Budget 2020: Challenges and top expectations from India’s logistics sector

Union Budget 2020 India: While there are a lot of infrastructure projects in the pipeline announced with an objective of improving connectivity, a focused approach to logistics would help fast track the development.

By Aditya Vazirani

Budget 2020 India: India’s logistics sector is pegged at USD 215 Billion and as per a study by the IBEF, the sector is expected to attract investments worth USD 500 Billion by 2025. Having received the infrastructure status in 2017, the sector has also been a massive employment generator, estimated to employ up to 40 million people by the end of 2020.

Budget 2020: Challenges in India’s logistics sector

Despite these encouraging numbers, logistics still continues to be marred with challenges, the biggest among this being the cost for transportation. Currently, the Indian logistics sector costs come to about 14% of GDP, which is considerably higher compared to logistics costs in developed countries.

Higher logistics costs lead to higher export costs, which directly impacts the competitiveness of Indian goods in international markets.

While the sector is dominated by transportation, comprising 85% share in terms of value, followed by warehousing that contributes the remaining 15%, strategic reforms in the transportation area can help to considerably bring down the overall logistics cost.

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Budget 2020: Focus on SagarMala, BharatMala, UDAN

During her maiden budget in 2019, FM Nirmala Sitharaman highlighted the government’s focus on transportation, with schemes like the SagarMala (for developing India’s waterways), BharatMala,(for a robust road network) and UDAN (The regional airport development and connectivity scheme).

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Going forward, we expect a series of supportive initiatives, like effective execution of a well-defined National Logistics Policy (NLP), rationalisation and relaxation of taxes for warehousing, Push for digitisation in the sector, incentivising green supply chain initiatives and focus on creating a skilled workforce for logistics and supply chain. Elaborating further on the key areas of reform as under:

Budget 2020: Focused approach to logistics to fast track development

While there are a lot of infrastructure projects in the pipeline announced with an objective of improving connectivity, a focused approach to logistics would help fast track the development. With dedicated freight corridors and logistics parks to development of waterways and air connectivity, a re-look at subsidies on electricity for cold storage, special warehouses, and incentivizing green initiatives would go a long way to boost the sector.

Streamline process related to GST, warehouse leasing

While the implementation of GST has streamlined several processes, it has impacted the leasing of warehouses. Tax subsidies and relaxation in the indirect taxes for warehouse leasing can help boost the growth of 3PL service providers and warehousing operators. The slump in sectors like automobile and real estate have impacted the revenues for warehouses as well, which seek additional support, subsidy, and tax relaxations so as to continue growing

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Budget 2002 and Digital Push

While several international players, driven largely by the eCommerce boom, have implemented some of the latest technologies like IoT, AI and ML for smart warehousing and logistics, policy support and push for large scale digitisation is now the need of the hour. To ensure we manage to reach our goal of cutting Logistic costs to 10% of GDP from the current 14%, implementing technology-enabled smart solutions are vital. Inclusion of a digital policy specifically for the logistics and SCM in the NLP will be a great push to ensure the sector is on par with international standards.

Skill development a key challenge

Lack of trained manpower continues to remain a challenge for the sector. With innovations and developments in the cold supply chain, specialised warehousing, and digitisation, it has become mandatory to have a skilled workforce that is well equipped and efficient. While logistics continues to be one of the largest employment generators, most of its manpower is employed in transportation. Specialised and fast-evolving sectors catering to pharma, agriculture and meat and dairy, remain handicapped with an inefficient workforce. A policy that streamlines the training and employment process for logistics, other than transportation, would be of great help.

Incentivising Green SCM

Road Transportation remains one of the largest contributors to air pollution, especially in urban areas. While freight forwarding across railways and roadways is a more environmentally viable option, these are currently ill-equipped and marred with long journeys and delays.

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Additionally, setting up of a green supply chain, with sustainable warehousing, use of electric vehicles and recycling of packaging material etc., is yet to become mainstream and cost-effective.

Policy support, through tax relaxations or incentivising players pushing for greener solutions, will help boost the green SCM, thereby contributing to the environment and attract global players seeking responsible corporate practices for logistics.

The columnist is CEO, Robinsons Global Logistics Solutions. Views expressed are the author’s own.