India’s Logistics cost accounts for about 14% of its GDP, which is significantly higher as compared to other developed nations. To improve its ease of doing business ranking India has to push down its overall cost of logistics. In this context the Ministry of road transport and Highways (MoRTH) took a laudable initiative to establish a network of 35 multi-modal logistics parks (MMLPs), addressing the inefficiency faced in transporting goods across the nations.
However, even after 6 long years of the stated intent, the implementation of this initiative is suboptimal with only 5 out of the 35 MMLPs being at various stages of implementation.
On March 29, the MoRTH informed the Rajya Sabha that 30 of the 35 MMLPs are still at various stages of feasibility studies. Following this, the Ministry in another reply at Lok Sabha during the budget session brought into light that many state governments including Delhi, Gujarat, Punjab, Rajasthan, West Bengal, Haryana, Odisha, Kerala, Chhattisgarh, Madhya Pradesh, Andhra Pradesh, and Goa have failed to identify land for MMLPs. In the list of 35 parks, four are slotted for Gujarat, three for Punjab, and two for Orissa.
Where does the problem lie?
MMLPs are large complexes with rail and road connectivity, where goods coming in get seamlessly transferred to trains and other modes of transport in a hub-and-spoke model. These parks are designed to offer mechanized warehousing services – cold chains for storing perishables and racked warehousing facilities for packages and apparel. Value-added services such as customs clearance (which currently happens at sea ports for export consignments), warehousing management services, and late-stage processing facilities are also envisaged for these MMLPs.
Thus, they require a huge stumbling block of land. The land parcel needed is usually quite large – the project in Indore needed more than 255 acres and the one in Chennai required nearly 184 acres. Finding a contiguous land parcel, on the outskirts of the intended city and then securing it at a reasonable price requires active participation from state governments, which may not happen in many instances.
Moreover, setting up MMLPS requires the involvement of many government agencies including multiple central ministries, state governments, and various state departments. This makes the entire process of getting clearances cumbersome and time-consuming.
Also, MMLPs require a hefty upfront investment. These parks are being made in a private-public partnership (PPP) model, making the private developers key to its development. The estimated total investment in 35 MMLPs has been pegged at about Rs 52,500 crore, of which private developers are expected to bring in around Rs 26,000 crore. However, the responses from the private developer are lukewarm towards the development of MMLPs. In certain instances, just two bidders qualified. Furthermore, the government has adapted the design, build, finance, operate and transfer (DBFOT) format of PPP, making many developers uncomfortable as they are required to invest a large sum of money within two years. The concession agreement designed by the government requires the concessionaire to pay a percentage of gross revenue from the third year to the government and also promise a minimum guaranteed revenue share, further adding to the unhappiness of the developers.
The condition that no new MMLP can be built by either the government or a private developer within a 50km radius of an existing project for 10 years has provided some comfort and has been welcomed by the bidders.
To make these projects more attractive and to improve their viability for private developers, the government has amended the concession agreement to award each project for 45 years instead of the earlier 30 years. It is expected that the government in near future will further tweak the future concession agreements to succeed in enlisting robust private sector participation. Also, cooperation between the state and central government will go a long way in accelerating the progress and development of MMLPS.