In Pursuit of Optimized Logistics Cost, the Logistics Cost Framework to be Unveiled Soon

India’s logistics cost, currently estimated to be around 13-14% of GDP, has been a cause of concern to many for long. Some time back, the Ministry of Commerce and Industry, through the Department for Promotion of Industry and Internal Trade (DPIIT), started deriving the correct estimate of logistics cost, in partnership with various stakeholders of India’s supply chain and logistics industry. This is called the Logistics Cost Framework. In a recent development, DPIIT Secretary Rajesh K. Singh said that the country’s logistics cost will likely be less than 10% of GDP.

Experts say that an efficient and effective logistics cost for the healthy development of the overall economy should be around and less than 8% of GDP. Singh said that the Government of India is soon to release the Logistics Cost Framework with the correct estimates of the logistics cost. He was attending the Federation of Indian Chamber of Commerce and Industry’s annual general meeting when he remarked.

“All the details are ready, the framework is prepared for release, we are only waiting for the minister’s signature (Commerce and Industry Minister Piyush Goyal) to finally issue it. It will come shortly.”

Rajesh K. Singh

The release of the estimate was delayed due to lack of sufficient data and a pre-defined methodology to calculate it, Singh said. Once the department streamlined the methodology, they had to share it with the World Bank to get a clearance that the method was accurate. “The World Bank has vetted it, we did not want them to say later that we have manipulated our figures to make them look good,” he added.

The dataset utilized in the framework originates from the Ministry of Statistics and Policy Implementation, specifically from its ‘Supply and Use Tables,’ and incorporates data from the Commerce Ministry. These tables provide detailed insights into production processes, interdependencies, the utilization of goods and services, and income generation through production.

This baseline estimate calculation is a crucial aspect of the National Logistics Policy introduced by the ministry on September 17, 2022. The policy aims to lower logistics costs, enhance the Logistics Performance Index ranking, and establish a data-driven decision support mechanism for an efficient logistics ecosystem.

Transportation costs dominate the baseline estimate for logistics costs, attributed to connectivity and infrastructure gaps in the country. Additionally, the data used in the estimation predominantly considers transportation costs. Beyond transportation, logistics costs encompass warehousing, human resourcing, packaging, distribution, and other associated elements.

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