Modi 2.0: What does it mean for the Logistics Industry

‘Integrated Logistics Action Plan’ tops the wish list of the industry leaders    

SENSEX, NIFTY and local markets soared as soon as the exit polls accurately predicted thumping victory for Prime Minister Narendra Modi. Key markets soared even higher on May 23 when the prediction turned out true for Bharatiya Janata Party that on its own secured 303 seats, adequately securing the majority government in India.

Logistics industry hoping high

Straight away the industry is hoping high for Modi 2.0 to put in place long-pending reforms and boost the Make-in-India drive deeper with capital funding. Modi government in its previous tenure had decided to revamp the decades-old industrial policy but in five years of governance could not do it so.

Like any other sector, the Logistics sector has also pinned its hopes on the new government and its policies in its second tenure. The existing economic policy was implemented in 1991 and since then is in need of huge reforms especially when Modi is at the helm of governance with his charisma of a world leader.

With the Modi Tsunami, the industry hopes a similar wave of reforms by the BJP government to intensify the development agenda. Yet largely unorganised, currently logistics industry in India is pegged at around $160 billion annual industry and is expected to grow to $215 billion in the two upcoming years.

In view of the rapidly changing landscape of manufacturing and services, as well as in the light of the new technologies and now prevailing business models, the need for a new industrial policy to address the existing challenges and take advantage of the future opportunities are needed. Modi led government in 2018 had conceded it is already considering a new industrial policy that would serve as a roadmap for all business enterprise in the country.

The logistics industry is a growing industry that is in search of continuous improvement in efficiency in supply-chain with the only purpose to reduce the logistics cost. Currently, the logistics cost constitutes approximate 13-14 per cent in the country. Industry experts seek to reduce the costs by average 3-4 per cent pulling the GDP constitution by 10 per cent.

Setting up a dedicated logistics department could boost the sector. The Economic Advisory Council to the Prime Minister (EAC-PM) has already advised. For an integrated national logistics action plan, the Draft national logistics policy is soon to be finalised.

As logistics sector deals with rail freight, road transport, aviation and shipping departments a dedicated logistics department will serve the purpose of integrated national logistics plan. The draft logistics policy already mentions that it will serve as a master plan for logistics priorities across the different ministries dealing with the sector.

These include Ministry of road transport and highways, Ministry of Shipping, Ministry of Railways, Ministry of Civil Aviation, D/o Posts and the consumer ministries including Ministry of Coal, Ministry of Steel and Ministry of Mines.

As the master plan is executed a long-term master plan will be put in place to execute and continuously monitor monthly, quarterly, annual, five years and 15-year projected plans. This will directly support the sole objective of reducing costs and improving efficiency in the overall supply chain system.

The logistics industry has been seeking a cruise missile like delivery intervention from the government that could help them eliminate specific pitfalls and help them drive the sector with a guided path.

Launched in Modi’s first tenure, GST supported in removing certain time and tax specific lacunae but the implications are yet to be finalised and improvisations were made there too. While the idea of one tax system improved the delivery time by faster goods movement but a revolutionary change could be made by amalgamating different modes of transport.

When it comes to public transport the central government has been pushing for hub and spoke model to ease out mass transport, in logistics the integration of different transport modes aided with interlinking by cutting edge technologies such as blockchain modelling will save on the cost of multi-modal transport.

As a notable example, 50 per cent of the operating costs in cold storage is power cost, and in transport, almost 70 per cent of the operating cost is diesel cost. There is undoubtedly an excessive reliance on roads, which form roughly 60 per cent share in different modes of transport. Freight corridors account for 31 per cent, while waterways are barely about nine per cent.

The Indian coastline and river networks are under-utilised. The cost of coastal shipping, per tonne per kilometre, is far lower compared to either roads or railways. It is significant to note that most of the facilities in our country, are either not operational or partially operational or are operational for purposes other than what they were initially constructed for.

A Deloitte-Assocham report states that “addressing these anomalies alone provides a huge potential to lower logistics cost in the economy by Rs 21,000-27,000 crore by 2025.” Modi 2.0 is expected to work towards an international benchmark when it comes to multi-modal transport – about 25-30 per cent share of roadways, about 50-55 per cent share of railways and a far higher 20-25 per cent share of waterways.

Lastly, the force with which Modi is back has multiplied India’s ambition to fast-track progress with logistics as the veins and arteries for the economy, most expect infrastructural support and simplifying compliance which can lend a boost to logistics technology.

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