiveness gap: The higher logistics costs have created a competitiveness gap of $180 billion in 2020, projected to widen to $500 billion by 2030.
  • Logistics Performance Index (LPI) ranking: India ranked 42nd on the Logistics Performance Index for 2018, lagging behind countries like Germany, the UK, Japan, Austria, China, and the USA.
  • Tracking and tracing: Germany, Austria, and the USA showcased impressive scores in the tracking and tracing category, attributed to digitalization and functional integration. India scored lower in this category.
  • Timeliness: Germany, the UK, and Japan led the scoreboard in terms of timeliness, while India scored lower in this aspect.

The Report also shed light on the challenges that lead to the aforesaid as –

  1. High hidden costs: Logistics costs in India account for 14% of GDP, with 60% direct costs and 40% indirect costs, compared to an average of 10% indirect costs in developed countries.
  2. Lack of visibility: Logistics firms face challenges due to a lack of visibility among trading partners and consumers, leading to supply disruptions and delays in the value chain.
  3. Limited automation: India is in the early stages of process automation, lagging behind global practices that provide transparency and real-time data in supply chain activities.
  4. Skewed multi-modal mix: Approximately 60% of cargo is transported via road in India, while rail and water transportation account for a smaller share. This leads to high logistics costs and reduces competitiveness in exports.
  5. Inadequate physical infrastructure: Poor physical infrastructure, including modal and terminal transport, national highways, freight train speeds, and port facilities, hinders the growth of the logistics sector in India.
  6. Fragmented logistics and retail sectors: The logistics sector in India is dominated by unorganized companies, leading to fragmentation, low margins, limited investments, and challenges in streamlining supply networks. The retail market is also largely unorganized, affecting the complexity of the supply chain.
  7. Limited support for MSMEs: Micro, small, and medium enterprises (MSMEs) in India would benefit from government support in creating a skill-based supply base and implementing standardized vendor capability assessments.

The Report also mentioned that the government has been putting increased focus on capitalising the untapped potential of the sector on the back of the National Logistics Policy. The Policy was established to create a trusted, reliable, cost-effective, resilient, and technologically equipped logistics ecosystem in the country for rapid growth and bridging the competition gap with global competitors.

The Policy aims to reduce the logistics cost by aligning with the global best practices, along with increasing the rank of the nation in the top 25 of the Logistics Performance Index (LPI). Along the process, it aims to create a data-driven decision-support mechanism for an efficient logistics ecosystem.

The GS1 India strives to support the Government of India initiatives by improving on the variables like visibility, interoperability, tracking and warehouse management.

  1. Visibility: Standards, such as barcode scanning on transport labels, allow for capturing essential data, ensuring transparency and visibility throughout the transport process.
  2. Interoperability: Standards enable seamless communication and collaboration among all stakeholders involved in logistics operations. Unique identification and automated data capture ensure interoperability and smooth information sharing.
  3. Tracking: Standards facilitate tracking and identification of individual equipment or items across different locations. Unique identification keys help ensure that items are in the right place at the right time.
  4. Warehouse Management: Standards contribute to precise and timely inventory information, leading to more efficient management of inbound and outbound flows. This improves inventory accuracy, reduces warehouse stock, and optimizes on-shelf stock availability.

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