The logistics industry would be a key enabler of India’s journey to becoming a $5-trillion economy, but before that it needs a massive course correction. Logistics cost in India is estimated to be around 13 per cent of gross domestic product (GDP) (around $400 billion) against the global average of nearly eight per cent, according to a 2020 report by management consulting firm Arthur D. Little India in collaboration with Confederation of Indian Industry (CII). This amounts to a competitiveness gap of around $180 billion per annum. The report also says that if the supply chain inefficiencies are not adequately addressed, the chasm could further widen to $500 billion by 2030.

In 2018, India dropped to 44th position on World Bank’s Logistics Performance Index (LPI) after it had jumped to 35th position in 2016 from 54th in 2014 largely due to the massive investment in mega projects like the Dedicated Freight Corridor, UDAN, Bharatmala, Sagarmala, and so on. The report, brought out every two years, ranked India 52nd in terms of “quality of infrastructure” as well as “degree of timeliness”.

Fragmented, unorganised sector

Despite the initiation of several mega projects, logistics remains a largely fragmented and unorganised sector. One of the major issues impeding its growth is the massive infrastructural gap. Even today, organised logistics service providers are, more or less, restricted to the metros (20 to 30 cities) or special economic zones (SEZs), while micro, small and medium enterprises (MSMEs) and agri-based industries in tier II/III cities, as well as rural areas, are left with little choice but to use unorganised service providers. This sectoral divide exacerbates costs and impacts efficiency. A varied and silo-based regulatory compliance model, disjointed IT systems, underdeveloped warehousing facilities, and lack of skilled manpower are the other key factors resulting in price escalation. For lack of a national policy, our supply chains are not synchronised with the rapidly increasing needs of our industries.

Logistics and supply chain trends for 2021

As per the Food and Agriculture Organization’s (FAO) estimates, nearly 40 per cent of food produced in India gets wasted before it reaches the consumer. In monetary terms, this amounts to a loss of one lakh crore rupees. These losses can be attributed to fragmented food systems and supply chains gaps. Further, the multiple layers of intermediaries create severe vulnerabilities in our food supply chain.

A 2019 report by McKinsey and Company highlighted significant issues in India’s transportation value chain. The report said India’s logistics market depends heavily on regional brokers and struggles with financing issues. “Shippers face issues such as low-price power, low efficiency and transparency, and the limited visibility of vehicles and shipment in the value chain,” it added.

Genesis of the policy

Through a holistic national logistics policy (NLP), the government aims to bridge these gaps and bring down logistics costs by up to eight per cent (of GDP) in five years. India’s logistics ecosystem is pegged at $215 billion and expected to grow at a CAGR of 10.5 per cent by 2025. The NLP aims to bring all the stakeholders of the logistics industry under one umbrella using technology. It wants to create a single-window portal that will digitally integrate service providers such as warehousing, shipping experts, third-party service providers, transporters and customs brokers with government agencies for a seamless flow of goods across regions. Along with efficient movement of goods, efficient data tracking is critical to the success of the supply chain. Therefore, policymakers are planning to create a logistics data and analytics centre to track and report key metrics. This would not only enable end-to-end, real-time visibility but also bring in much-needed transparency in the sector. New-age technologies such as geo-tagging, auto-capture and big data could be used to build a robust network to monitor supply chains. Through route optimisation and consolidation of freight, we can drastically reduce transportation costs. We would need to expedite the development of multi-modal logistics parks and eliminate chokepoints to improve connectivity. Additionally, efficient inventory management can reduce indirect costs to 20-25 per cent.

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Covid-induced disruptions have led to faster adoption of emerging technologies by industry stakeholders. Artificial intelligence, blockchain technology, and the IoT (internet of things) have helped them reach new heights of efficiency. The government can also leverage these innovations to improve the supply chain network. An effective logistics policy would also help manufacturing companies reduce their logistics cost, which is very high at present. Another key aspect is the participation of private players, and the NLP must have room for public-private partnership (PPP) models for faster optimisation of logistics and warehousing networks. While developing the integrated model, the government must preserve the autonomy and independence of the private sector. An efficient supply chain network is essential for projects such as Make in India and Startup India to build a self-reliant India.

(The writer is MD and CEO, NCML)