Budget 2018: Even as the narrowing fiscal deficit and dwindling exports are emerging as major concerns ahead of the Union Budget 2018 next week, the high cost of logistics in India is coming into sharp focus as one of the key factors affecting the country’s cost competency.
Budget 2018: Even as the narrowing fiscal deficit and dwindling exports are emerging as major concerns ahead of the Union Budget 2018 next week, the high cost of logistics in India is coming into sharp focus as one of the key factors affecting the country’s cost competency. Giving a boost to the logistics industry through reforms and reliefs in the upcoming Union Budget will go a long way in shoring exports, as well as improve trade efficiencies within the country, creating millions of new jobs and contributing significantly to the country’s GDP.
Need for optimization
India is one of the fastest growing economies in the world today. The inefficient logistics account for about 2% of the country’s GDP, so high costs could be attributed to inadequate infrastructure. India has traditionally struggled with transport logistics, which is a direct result of poor connectivity between road, rail, air and ports. Within India, roads continue to be the favoured form of transportation accounting for over 60% of total freight movement. The country’s rail network – fourth-largest in the world – carries only 32% of the cargo. Inadequate rolling stocks, non-availability of cargo hubs and capacity constraints prevent the rail network from achieving its optimal potential. Transport infrastructure is a critical component of industrial growth. If India has to become the third largest economy by 2028, it needs to take corrective measures in Budget 2018. In the interest of efficiency and greater economies of scale, we need Budget 2018 to crunch both costs and time involved in this journey to the consumer.
Hub-and-spoke model to increase speed, cut costs and create a smarter logistics network
India’s geography – long coasts with multiple ports, extensive hinterland with improving rail connectivity, vast road network, etc. – makes multi-modal solutions ideal for our country. Moreover, the economy is on an upswing. Consumerism is on the rise, driven by a mix of brick-and-mortar business and e-commerce. Rural markets are growing in significance and purchase power. As marketplace demands go up, a more efficient and seamless logistics infrastructure that meets these demands will deliver strong advantages to the economy.
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Logistics Parks can play a game-changing role for storage and in-transit processing
This is where logistics parks can play a game-changing role. By their nature, logistics parks can ease out the current fragmented nature of logistics, helping industry move away from point-to-point logistics towards the more efficient hub-and-spoke model. Aligned with the ‘one nation, one tax’ premise of GST, logistics parks will accelerate the benefits of GST to both producers and consumers. Transit times at toll nakas and octroi points have already come down, as trucks do not need to stop and pay. This can be reduced further in Budget 2018 by leveraging logistics parks for storage and in-transit processing, by creating hous where economies of scale can be leveraged. In the upcoming Budget 2018, the Government should give incentives for setting up of logistics parks and allied infrastructure. The hub-and-spoke approach will increase speed, cut costs and create a smarter logistics network in the country.
The way forward: Cut Regulatory Barriers, Offer Seamless Digital Platform
Setting up a dedicated Logistics Division under the Ministry of Commerce & Industry and granting infrastructure status to the logistics industry is a move in the right direction. Subsequent initiatives in easing GST rules in Budget 2018 and implementing major infrastructure projects will further lift the logistics sector. But the biggest boost that the Government can give through the upcoming Budget 2018 is by cutting regulatory barriers and offering a seamless, transparent digital platform that will ensure easy movement of goods and vehicles across the country. Besides creating a level playing field, focused fiscal incentives to encourage investments in specific areas will allow the private sector to contribute, consolidate and expand. One area where private investments can show huge results is the upgrading of dilapidated government and railway warehouses across the country. Modern warehouses will prevent wastage of produce, saving the country thousands of crores. For a Government firm on reforms, a concerted approach towards the logistics sector in the Budget 2018 will yield big demographic as well as economic dividends, ensuring the growth of India’s logistics sector, and in effect, the nation’s GDP.
Chander Agarwal is Managing Director, TCIEXPRESS.