The government’s initiatives like Make in India, Atmanirbhar Bharat and PLI scheme are an attempt to expand the high-value manufacturing base of India.
But there is a need to strengthen the supply chain logistics sector of India.
What is the status of India’s Logistics Sector?
India’s logistics are estimated to account for about 14.4% of GDP.
More than 22 million people rely on it for their income.
The Department of Commerce's logistics division for India was established in 2017 and was given the responsibility of the Integrated Development of Logistics Sector.
Overall, India’s logistics sector consists of 37 export promotion councils, 40 Participating Government Agencies (PGAs), 20 government agencies, 10,000 commodities and 500 certifications.
In 2019, the Indian logistics sector was valued at Rs. 15.1 lakh crore (US$ 190 billion).
The unorganised sector amounts to 99% of the logistics sector that includes
Owners of less than five trucks,
Brokers or transport companies' affiliates,
Small-scale warehouse owners, among others.
The development of the logistics sector is also reflected by the fact that India scored 90.3% in the UNESCAP’s Global Survey on Digital and Sustainable Trade Facilitation conducted in 2021.
This is an exceptional improvement from the score it secured in 2019 of 78.5%, brought about by gains in the scores of five important indicators.
The score has shown a consistent improvement, with scores of 63.4% and 67.7% secured in 2015 and 2017, respectively.
What is the current need for the manufacturing sector?
The supply chain, which depends not only on strong infrastructure like modern roads, ports, railways, airports, etc. and also on seamless usage, has been an impediment.
Despite sizeable investments in these sectors, there is a need to integrate the supply chain logistics with the support of information technology.
Post-Covid, nations have started to strategize for China+1 for a reliable supply chain.
India too is pushing ahead to enhance high-tech manufacturing, not merely as China+1 but ‘Minus China’.
But it has led to the realisation that a transformation is required in India’s logistics framework, primarily to bring down the logistics costs from 12-14% to the international benchmark of 6-8% of GDP.
What is the allied issue?
An allied issue that also impacts costs is slow timelines for supply chain development, as various government departments/agencies work in silos.
For example, on many busy routes, the potential efficiency of rail cargo movement in terms of speed and energy costs is nullified by the unpredictability of delivery time.
Recently, goods with highest time-sensitivity have seen the fastest increase in trade.
Falling communication costs have resulted in fragmentation of services into components supplied from across the world for assembly and sale to final consumers.
To provide optimised cost and time efficiency, intermodal logistics is inevitable.
What is Railways’ predicament?
Railways out-prices itself in freight business by cross-subsidising passenger travel.
Its legacy serves limited commodities like steel, cement, fertilisers and other bulk cargo which excessively increases overall costs for rail freight customers.
Railways has been losing most of the low-density, high-value cargo due to lack of multimodal facilities and customised fleet of wagons.
A sub-optimal rail-road mix in freight movement is detrimental to the economy as a whole.
Beyond a threshold distance, movement by rail is the most cost-effective.
But it has lost share to road, primarily due to lack of flexibility in its operation and its pricing.
What are the government initiatives?
Recent major initiatives of the government are
The $2 trillion Gati Shakti scheme to integrate government arms with a common portal for single-window access to services, and
The National Logistics Policy (NLP).
After pushing aggressively for local manufacturing, the government must gear up for another transformation to advance manufacturing.
Leading companies from Apple to Mercedes have already increased their manufacturing base in India.
This should help reinvent the country’s logistics sector to further boost India’s local manufacturing.
Besides the objective to reduce the cost of logistics to single digit by 2030, the policy sets two other key targets:
Improving the logistics performance index ranking to be among top 25 countries by 2030 and
Creating a data-driven decision support mechanism for an efficient logistics ecosystem.
What must Railways do?
The NLP aims to provide integrated logistics by convergence of traditional transport infrastructure with each other, backed by a robust IT backbone.
Rail must gain pre-eminence as the preferred mode even as the ideal role of road in first and last-mile and door-to-door service continues.
It is envisaged that rail’s overall modal share of freight transport should be increased to 50% from the present 26%.
At the heart of the Railways’ freight strategy is creation of high-volume and speed freight corridors, calibrating the services to create a critical mass of wagons carrying piecemeal general goods in train loads, in partnership with other players.
To meet customer expectations, rail freight service would need to be fast, reliable and flexible, working in hub-and-spoke networks.
Logistics has shifted from being a cost centre to being a centre creating value by leveraging the optimal modal mix, which includes promoting sectors other than rail and road.
The NLP with PM’s Gati Shakti launch has the potential to turn India into a global factory besides benefiting MSMEs and farmers as well.
The key now lies in coordinated, effective and speedy implementation.
