National Logistics Policy aims to slash logistical cost drastically and improve India’s competitiveness in the export market.
- Shivanand Pandit
- Sep 24, 2022
India ultimately has a National Logistics Policy (NLP). Although the $200-billion logistics business sector has been crying for a robust policy for several years, it has got the policy only now. A vital factor now is the speedy implementation of various proposals declared in the policy.
Logistics includes planning, coordinating, storing and moving resources, such as people, raw materials, inventory, equipment, etc, from one place to another, from manufacturing locations to consumption, distribution or other manufacturing locations. India’s logistics sector is complex with more than 20 specialist establishments, 37 export elevation bodies, 500 certifications and 10,000 commodities. The sector also involves 200 transport entities, 36 logistics organisations, 129 inland container depots, 168 container freight stations, 50 IT ecosystems and banks and insurance coverage companies. Additionally, 81 authorities and 500 certificates are needed for exports and imports.
The necessity for the NLP was felt as the logistics cost in India is greater than that of the remaining advanced economies in the world. A decrease in logistics cost expands productivity, cutting across several sectors of the economy, while increasing value addition and enterprise. Currently, India spends nearly 14 to 18 per cent of its Gross Domestic Product on logistics costs, which is much higher than the global average.
The NLP targets to enhance the smooth movement of goods throughout the country. It also aims at developing competitiveness of Indian goods in both local and global markets. With these, the policy is looking to augment economic progress and employment opportunities. Rapid last-mile delivery, eliminating transport-linked hurdles, saving time and money for producers and curbing wastage of agro-produce are some of the major goals that the NLP has set for itself.
Additionally, the policy has many other transformational targets. Firstly, it aims to lower the cost of logistics to the global best rate of 8 per cent of the GDP by 2030. Nations like the US, Japan, Germany, South Korea, Singapore and certain European nations have such a low logistics cost-to-GDP ratio. Secondly, it attempts to improve the nation’s Logistics Performance Index (LPI) ranking to be among the top-25 countries by 2030. Thirdly, it aims to construct data-driven decision support systems (DSS) to support a capable logistics ecosystem.
The most valuable building block in the policy is the Unified Logistics Interface Platform (ULIP), which intends to include all logistics and transport sector digital services into a single portal. This is likely to liberate producers and exporters from the current cruelty of lengthy and burdensome procedures. The second building block is the Ease of Logistics Services (E-Logs), a new digital platform. The platform will permit the industry to take up operational matters quickly and directly with government agencies for an immediate solution. The third building block is the Comprehensive Logistics Action Plan (CLAP), encompassing unified digital logistics systems, standardisation of physical assets, benchmarking service standards, human resource development, capacity building and development of logistics parks, among others.
Although the NLP has several transformational targets and robust building blocks, it faces a few key challenges. Firstly, there is substantial dependence on road transport. Around 65 per cent of India’s consignment movement is by road, where fuel overheads are very high. For nations that handle as much consignment as India, the maximum of the consignment transferred is via high-speed railway networks that are inexpensive and quicker than roadways. However, the railways do not provide door-to-door delivery service. The railway sector suffers from numerous operational deficits, such as low speed of freight trains, fewer wagons and the like. These problems have to be addressed, if logistics overheads have to plunge to global standards.
Secondly, the absence of appropriate logistical infrastructure, like warehousing and cold chains, is a key challenge. India’s cold chain network from the farmhouse to the seaport or airport is faulty. During the recent pandemic, many hospitals experienced a shortage of medicines because of logistical hindrances. According to the data of National Agricultural Cooperative Marketing Federation (NAFED), in India, annually 40 per cent of the foodgrain produced, amounting to around Rs 88,800 crore, goes waste due to a deficiency of storage amenities.
India’s infrastructure insufficiency is very often considered one of the major restraints in rapid economic growth. The absence of suitable infrastructure enhances the overall cost of production and dents the competitiveness of Indian businesses. The government has been working in this space and invested a considerable volume of resources in recent years. However, along with development in infrastructure, its effectual use is important to control costs. Therefore, the recently- introduced NLP should aid Indian businesses in increasing their competitiveness.
India’s logistics sector is enormously disjointed, which contributes to the cost of doing business. As mentioned earlier, the sector comprises many government agencies and involves a complex and elaborate documentation process. Healthier harmonisation between different government agencies will smoothen the transfer of cargo and reduce the turnaround time. An improvement in total efficacy will lift overall activity and help generate employment in the logistics sector, which supports the livelihood of over 2.2 crore people.
Although the NLP attempts to improve India’s LPI ranking to be among the top-25 nations by 2030, this is not impressive enough. If India has to march quickly to be among the three largest economies and join the group of advanced countries, it has to target to be among the top 10 in the LPI by 2030. It has to match the speed of South Korea. Besides, the government should carry out asset monetisation at a faster pace. The private sector must be stimulated to participate in the digital drive, leading to a harmonised structure for interoperability.
Although few State governments have designed their logistics policy, many are still in the process of doing so. The Union and all State governments must work together to tackle inefficiencies in the logistical sector. Lower logistics costs will make Indian businesses more viable and push up exports, which can become an imperative driver of growth and employment generation over the medium term. For instance, a 10 per cent decrease in logistics cost is projected to increase exports by between 5 and 8 per cent.
Reinforcing the logistics sector will not only make it stress-free to do business but also create substantial employment and guarantee improvement in wages and working conditions. The government should make sincere efforts to execute the policy effectively concentrating on various challenges that lie ahead. Then the NLP, in combination with the Gati Shakti Programme, the Sagarmala (waterways) and the Bharatmala (roadways) schemes and the Dedicated Freight Corridors can be transformational. Therefore, the need of the hour is the cheetah speed of execution of measures announced in the NLP.
(The author is a tax specialist based in Goa.)