Post Date : July 28, 2021
The Centre’s plan to develop 35 Multi-Modal Logistics Parks (MMLP) across the country to cut down on logistics costs is now facing various hurdles.
With barely four of the proposed projects being allocated land since the scheme was first announced in 2017, the project has been confronted with serious questions about viability, particularly after the break of the COVID-19 pandemic and skyrocketing fuel prices.
In addition to this, inter-ministerial tussles and barrage of necessary approvals are acting as major hindrances, officials said.
Back in 2017, the government had announced that memorandums of understandings (MoUs) worth INR 2 lakh crore were signed with states, public sector companies, and private companies to set up these parks after the cabinet approved the scheme.
However, as of July 22, land has been allocated for only four of these projects — in Nagpur, Chennai, Bengaluru and Guwahati—the government told Parliament in response to a question. In addition to that, the proposed projects in Patna, Vijayawada and Valsad have been said to be not feasible at present, the government said.
The land allocation for four more proposed parks is likely to be completed in the current fiscal, while all other proposed projects were still in the stage of pre-feasibility studies and faced many issues.
Issues regarding the definition of the Multi Model Logistics Parks
In the absence of a specific definition, different ministries including railways, shipping and the department of industrial policy and promotion are facing clearance issues for these parks, said a senior official in the know of the project.
“There are many issues surrounding the feasibility of multimodal logistics parks, including definition, specification, and standardization of these parks,” he shared.
A definition and roadmap for setting up these parks is anticipated in the proposed National Logistics Policy, but this is being delayed because the concerned ministries have sought more time and differences persist over which authority will have the major role, sources said.
COVID-19 led slowdown
The outbreak of the pandemic has slowed down the completion of feasibility studies of the proposed parks.
“COVID-19 has brought forward some issues that question the viability of some of MMLP projects, especially in areas where transport infrastructure needs to be developed, in particular aerial coverage and shipping coverage,” the official said.
Although the main reason behind the parks was to cut down on logistics costs by permitting state-owned or private firms to develop and manage these terminals which will be linked by rail, road and airways, the official expressed skepticism over how it will help reduce logistics cost.
Isolated projects such as the construction of the Dedicated Freight Corridor (DFC) will go a long way in bringing down congestion and directly impacting cost, expressed an analyst from ICRA said.
However, the country’s aviation sector, road transport sector, and shipping sector are currently facing issues of their own due to the outbreak of COVID-19.
While the aviation sector is unlikely to see large investments due to limited air passenger traffic, the country’s shipping industry is struggling with a container shortage and high tariffs. The road transport industry in the country also faces uncertainty.
Rising fuel prices, including prices of petrol, diesel, and aviation turbine fuel have been the biggest issue the logistics industry in India has faced while trying to reduce tariff rates in India.
With fuel prices in India currently at a very high level, the feasibility of setting up MMLPs at the current price range is also being questioned, the government official said.
“Crude prices rising worldwide has led to a rise in fuel prices in India. Expectations are that they will remain at current levels for a while until the world economy picks up again. This has also brought to question the viability of some projects, and they are facing delays, as they may not attract interest from private players,” the official said.
On average, the proposed multi-modal logistic parks are expected to attract an investment of INR 100-300 crore. The government’s initial proposal to set up these parks was based on plans on entering public-private partnerships to develop these parks.
“Our feasibility studies are trying to find land parcels which will make it attractive for players to invest in these parks. At the moment due to the pandemic and the slowdown in the economy, our expectations are that private participation will be limited if projects are rushed,” the official said.
With the financial health of state governments also taking a hit in recent times, the viability of projects is also being questioned.
In addition to that, in the absence of a nodal agency to supervise the construction, execution and working of these MMLPs, around 50 different approvals are required from various central and state ministries in order to develop and operate, this is also expected to fend off investors, KPMG said in its report.