Synergising Logistics in India to cut costs

On 17 September 2022, the Government of India launched the country’s first National Logistics Policy. While states such as Uttar Pradesh and Gujarat have launched similar policies in 2018 and 2021 respectively, this is the first such measure at the national level to consolidate and address concerns of the logistics and allied sectors. The launch […]

On 17 September 2022, the Government of India launched the country’s first National Logistics Policy. While states such as Uttar Pradesh and Gujarat have launched similar policies in 2018 and 2021 respectively, this is the first such measure at the national level to consolidate and address concerns of the logistics and allied sectors. The launch of the policy marks a new phase in India’s push towards synchronised infrastructural development, one that aims to integrate its various modal arms to benefit the citizens and the industry alike. The policy will bring together a range of initiatives in infrastructural development, more specifically transportation, taken over the course of the past few years and will streamline the efforts as the country aims to occupy a greater role in the global economy. The policy has received appreciation from industries and academia as a key driver in removing duplication in efforts and resources and reducing the cost of logistics in India.

Boost to Logistics and infrastructure

Over the course of the past few years, the central government has undertaken several initiatives to upgrade transportation infrastructure and bring down the cost of logistics. Steps taken range from upgrading the shipping and road infrastructure through the Sagarmala Project and Bharatmala Pariyojana respectively to the more recent Gati Shakti Bill passed in the Parliament in August 2022. The latter will facilitate setting up a university and give the required push to skills and research in infrastructural development. The Sagarmala Project will connect water ports along the 7,500 km coastline of the country, thereby bringing down the logistical costs for the movement of domestic cargo. On the other hand, the Bharatmala Pariyojana, launched in July 2015 along with the Sagarmala Project, involves developing nearly 26,000 km of economic corridors to assist the Golden Quadrilateral (GQ) and the North-South and East-West (NS-EW) corridors. The project includes upgrading bypasses, elevated corridors, inter-corridors, and feeder routes, spanning across states at an estimated cost of Rs. 6.92 lakh crore till 2024.
Other major projects involve setting up 35 multi-modal logistics parks in key industrial cities across the country at a total cost of Rs. 50,000 crores. The parks will act as nodal centres for industrial activity and enable seamless freight movement, increase cost efficiency, and reduce dependence on imports. National Infrastructure Pipeline (NIP) launched in 2019 with a five-year deadline is another key step in boosting infrastructural development in the country through public-private partnerships. The policy focuses on using private sector expertise with clear direction from the government for transport, logistics, energy, water, communication, social, and commercial infrastructure. Several other measures such as the E-Sanchit (2017) for paperless processing of documents for trading cross-border trading, FASTag, an electronic toll collection system (introduced in 2016 for seamless payment of toll taxes), the Goods and Services Tax, and the E-way bill have been introduced over the years to provide the required support to boost commercial activity and industrial production.

Cost Reduction through Integration

The National Logistics Policy streamlines initiatives and provides well-intentioned guidance and policy direction to the private sector and different arms of the government for infrastructural development. Through a well-integrated, reliable, and economical logistics network, the policy aims to boost the economic growth and trade competitiveness of the country. The policy has the intended objective of reducing the cost of transporting goods and raw materials from one place to another while ensuring ease of business. Although India has made large-scale investments in upgrading basic infrastructure, according to the World Bank Logistics Performance Index, it has struggled to improve the overall logistics framework of the country as measured by the index. From a score of 3.07 (ranked 39 out of 150 countries) in 2007, it reached a ten-year high of 3.42, ranking 35 out of 160 countries in 2016. However, both its score and ranking dropped in 2018 to 3.8 and 44 (out of 160) respectively, marking a period when the government gave a huge infrastructural boost through several key projects for roads, railways and waterways.
Infrastructural development is a long-term endeavour and investment done now will have an impact in the medium and long term. The National Logistics Policy intends to provide the required fillip to the sector and the Indian economy for medium and long-term consolidation of government funding on infrastructure. Through the policy, the government aims to put India in the league of countries with a well-functioning and well-oiled infrastructure and logistics machinery similar to the developed economies of Japan or Germany. Both countries rank among the highest in logistics management and spend less than 8-9 per cent of their GDP on logistics costs. On the other hand, India spends nearly 13-14 per cent of its GDP on logistics, a cost, which if reduced will not only open up funds for the private sector for capacity expansion but will also help reduce the cost of producing goods and services and improve competitiveness in the domestic and international market. This shall enable India to increase its exports by reducing its indirect logistics cost by 10 per cent, amongst other things.
The logistics sector provides jobs to nearly 22 million people, directly and indirectly. A boost to the sector, through a singular policy which offers greater clarity on regulation, investment, infrastructure expansion, and geographical footprint of industry and manufacturing will further increase employment opportunities in the sector and allied industries. Furthermore, it encourages innovation in the logistics sector by allying industry, academia and government to set up a logistics Centre of Excellence and promote innovation in the field. Through a unified logistics interface platform (ULIP) and Ease of Logistics (E-LogS), the policy focuses on introducing technology in the logistics ecosystems thereby forming two fundamental pillars to the same. ULIP intends to benefit not only the various government departments and ministries but also shippers, truckers, and logistics service providers by enabling information exchange on a real-time basis. Ease of Logistics (E-LogS), as a central tenet of the policy, will be developed by the industry department to allow for digital registration, coordination, and monitoring of the time-bound resolution of issues.

A Holistic Approach to Logistics

The National Logistics Policy aims to reduce logistics costs and will not only improve efficiency across the value chain of a product by lowering the cost of inputs and transportation, but it will also allow for value addition and greater scope of entrepreneurship and innovation in the most traditional sectors. Accordingly, the policy primarily focuses on the transport sector by boosting infrastructure with assistance from various schemes such as Sagarmala, Bharatmala, and PM Gati Shakti National Master Plan. It will generate employment directly, as the government invests in infrastructure projects, and indirectly by creating demand and facilitating the efficiency of the supply chain.
A technological approach to infrastructural development under the policy is likely to improve the quality of employment generated and contribute to enhancing the livelihoods. Lastly, the policy intends to deal with the long-standing ill of red-tapism and bureaucratic delays in government procedure by increasing coordination among ministries, departments, and other stakeholders. It encompasses and calls for coordination between 20 government agencies directly, and 40 partner government agencies. Other stakeholders in the policy are expected to include export promotion councils, shipping agencies, logistics service providers, inland container depots, container freight stations, and an information technology ecosystem.