India ultimately has a National Logistics Policy (NLP). Although the $200 billion logistics business sector has been weeping for a robust policy for several years got the policy now, a vital factor is the speedy implementation of the various proposals declared.
Logistics includes planning, coordinating, storing, and moving resources such as people, raw materials, inventory, equipment, etc., from one place to another, from manufacturing locations to consumption, distribution, or other manufacturing locations. India’s logistics sector is complex with more than 20 specialist establishments,37 export elevation bodies,500 certifications, and 10,000 commodities. The sector also involves 200 transport entities, 36 logistics organizations, 129 inland container depots, 168 container freight stations, 50 IT ecosystems, and banks and insurance coverage companies. Additionally, 81 authorities and 500 certificates are needed for exports and imports (EXIM).
The necessity for the NLP was felt since the logistics cost in India is greater than the remaining advanced economies in the world. A decrease in the logistics cost expands productivity cutting across several sectors of the economy while uplifting value addition and enterprise. Presently, India spends nearly 14% to 18% of its Gross Domestic Product on logistics costs, which is much higher than the global average. According to the 2018 World Bank Logistics Index, India is ranked 44th in logistics costs. India is behind developed countries like the US and China, which were ranked 14th and 26th position respectively.
Concreting the Road
The NLP targets to elevate the smooth movement of goods throughout the country, while also developing the competitiveness of Indian goods in both local and global markets. It also targets to augment economic progress and surge employment opportunities. The policy targets to accomplish, among others, rapid last-mile delivery, end transport-linked confronts, save time and money for producers, and curb wastage of agro-produces.
Additionally, the policy has many other transformational targets. Firstly, it aims to lessen the cost of logistics to a global best rate of 8% by 2030. Nations like the US, Japan, Germany, South Korea, Singapore, and certain European nations have such a low logistics cost-to-GDP ratio. Secondly, it attempts to enrich the nation’s Logistics Performance Index (LPI) ranking to be among the top 25 countries by 2030. Thirdly, it aims to construct data-driven decision support systems (DSS) to support a capable logistics ecosystem.
The most valuable building block is the Unified Logistics Interface Platform (ULIP), which intends to fold all logistics and transport sector digital services into a single portal, thus liberating producers and exporters from the current cruelty of lengthy and burdensome procedures. The second building block is Ease of Logistics Services (E-Logs), a new digital platform. The platform will permit the industry to quickly and directly take up operational matters with government agencies for an immediate solution. The third building block is the Comprehensive Logistics Action Plan encompassing unified digital logistics systems, standardization of physical assets, benchmarking service standards, human resource development, capacity building, development of logistics parks, etc.
Sharp Curve Ahead
Although the NLP has several transformational targets and robust building blocks, it faces a few key challenges. Firstly, substantial dependence on road transport. Around 65% of India’s consignment movement is by road, where fuel overheads are very high. For nations that handle as much consignment as India, the maximum of the consignment is transferred via high-speed railway networks that are inexpensive and quicker than roadways. However, the railways do not provide door-to-door delivery service. The railway sector suffers from numerous operational deficits such as low speed of freight trains, fewer wagons, etc. have to be removed quickly if logistics overheads have to plunge to global standards.
Secondly, the absence of appropriate logistics infrastructures like warehousing and cold chains is a key challenge. India’s cold chain from the farmhouse to the seaport or airport is faulty. During the novel pandemic, many hospitals experienced a shortage of medicines because of logistical hindrances. According to the data of the National Agricultural Cooperative Marketing Federation (NAFED), in India annually, 40% of the food grain produced, amounting to Rs. 88,800 crores, goes to waste due to a deficiency of storage amenities. Most of this wastage is due to a decline in the quality of food grain in the course of transport and storage.
Thirdly, the formation of an integrated logistics interface platform and the adoption of digital infrastructure in the logistics sector is another great challenge. The assimilation of various e-platforms will be a challenge because there are many e-platforms and all of them should be combined without a glitch into one platform, which will be a massive task. Finally, the creation of a harmless and protected database to store sensitive and complex data is critical. India has had a history of many cyber-attacks. To create a safe and secure platform, the government must invest considerable time and know-how.
Miles to go
India’s infrastructure insufficiency is every so often considered one of the major restraints in rapid economic growth. The absence of suitable infrastructure enhances the complete cost of production and disturbs the competitiveness of Indian businesses. The government has been working in this space and invested a considerable volume of resources in recent years. However, along with development in infrastructure, its effectual use is important to control costs. Therefore, recently introduced the NLP should aid Indian businesses to increase competence.
India’s logistics sector is enormously disjointed, which contributes to the cost of doing business. As mentioned earlier the sector comprises many government agencies and the sector also involves a host of documentation. Healthier harmonization between different government agencies will smoothen the transfer of cargo and reduce the turnaround time. An improvement in total efficacy will lift overall activity and help generate employment even in the logistics sector, which supports the livelihood of over 22 million people.
The government has been working in this space for a while and the policy was in the creation for many years. The Union government shaped the Logistics Division in the Department of Commerce in 2017 to support the integrated growth of the sector. A draft logistics policy was published in 2019, but the implementation was postponed. The delay in the execution of vital policies is highly injurious to the economic health of any country.
Although the NLP attempts to enrich India’s LPI to be among the top 25 nations by 2030, this is not impressive enough. If India has to march quickly to be among the three largest economies and join the group of advanced countries, it has to target to be among the top 10 in the LPI by 2030. It has to match the speed of South Korea. Also, the government should insist on asset monetization. The private sector must be stimulated to partake in the digital drive and develop the presentation layer that will perform as an interface with the end consumer. A harmonized structure for interoperability should be developed.
Moreover, although few State governments have designed their logistics policy, many are still in the process of doing so. Significantly, the Union and all state governments work together to tackle ineptitudes in the logistics sector. Lesser logistics costs will make Indian businesses more viable and support push-up exports, which can become an imperative driver of growth and employment generation over the medium term. For instance, a 10% decrease in logistics costs is projected to increase exports by between 5% to 8%. Nevertheless, the whole purpose of lessening logistics costs will also depend on constant investment in the infrastructure sector. Enlargement in the general government budget deficit and public debt because of the pandemic may disturb expenditure in the sector over the coming years.
As a final point, reinforcing the logistics sector will not only make it stress-free to do business but also create substantial employment and guarantee improvement in wages and working conditions. The government should make sincere efforts to execute the policy effectively concentrating on the various challenges that lie ahead. Then the NLP, in combination with the Gati Shakti Programme, the Sagarmala, and Bharatmala (waterways and roadways) schemes, the Dedicated Freight Corridors, etc., can be transformational. Therefore, need ‘cheetah’ speed execution of measures announced in the National Logistics Policy.
This article has been authored by Shivanand Pandit. All views expressed in this article are of the author’s own.