The logistics market in India is expected to be worth US $307 billion by 2020 as quoted in the media. With less than 8% spent by the other developing countries, India spends around 14.4% of its GDP on logistics and transportation. The sector is expected to grow at a CAGR of 15-20 percent between FY2016-2020. This growth will be driven by infrastructure investment associated with logistics development plans (ports, logistics parks, highways, freight corridors and roads), domestic demand growth, and increase in trade. Automobile, aviation, pharmaceuticals, FMCG, and retail are among the large cash cows which the logistics sector is currently riding on. With all this there is immense potential to realize given that this sector will alone create one million employment opportunities by 2021.
Challenges in the industry:
Even though India being a low-cost service provider, the logistics cost remains an alarming factor due to the regulatory and tax structure challenges system in the country.
On one hand, the increase in the number of un-organised players, aging infrastructure and inefficient usage of technology has been impacting the mechanism of logistics service providers. The industry can grow at a rate of 16% CAGR with provision of comprehensive and efficient infrastructure. Whereas on the other hand, the impending implementation of GST and lack of skill development has adversely affected the process of logistics in the country. The GST is expected to be implemented by April 1st, 2017 and is set to bring about uniform tax structure in the system. This will further enhance operational efficiency in the delivery system thus increasing the business growth potential.
Growth aspects in the industry:
The increase in investment from both public and private sectors year on year (y-o-y) will uplift the logistics sector to the next level. With a significant push on the improvement of infrastructure, adoption of technology and dedicated logistics corridor across all the modes (road, rail, air and sea) will improve the overall structure of the Indian logistics market. This will further contribute to the growth of the industry per se.
Secondly, with India being the next manufacturing hub increase in trade with Asia, Europe, and North America will promote an increase in demand for the logistics services. This initiative by the movement will act as a major growth driver for both the public and private logistics players in the region. However, the timely implementation of the proposed GST is expected to reduce the overall logistics costs and also simplify the tax structure, making the operation robust.
I also feel that some of the other factors that can contribute to the growth of the logistics industry are the penetration of e-commerce giants into the hyper- local delivery segment and express logistics is expected to constitute a CAGR of 14.59% in the coming five years.
Demonetisation and impact on the Indian logistics Industry:
The logistics industry is a dynamic component in the country’s growth wheel which has also recently witnessed the effect of demonetisation followed by remonetisation (issue of new currency notes). This sudden shift has significantly disrupted the overall business operations of logistics, automobile, FMCG, pharmaceuticals and agriculture sectors. Though this move by the government gave a temporary jolt but, in the long run, there will be an increment in the overall business coming in from the international players.
A part of the logistics industry is heavily dependent on COD (Cash on Delivery) mode of payment has plunged. It is only imperative that small to large vendors embrace this paradigm shift and reduce dependency on cash transactions. Demonetization, leading to digital ways of making payments, will erode the illicit ways of functioning in the sector. Digitization is a new reality which is critical to transforming India going forward. It will help to bring better regulation and governance in the industry.
Where the industry is now moving towards cashless mode TCIEXPRESS being future ready has always encouraged business operations through cashless mode. With this futuristic vision, it has successfully carried out 55% of its business transactions through the digital mode of payment. The ease of doing business and providing on time service to the customers has always been a core pillar of TCIEXPRESS. Hence the overall impact of the demonstration was not faced by TCIEXPRESS as a company operating in this sector.
Logistics industry and its expectations from the upcoming Budget 2017:
India’s logistics sector primary expectation lies with the timely implementation of the goods and services tax (GST) as that would not only result in the absorption of various taxes involved in the transportation of goods and services, but will also increase efficiency in the business.
The country has notified five major industrial corridors – Delhi-Mumbai Industrial Corridor (DMIC), Amritsar-Kolkata Industrial Corridor (AKIC), Chennai-Bengaluru Industrial Corridor (CBIC), Visakhapatnam-Chennai Industrial Corridor (VCIC) and Bengaluru- Mumbai Economic Corridor (BMEC), spread across 15 states. Hence, the expectation of improving the infrastructure remains on priority for the sector.
The industry also expects that the budget would propose to remove the minimum alternate tax for the players operating in the special economic zones of the country.
With the industry going under transformation from traditional to digital mode of cash transactions the industry expects to see more incentives from the government for every cashless transaction in the budget.
(This article has been written by Chander Agarwal. He is Managing Director, TCIEXPRESS)