Need for Speed: India’s new Logistics Policy
Have you noticed long queues of trucks and lorries on national highways at the inter-state border gates. It has been a familiar sight,no! Well, this is not always due to the tolls that they have to pay but also because of piles of documentation, and cumbersome procedures needed to move goods from one location to the other. It is these gaps in the transport system that the government aims to address.
What is the National Logistics Policy?
Logistics, in simple words, refers to the flow of resources from the point of origin to the point of consumption. This includes the movement of tangible goods such as raw materials, supplies, equipment as well as human capital.
In an effort to reduce the inefficiencies of the existing system, Mr. Modi launched the National Logistics Policy which he described as a broad effort to develop the logistics ecosystem.
What was the need?
In India, moving goods from the source to the destination has always been a very costly affair. Transportation forms more than 50% of India’s logistics costs, followed by warehousing (12%), and material handling (10%). According to the World Bank Logistics Index of 2018, India is ranked 44th in logistics costs, way behind countries such as the USA and China. In fact, India spends approximately 13% to 14% of its GDP on logistics costs, compared to 8%-9% spent by developed nations like Germany and Japan.
The new policy aims to formalize the sector and bring the cost of logistics to a single digit. As India aims to become a $5 trillion economy by 2025, connectivity and superior infrastructure will become even more critical.
But why are logistics costs so high in India?
Non-standardised paperwork and state levies, jurisdictional issues, complicated procedures, poor automation and absence of an integrated system, are some of the problems which have added on to India’s logistics costs.
The graph below shows several systemic inefficiencies that can be reduced through automation and with the help of technology.
Source: National Council for Applied Economic Research
These inefficiencies have had major implications for India. Higher transport costs get passed on by producers into the final prices of goods, pushing up inflation. It has also made India’s exports less competitive compared to its global peers thereby limiting large scale investments into India.
Scope of the policy
- Prevention of wastage of perishable products
- Enabling quick last-mile delivery
- Reduce transport-related challenges
- Increase the country’s exports and boost domestic manufacturing
- Make India the preferred destination for global investors
The new policy rests on 4 key pillars
IDS (Integration of Digital System) – Integrate 30 different systems of several departments including aviation, commerce ministries, customs, international trade, railways, and road transport.
Unified Logistics Interface Platform (ULIP) – All digital services related to the transportation sector will fall under this. It will serve as an e-logistics marketplace that will lessen the stress of shipment allocations and offer businesses greater control over supply chains.
E-Logs (Ease of Logistics), will enable industry associations to directly take up any matter which is causing problems in their operations and performance with the government agencies.
SIG (System Improvement Group): Monitor all logistics projects regularly through a group of ministries
Currently, India moves goods on the most expensive mode of transportation – Roads. To reduce this overdependence, the new policy will facilitate a modal shift in logistics to waterways, railways and airways. The NLP in conjunction with the GatiShakti Programme, Sagarmala schemes and dedicated freight corridors can help push towards this multi-modal connectivity.
All eyes on implementation now
The policy faces several implementation challenges including the coordination between different ministries, stakeholders, and the rate of infrastructure development.
The present rail system is riddled with structural deficiencies which need to be eliminated quickly. For decades, the average speed of a freight train has stagnated at 25 kmph and must be doubled to at least 50 kmph if the cost of logistics has to be halved to global benchmarks.
The size of ports, too, must grow manifold and air logistics need to be drastically improved to enable transportation of high-value and perishable goods. It is not without reason that 10 of the world’s top 20 ports are in China.
Moreover, the road network is an extremely fragmented sector where a large chunk of truck owners have a very small fleet. These small operators serve two and three tier cities where maximum micro and small enterprises operate. This calls for the aggregation of small operators under one umbrella.
The Road Ahead
If we want to compete internationally, having an efficient logistics ecosystem is a no-brainer. In the past few years, the introduction of initiatives such as e-sanchit, faceless assessment for customs, e-way bills, FASTag, GST have been a catalyst in building the foundation of the Indian logistics industry. This combined with the new proposed initiatives under the NLC will deliver a cheetah’s speed to the logistics of India.