24 Jan 18 Logistics in India – in for a rosy future!
The other day while shopping online for Canadian maple syrup from the comfort of my home, I remembered the 1980s when we depended on our relatives abroad for so many ingredients. With the markets opening up to foreign goods, and e-commerce companies setting up shop in the Indian markets, consumers today are spoilt for choice. One of the biggest enablers of this is the logistics and supply chain sector. Although marred by inefficiencies, this sector is on a growth trajectory in India.
In 2017, the World Bank upgraded India’s Logistics Performance Index (LPI) from 54 to 35. However there is a lot more that needs to be done in this sector. Although India is one of the largest producers of food, close to a third of the produce is lost due to inefficient storage and distribution systems. Developed countries typically spend 5-6% of their GDP on logistics, whereas India’s logistics expenses are more than double that at ~14-15% of GDP due to the unorganized and fragmented nature of the industry. These high logistics costs make Indian goods less competitive in the domestic and export markets.
The government has recognized this and in a major push to develop an integrated logistics framework, has granted ‘infrastructure’ status to the sector recently. This move will enable companies that build warehouses and cold chain facilities to raise long term loans at easier terms and also attract foreign investment.
In addition to this, the government has several infrastructure development plans that will help the logistics sector
- Allocation of Rs 1 lakh crores ($15.7 Billion) for the development of logistics infrastructure which includes 35 multimodal logistics parks planned by the road ministry. These will include
- Inland container depots
- Cold chain facilities
- Warehousing facilities
- Development of dedicated freight corridors for railways which will help move road freight to rail
- Allocation of Rs 6.92 lakh crores ($108.6 Billion) to the biggest highway construction project so far in the country, to develop approximately 83,677km of roads by 2022. This project includes the Bharatmala scheme, under which the road transport and highways ministry will construct 9,000km of economic corridors across the country.
The other very important game changer is the GST implementation which has subsumed many taxes and has made the Indian market one seamless entity. Although the implementation has had its share of short term woes, the impact is already visible in various aspects –
- Reduction in transit delays
- Reduction of paperwork
- Optimization of delivery timelines
- Improvement in capacity utilization
- Reduction of overall logistics costs due to consolidation of smaller stock-transfer warehouses into large warehouses
On the back of all these initiatives, the sector, which is currently estimated to be worth ~$115 billion, is expected to grow to ~$360 billion by 2032. To ride this growth wave and stay relevant in this dynamic industry, winners will need to be
- Well-funded to take on the changing needs and challenges, and to build the logistics infrastructure and network
- Tech savvy to improve productivity and for end-to-end visibility in terms of real-time tracking and tracing, warehouse and yard management, fleet management, customer account management, cost management, efficiency in last-mile delivery, etc
- Process-driven to improve efficiency and optimize resource utilization
- Agile in the face of changing customer needs and preferences and offer customized solutions to meet changing customer expectation
While these are some of the essential criteria, as the sector evolves there will be many more factors at play that will determine the final winners and losers. With exciting times ahead, this is definitely a sector worth watching in India!