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Indian Economy Moves Towards A Calibrated Restart; Warehousing All Set To Rewrite Its Growth Story
India’s supply chain has fractured as a result of the lockdown, so the economy’s biggest challenge will be relinking of the supply chain; then ensuring raw material supply to manufacturing locations and once production commences, conveying the finished products across the nation’s supply chain.
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Warehousing is about creating ‘time utility’, which it does by bridging the time gap between production and consumption of goods. As an integral part of the supply chain, this star performer in India’s commercial real estate has made its mark. It has evolved from an ‘emerging’ to an ‘established’ asset class in short span of time. With unprecedented crisis of COVID19 prevailing across the globe, has realized the underlying importance of effective and robust supply chain management system. Strong supply chain model have truly emerged as winner in this crippling economic crisis.
India’s supply chain has fractured as a result of the lockdown, so the economy’s biggest challenge will be relinking of the supply chain; then ensuring raw material supply to manufacturing locations and once production commences, conveying the finished products across the nation’s supply chain. In all these three aspects, warehousing aces the challenge of making the restart a smooth and simple process.
The challenge is being viewed as an opportunity, so as India seeks to attract industrial and manufacturing units relocating from China, a strong supply chain, with warehousing playing the role of the star performer, will be required to attract global manufacturing companies, as also to boost smooth distribution of products manufactured in India.
The Government of India has laid emphasis on boosting agro- trade, including dairy products as also fishing and similar products which have a good market for exports. These will drive the need for cold chain storage, which is expected to rise sharply. Not surprisingly, ‘Green-shoot’ development of this sub-segment is on the rise across India.
Warehousing has been among the best performers in commercial real estate, especially after economic and taxation reforms led to Octroi being subsumed into Goods and Services Tax (GST). This lead to the aspect of ‘efficiency’ coming into sharp focus, and global best practices being implemented resulted in warehousing in India. Having experienced the positives of the efficient, new-age warehousing, the only way demand could go was upwards – and it did so.
Commercial real estate has been emerging as the go-to class for developers and investors in India, driven by the e-commerce and consumption sectors and aided by the government’s “Make in India" initiative and the roll out of the goods and services tax (GST). For warehousing and logistics to grow, the ideal scenario is one where the operating model is developing a logistics park. This will be about ‘built-to-suit’ facilities, with light industrial manufacturing and warehouses as also cold storage facilities, which will be given on a long-term leasehold contract.
Traditional growth-driver sectors like agriculture and manufacturing, with textile and auto/auto ancillaries have been driving demand over the past few years. New segments such as organized retail, information technology, telecommunications and healthcare have ended up with larger quantum of space utilization, and the success story shows no signs of reducing speed.
In the aftermath of the Lockdown, while announcing the third leg of the Covid-19 economic package as part of the 20-lakh crore Atmanirbhar Bharat Abhiyan (Self-reliant India Campaign), Union Finance Minister Nirmala Sitharaman announced various measures relating to agriculture and allied activities. From real estate, as an industry perspective, these measures will strengthen infrastructure, logistics and storage, and will provide opportunities in form of new facilities being set-up in green-field and brown-field segments, to tackle supply chain issues, especially perishable fruits and vegetables, as also dairy products and fisheries.
Warehousing and logistics is a growing segment in commercial real estate; the cold chain aspect is a sub-segment which also offers immense potential. The measures announced by government creates an opportunity for warehousing; logistics as also cold chain to grow and provide necessary support to Indian agriculture to store produce safely and transport it to the various domestic and global markets. Post the reforms announced by the Finance Minister recently for Fisheries are expected to contribute Rs. 1 lakh crore to Indian exports. This opens floodgates of opportunities to create cold chain/ warehousing and logistics hubs as new growth avenue for commercial real estate segment.
As India works on building its infrastructure, growth in transportation and trade will plays a vital role in enhancing the development of warehousing. Across the nation, multi modal transport corridors will enhance the growth trajectory of these asset classes.
As Indian economy is making the recalibrated restart; it is difficult to ascertain the extent of economic losses for any segment of industry. Having pointed out that, I would add that warehousing should be among the fastest to recover realizing its core significance. Post the pandemic, I expect warehousing and logistics to recover stronger than most others in India.
The sector could see quick recovery of within six months post the pandemic or a moderately quick recovery of up to one year. Media reports say that more than 3 million sq. ft. of new contracts were signed across 6 locations by manufacturing, Third Party Logistics (3PL) and e-commerce clients in the first quarter of 2020. There is a strong pipeline of development for warehousing and logistics space that is underway in the country. So, while there will be a revival in terms of economic growth, the warehousing spaces will continue to get more mature.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.