India’s Logistics Sector

CONTEXT: Recently released World Bank’s Logistic Performance Index (LPI) Report 2023

INDIA ‘S PERFORMANCE

• India has improved its ranking in the Logistic Performance Index (LPI) Report 2023, moving up to 22nd rank in the “International Shipments” category and securing the 38th rank on the LPI score.
• The improvement is attributed to the substantial reduction in dwell time and the efficient turnaround time at Indian ports.
• Investments in port infrastructure, technological advancements, public-private partnerships, and reforms have contributed to the enhanced port efficiency and productivity.
• The capacity at major ports has increased significantly, and there has been a rise in the value of operationalization of PPP projects.
• Focus on decarbonization and renewable energy has resulted in a 14-fold increase in the use of renewable energy in major ports.
• The National Logistics Portal (Marine) and Sagar Setu app have facilitated seamless movement of goods and services in ports.
• Key policy and legislative reforms, including the Major Port Authorities Act, Marine Aids to Navigation Act, and Indian Vessels Act, have been undertaken to boost the port sector.

Status of India’s Logistics Sector

• The logistics sector in India is predicted to account for 14.4% of the GDP
• Employs 22 million people and serves as the backbone for various businesses.
•  The logistics sector in India was valued at US$ 250 billion in 2021, with the market predicted to increase to an astounding US$ 380 billion by 2025, at a healthy 10%-12% year-on-year growth rate.
•  Moreover, the government is planning to reduce the logistics and supply chain cost in India from 13-14% to 10% of the GDP as per industry standards.

Challenges facing India’s Logistics Sector

• Poor Infrastructure: Poor infrastructure quality leads to longer transit times, delays in transportation, and increased transportation costs.
• Fragmented and Unorganized Logistics Sector: fragmentation results in inefficiencies, lower economies of scale, and reduced bargaining power with customers and suppliers.
• Regulatory Challenges: The regulatory environment in India is complex and bureaucratic, which makes it difficult for logistics companies to operate efficiently and cost-effectively. The diversity of state-level taxes and complicated customs procedures add to logistics companies’ cost and time of compliance, reducing their competitiveness.
• Inefficient Supply Chain: The supply chain in India could be more efficient, with inadequate warehousing facilities, poor inventory management, and a lack of proper transportation planning. The inefficiencies in the supply chain lead to delays, inefficiencies, and ultimately higher logistics costs.
• Low Adoption of Technology: The logistics industry in India needs to be faster to adopt technology, which could lead to inefficiencies in operations and higher costs. Technology can help in better transportation planning, real-time tracking and monitoring of goods, and better inventory management.

Salient provisions of National Logistics Policy

• The new logistics policy has four features:

• Integration of Digital System (IDS): There will be digital integration of different systems of seven various departments (like road transport, railways, aviation, commerce ministries and foreign trade)
• Unified Logistics Interface Platform (ULIP): This ensures shorter and smoother cargo movement and enables the exchange of information confidentially on a real-time basis. This National Industrial Corridor Development Corporation (NICDC) Logistics Data Bank Project has been leveraged.
• Ease of Logistics (ELOG): will enable and ensure the ease of logistics business through transparency and accessibility
• System Improvement Group: will monitor all logistics-related projects regularly

Way forward

The NLP’s transformational capacities further increase when combined with previous connectivity and infrastructure improvement programs like:

• The Gati Shakti Programme’s goal is to implement infrastructure connectivity, including roadways and railways projects across the nation, in a coordinated manner.
• The Sagarmala – envisions using the potential of the coastline and waterways to reduce the amount of infrastructure needed to reach their targets.
• The Bharatmala – focuses on reducing critical infrastructure gaps to increase the effectiveness of road traffic circulation across the nation.

With the government’s focus on improving infrastructure and the rise of e-commerce, the sector is expected to be a key driver of economic growth in the country.