The government has recently granted infrastructure status to the Indian logistics sector.
What was the need?
India is home to leading industries such as automotive components, pharmaceuticals, cement, textiles, FMCG and e-commerce.
Their operations depend hugely on warehousing and logistics.
But India is ranked 35 out of 160 countries on the World Bank’s Logistics Performance Index (LPI).
The logistics spend in India also is almost 13% of the GDP, compared to well below 10% for the advanced countries.
What is the significance of Infrastructure status?
It includes the logistics sector in the master list of infrastructure sub-sectors under a new head ‘Transport and Logistics’.
Minimum investment and area requirements to get the infrastructure tag for each category like multi-modal logistics park, cold chain facility and warehousing facility have been clearly defined.
Easy Credit - This makes it easier for companies operating within these segments to raise long-term credit from banks and other financial institutions at lower rates.
The inclusion also makes it easier for logistics companies to -
Access larger amounts of funds as External Commercial Borrowings (ECB)
Access longer-tenure funds from insurance companies and pension funds
Be eligible to borrow from India Infrastructure Financing Company Limited (IIFCL)
It also helps attract foreign investments.
Lower cost of logistics - This also means that development firms with larger land parcels can utilise their excess land holdings to develop more infrastructure facilities, thereby boosting the supply of warehousing facilities.
The coupled with easier access to capital will eventually bring down the cost of logistics.
The LPI measures the state of trade and logistics based on parameters like customs, infrastructure, international shipments, logistics quality and competence, tracking and tracing and timeliness.
What are the immediate impediments?
An inadequate road network and losses that occur during transportation are huge problems.
Improvement of India’s road infrastructure at a much faster pace is critical to minimise losses, both economic and environmental.
