Logistics sector in India

Syllabus: GS 3 > Industry and infrastructure   >   Infrastructure & Investment models

REFERENCE NEWS:

• According to a report recently released by the National Council for Applied Economic Research (NCAER), commissioned by the Ministry of Commerce and Industry, India has seen a notable reduction in its logistics costs. 
• The costs decreased from between 8.6% and 9.8% of GDP in 2013–14 to between 7.8% and 8.9% in 2021–22. This report dispels earlier estimates that had placed India's logistics costs at a much higher level, around 14% of GDP.

WHAT IS LOGISTICS?

• Logistics encompasses planning, coordinating, storing, and moving resources—people, raw materials, inventory, equipment, etc.—from one location to another, from the production points to consumption, distribution, or other production points.

LOGISTICS SECTOR IN INDIA:

• India's logistics market is estimated to be USD 435.43 billion in 2023 and is expected to reach USD 650.52 billion by 2028, growing at a Compound Annual Growth Rate (CAGR) of 8.36%.
• India improved its ranking in the World Bank's Logistics Performance Index, climbing six places to rank 38 out of 139 countries in 2023. This reflects the country's efforts towards increasing logistics efficiency?

CHALLENGES ASSOCIATED WITH INDIA’S LOGISTICS SECTOR:

• Heavily dependent on roads:
  • India's logistics sector predominantly depends on road transport, holding a 65% share compared to a global average of 25%. Railways and waterways make up roughly 35%.
  •  Road transportation is more expensive, costing Rs. 2.2 per tonne per kilometre, in contrast to Rs. 1.4 for rail and Rs. 0.7 for waterways.
• Port Sector Challenges: 
  • Indian ports experience prolonged ship turnaround times, averaging about 62 hours in 2020-21, significantly higher than Japan's approximate 8 hours.
  • India's port inefficiencies arise from congested berths, slow cargo handling, and lengthy customs processes, impacting logistics. Coastal shipping is further limited by inadequate port facilities and depth, restricting large vessel operations.
• High fuel prices:
  • High fuel prices significantly burden the logistics sector, as they lead to increased transportation costs and additional freight surcharges, ultimately impacting the sector's profitability.
• Regulatory and Bureaucratic Hurdles: 
  • The introduction of digital platforms like the e-way bill system has streamlined some administrative procedures and reduced paperwork. However, the sector still grapples with complex and varied regulations across states, leading to delays and increased compliance costs.
• Fragmented Market Structure: 
  • India's logistics market remains highly fragmented with numerous small players, leading to service quality inconsistencies and inefficiencies.
• Warehousing Challenges: 
  • The state of warehousing in India's logistics sector is problematic due to inadequate facilities and limited location choices. Also, a significant portion of the larger storage facilities is owned by the government and primarily used for storing food grains.
• Technological Gaps: 
  • Despite advancements in AI, IoT, and automation, and the growing utilization of robotics and drone technology, a significant part of the sector still relies on traditional methods.
• Structural issues with infrastructure development:
  • Land acquisition, litigation issues, alienation of local communities, environmental clearances etc are some major hurdles that delays infrastructure development in the country.
• Huge capital expenditure requirements:
  • The creation of a robust infrastructure for an efficient logistic ecosystem requires huge capital expenditure with relatively longer gestation periods.
•  Slow pace of infrastructure creation in India:
  • For ex: Only 30-35 km of roads are constructed in India per day as compared to 45km in China
• Skilled Manpower Shortage: 
  • The sector faces a shortage of trained and skilled manpower, which affects service quality and limits the adoption of advanced technologies.
• Environmental Concerns: 
  • Sustainable logistics practices are in nascent stages in India, and the sector faces challenges in reducing its carbon footprint and adopting greener practices.
• Supply Chain Disruptions:
  • Global events, like the COVID-19 pandemic, have highlighted vulnerabilities in the supply chain network, underscoring the need for more resilient and flexible logistics systems.

WAY FORWARD

• Cost optimization:
  • To enhance competitiveness and profitability, cost optimization in India's logistics sector is essential. 
  • For instance, modernizing infrastructure such as roads, railways, ports, and terminals boosts logistics efficiency and leads to cost reduction.
• Adopting advanced technologies:
  • Utilizing automation, digitalization, and data analytics can transform logistics by streamlining operations, reducing costs, and optimizing supply chain management.
  • Also, technologies like barcode scanning, RFID, and real-time tracking enhance tracking abilities and operational efficiency, leading to cost savings.
• Role of MSMEs:
  • Supporting MSMEs is key for the logistics sector's growth and competitiveness.
  • For instance, fostering collaboration between MSMEs and larger logistics firms can lead to knowledge exchange and capacity enhancement, strengthening the overall logistics ecosystem.
• Promote federalism:
  • In taking the National Logistics Policy and Gati Shakti master plan forward, it is important to make the states of India full stakeholders since most development activity takes place at the level of states.
• Ensure civil society participation:
  • Engaging civil society as a key participant in India's infrastructure development can enhance public trust and involvement, vital for a strong logistics sector. A feedback mechanism to gather and address public views is essential for this engagement.
• Eliminate the structural deficiencies in railways:
  • The rail sector suffers from many structural deficiencies which have to be eliminated fast if the logistics cost has to be halved to global benchmarks.
  • The average speed of a freight train has stagnated at 25 kmph for decades, it has to be urgently doubled to 50 kmph at least.
• Promote inland waterways:
  • The country should promote eco-friendly and cost-effective inland waterways freight movement. For example, India can learn from river ports of China.
• Promote air logistics.

CONCLUSION:

• The logistics sector in India is on the brink of significant expansion. By aligning with international standards, adopting cutting-edge technologies, enhancing skills, and implementing effective strategies, it can maximize its potential, become a global frontrunner, and substantially contribute to India's economic progress.

PRACTICE QUESTION:

Q. “National Logistics Policy has immense potential for development of infrastructure, expansion of business and increasing employment opportunities”. Discuss the statement with reference to the significance of National Logistic Policy (NLP) and challenges associated with its implementation. (15 marks, 250 words)