– By Imthiaz
A key player in India’s economic progress has been the logistics industry, achieving manufacturing exports worth $418 billion in 2022. Buoyed by proliferating consumer demand, an evolving e-commerce sector, and entrepreneurial rise and innovation, the logistics industry has experienced exponential growth in a brief period of time. However, the industry remains largely fragmented and highly cost inefficient, highlighted by India’s 44th rank on World Bank’s Logistics Index. But taking recognition of the challenges, last year, the Indian government announced the National Logistics Policy (NLP), aimed at making India one of the top 25 countries by 2030 in the Logistics Performance Index (LPI), and reducing the country’s logistics costs to bring them at par with global standards.
With increasing digital penetration, urbanisation, population growth, emergence of e-commerce and growing income levels, the demand for logistics services have surged, leading to an increasing need for structural reforms in the industry that render efficiency, resiliency and propel economic growth. In India’s fragmented landscape of logistics, a cursory look at its functioning highlights that freight transport is largely conducted by roadways (65%), followed by rail (32%), and then finally by water and air. Domestic freight is primarily transported by a network of truckers, fleet owners and shippers across the country.
A report by NITI Ayog highlights that in 2022 alone, there were approximately 4 million trucks on Indian roads, moving 4.6 billion tonnes of freight per year. Moreover, trucking constitutes almost 40% of India’s logistics, with 80% of trucks used for inter-city freight transport, and 20% for intra-city, taking on the major responsibility of connecting businesses and customers, and driving freight supplies from one end of the country to another. But, the sector faces challenges, being predominantly unorganized, constituted by an enormous section of fleet owners with less than 10 trucks, and plagued by operational inefficiencies that cause delays and increase costs to the GDP. In order to tackle these challenges within the logistics ecosystem, there is a need for structural reforms.
One of the most important structural reforms remains infrastructural investment, which is aimed at improving roads, railways, airports and ports to enable free movement of goods across states and between neighboring countries. There has been a lack of standards and regulations in sectors of logistics such as warehousing, where the interpretation of national policy has greatly differed across states. Establishing multi-modal parks, with a slew of inter-modal transportation with different transport options for suppliers can lead to cost reductions overtime, and introducing regulatory frameworks for best practices and standards for inventory, warehouse and distribution can lead to overall improvements in supply-chain management. The cumulative effect of these measures could be enhanced efficiency across the board, creating reliability in India’s logistics ecosystem.
The PM GatiShakti Master Plan will play an important role to ensure coordination between infrastructure and multi-modal investments required to improve the logistics industry. Additionally, freight marketplaces are required for a holistic solution to the logistics sector, and can further ensure transparency within the industry, while improving liquidity for all stakeholders. Digitalization will play a key role in establishing such marketplaces, encouraging paperless documentation, fair pricing, optimal utilization of assets, reducing carbon footprint, promoting sustainable practices, and building towards a coherent, equitable ecosystem.
Logistics is the backbone of commerce, and technology is playing a crucial role in connecting, strengthening and advancing the logistics ecosystem. Platforms such as Ease of Logistics Services, also known as e-Logs, have been launched by the government to resolve major problems and issues faced by logistics companies that obstruct their performance and operations. By facilitating companies to take up such matters directly with government agencies will further lead to transparency, ease of doing business and better decision making, while promoting cohesion within the logistics sector. Such initiatives further avail streamlining of regulatory processes to reduce delays and costs associated with logistics by simplifying customs procedures, reducing paperwork, and adopting technology to automate processes.
Public private partnerships will also play a vital role in the development of logistics infrastructure, while creating new opportunities to increase investment and innovation in the sector. Through such collaborations, and given the data-centric nature of the logistics industry at large, private sector expertise and resources can be leveraged for advanced developments within the logistics sector. Moreover, structural reforms can usher in a phase of skill improvement and training for logistics workers, enabling them by enhancing their efficiency and effectiveness in areas such as transport management, inventory control, and customer service.
Impactful policy decisions that are aimed at improving infrastructure, establishing regulatory processes, enhancing supply chain management, promoting public private partnerships, and boosting skills and training can lead to higher efficiency for India’s logistics industry, and thus, structural reforms in logistics will play a key role in determining the country’s growth trajectory.
(Imthiaz is the CEO and Co-Founder of Raaho.)
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