Union Budget 2021: Setting the right mood for logistics


(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the same of our organisation.)

Indian economy is already on V-shaped recovery path and recovery of logistics is completely aligned to it. Union Budget 2021 gives a favorable outlook for the logistics sector. In this budget there is no major immediate positive announcement for the sector, but it sets the right direction for growth of the sector.

Budget provisions that might have an impact on the sector are as follow:

Manufacturing has a very high correlation with logistics activities. Budget 2021 has a very clear focus on increasing manufacturing capabilities and paving the way for an “Atmanirbhar Bharat”. Government has committed nearly INR 1.97 lakh crores, over 5 years starting FY 2021-22 in 13 sectors for production linked incentive (PLI). This scheme is definitely going to attract investment in manufacturing and consequently boosting logistics and supply chain industry.

Budget 2021 has a sharp increase in allocation for capital expenditure by 34.5% to INR 5.54 lakh crores, which will have a positive impact on logistics activities.

The National Infrastructure Pipeline (NIP) which was announced in December 2019 is a project to provide world-class infrastructure to citizens and improving their quality of life. Budget 2021 has reaffirmed the government’s commitment to NIP. Out of 7400 projects in NIP, around 18% are in the road sector and 12% are in railways. Such large infra projects in rail and road create a backbone for the growth of the sector. On road transport and highway, outlay has been increased by more than 9% to INR 1.18 lakh crore. On rail freight side, apart from completion of two ongoing dedicated freight corridors, Government has planned to undertake Detailed Project Report for next 3 dedicated freight corridors: East Coastal Corridor, East-West Corridor, North-South Corridor.

On the shipping and port infrastructure front, that Major Ports will be moving from managing their operational services on their own to a model where a private partner will manage it for them, is a very positive step towards improving the efficiency of ports. For this purpose, 7 projects worth more than INR 2,000 crores will be offered by the Major Ports on Public Private Partnership mode in FY21-22.

Announcement of scrappage policy and fitness check after 15 years for commercial vehicles will not have a very significant impact on the sector. Most of such old vehicles exist in the semi-urban and rural market and contribute very low in the overall transport value chain. It will help the environment and ease the process of scrapping the old commercial vehicles.

On fuel price side, the industry has not got any relief from the price hike. Government has imposed Agriculture Infrastructure and Development Cess on Petrol and Diesel and correspondingly reduced Basic Excise Duty and Special Additional Excise Duty with no impact on the final price to the customer.

In post-budget sessions of the equity market, Sensex registered almost 5% growth while most of the logistics shares registered negligible to no growth. This shows a very cold response of analyst toward the sector from this budget. However, in my opinion, this budget will help in the growth of the sector in the longer run.

This opinion article has been authored by Vikash Khatri, Founder, Aviral Consulting Pvt Ltd.

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