Need speed of the hour
By Shivanand Pandit
India has finally adopted a National Logistics Policy (NLP). This is a persistent demand from the $200 billion logistics industry for several years. A key factor in its success will be the rapid implementation of various proposals.
Logistics includes the planning, coordination, storage, and movement of resources such as people, raw materials, inventory, and equipment from one location to another. This can range from manufacturing sites to consumption, distribution or other manufacturing sites. The logistics industry in India is complex, with more than 20 specialized establishments, 37 export elevation bodies, 500 certifications and 10,000 products. The sector also includes 200 transport entities, 36 logistics organizations, 129 land container depots, 168 container freight stations, 50 IT ecosystems, and banks and insurance companies. In addition, 81 authorities and 500 certificates are required for exports and imports.
The need for NLP has arisen as the logistics cost in India is higher than in advanced economies. A decrease in this cost increases productivity, adds value and improves the business. Currently, India spends nearly 14% to 18% of its gross domestic product on logistics costs, which is well above the global average. According to the World Bank Logistics Index 2018, India ranks 44th in terms of logistics costs. India is behind developed countries like the United States and China, which occupied the 14th and 26th position respectively.
The NLP aims to facilitate the movement of goods in the country, while developing the competitiveness of Indian products in local and global markets. It also aims to increase economic progress and employment opportunities. The policy aims to ensure fast last mile delivery, end transportation setbacks, save producers time and money, and reduce wastage of agricultural products.
In addition, the policy has many other transformational goals. First, it aims to reduce the cost of logistics to a global best rate of 8% by 2030. Countries like the United States, Japan, Germany, South Korea, Singapore, and some European countries have such low logistics cost/GDP ratios. Second, it attempts to enrich the country’s Logistics Performance Index (LPI) ranking to be among the top 25 countries by 2030. Then, it aims to build decision support systems based on the data to support a successful logistics ecosystem.
The most valuable element is the unified logistics interface platform, which aims to bring together all the digital services of the logistics and transport sector in a single portal, thus freeing producers and exporters from long and cumbersome procedures. . The second building block is Ease of Logistics Services (E-Logs), a new digital platform. The platform will allow industry to quickly and directly address operational issues with government agencies for immediate resolution. The third building block is the Global Logistics Action Plan which encompasses unified digital logistics systems, standardization of physical assets, benchmarking of service standards, human resource development, capacity building and development. logistics parks.
However, NLP faces some challenges. First, the heavy dependence on road transport. About 65% of the movement of shipments in India is by road, where fuel overheads are very high. For countries that handle as many shipments as India, peak loads are transferred via high-speed rail networks which are inexpensive and faster than roads.
However, the railways do not offer door-to-door delivery service. In addition, the rail sector suffers from many operational deficits such as low freight train speeds and fewer wagons. These will need to be removed quickly if logistics overhead is to reach global standards.
Second, the lack of proper infrastructure such as warehouses and cold chains is a major challenge. India’s cold chain, from farm to seaport or airport, is failing. During the pandemic, many hospitals experienced drug shortages due to logistical obstacles.
According to data from the National Agricultural Cooperative Marketing Federation, in India every year 40% of the food grain produced, or Rs 88,800 crore, is wasted due to lack of storage facilities. Most of this wastage is due to the poor quality of food grains during transport and storage.
Third, the formation of an integrated logistics interface platform and the adoption of digital infrastructure in the logistics industry is a challenge. Assimilation of various electronic platforms will be a challenge as there are so many. Seamlessly combining them into one platform will be a huge task. Finally, creating a protected database to store sensitive and complex data is essential. India has a history of cyber attacks. To create a safe and secure platform, the government must invest considerable time and know-how.
India’s poor infrastructure is seen as one of the major impediments to rapid economic growth. The lack of suitable infrastructure increases production costs and disrupts the competitiveness of Indian companies. The government has been working in this area and has invested considerable resources in recent years.
India’s logistics industry is extremely disjointed, which contributes to the cost of doing business. The sector includes many government agencies and involves a multitude of documents. Harmonization between different government agencies will facilitate the transfer of goods and reduce turnaround times. An improvement in total efficiency will generate jobs in the logistics sector, which supports more than 22 million people.
The Union Government formed the Logistics Division of the Ministry of Commerce in 2017 to support the integrated growth of the sector. A draft logistics policy was published in 2019, but implementation has been delayed. Delay can damage the economic health of any country.
If India is to be among the top three economies and join the group of advanced countries, it must be among the top 10 in LPI by 2030. It must match the speed of South Korea. Also, the government should insist on asset monetization. The private sector must be stimulated to take part in the digital dynamic which will play the role of interface with the end consumer.
Moreover, while a few States have defined their logistics policy, many are in the process of doing so. Significantly, the Union and all state governments need to work together to tackle ineptitude in the logistics industry. Lower logistics costs will make Indian businesses more viable and support exports. For example, a 10% drop in logistics costs should increase exports by 5% to 8%.
Strengthening the logistics sector will not only make doing business stress-free, but also create substantial jobs and ensure better wages and working conditions. The government should make sincere efforts to implement the policy effectively. Then the NLP, in combination with the Gati Shakti program, Sagarmala and Bharatmala programs (waterways and roads), dedicated freight corridors, etc., can be transformational. Therefore, execution speed is the need of the hour.
—The author is a financial and tax specialist, author and lecturer based in Margao, Goa