Speed Need of the Hour
By Shivanand Pandit
India has finally got a National Logistics Policy (NLP). This has been a persistent demand of the $200 billion logistics sector for several years. A vital factor to its success will be the speedy implementation of various proposals.
Logistics includes planning, coordinating, storing and moving resources such as people, raw materials, inventory and equipment from one place to another. This could be 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 organisations, 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.
The necessity for the NLP was felt as the logistics cost in India is greater than those of advanced economies. A decrease in this cost expands productivity, adds value addition and uplifts 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 ranked 44th in logistics cost. India is behind developed countries like the US and China, which were ranked 14th and 26th position, respectively.
The NLP aims to smoothen the movement of goods in the country, while also developing competitiveness of Indian goods in local and global markets. It also aims to augment economic progress and employment opportunities. The policy targets to accomplish rapid last-mile delivery, end transport-linked hiccups, save time and money for producers and curb wastage of agro-produce.
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 low logistics cost-to-GDP ratios. Secondly, it attempts to enrich the nation’s Logistics Performance Index (LPI) ranking to be among the top 25 countries by 2030. Next, it aims to construct data-driven decision support systems to support a capable logistics ecosystem.
The most valuable building block is the Unified Logistics Interface Platform, which aims to bring all logistics and transport sector digital services into a single portal, thus liberating producers and exporters from 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 immediate solution. The third building block is the Comprehensive Logistics Action Plan encompassing unified digital logistics systems, standardisation of physical assets, benchmarking service standards, human resource development, capacity building and development of logistics parks.
However, the NLP faces some challenges. Firstly, is the 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 loads are transferred via high-speed railway networks that are inexpensive and quicker than roadways.
However, the railways do not provide door-to-door delivery service. Plus, the railway sector suffers from numerous operational deficits such as low speed of freight trains and fewer wagons. These will have to be removed quickly if logistics overheads have to reach global standards.
Secondly, the absence of appropriate infrastructure such as warehouses and cold chains is a key challenge. India’s cold chain from the farmhouse to the seaport or airport is faulty. During the pandemic, many hospitals experienced shortage of medicines because of logistic hindrances.
According to data from the National Agricultural Cooperative Marketing Federation, in India annually, 40% of the food grain produced, amounting to Rs 88,800 crore, goes waste due to deficiency of storage amenities. Most of this wastage is due to the bad quality of foodgrain 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 a challenge. The assimilation of various e-platforms will be a challenge because there are so many of them. Combining them without a glitch into one platform will be a massive task. Finally, the creation of a protected database to store sensitive and complex data is critical. India has had a history of cyber-attacks. To create a safe and secure platform, the government must invest considerable time and knowhow.
India’s infrastructure insufficiency is considered one of the major restraints in rapid economic growth. The absence of suitable infrastructure enhances the cost of production and disturbs the competitiveness of Indian businesses. The government has been working in this space and invested considerable resources in recent years.
India’s logistics sector is enormously disjointed, which contributes to the cost of doing business. The sector comprises many government agencies and involves a host of documentation. Harmonisation between different government agencies will smoothen the transfer of cargo and reduce turnaround time. An improvement in total efficacy will generate employment in the logistics sector, which supports the livelihood of over 22 million people.
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 can hurt the economic health of any country.
If India has to be among the three largest economies and join the group of advanced countries, it has 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 monetisation. The private sector must be stimulated to partake in the digital drive that will perform as an interface with the end-consumer.
Moreover, although a few states have designed their logistics policy, many are in the process of doing so. Significantly, the Union and all state governments must work together to tackle ineptitudes in the logistics sector. Lesser logistics costs will make Indian businesses more viable and support exports. For instance, a 10% decrease in logistics costs is projected to increase exports from 5% to 8%.
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. 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, speed in execution is the need of the hour.
—The writer is a financial and tax specialist, author and public speaker based in Margao, Goa