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Logistics: The Mega Logistical
The National Logistics Policy (NLP) seeks to galvanise the sector into an integrated, cost-efficient, resilient and sustainable ecosystem aiding overall economic growth
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As India chases the kind of growth that will make it a developed country by 2047, it is seeking to set its economy in order one sector at a time through policies that it hopes will help rid the economy of all bottlenecks and promote efficiency and competitiveness.
A case in point is the recently announced National Logistics Policy (NLP) the successful implementation of which is expected to enhance overall economic prosperity by lowering the cost of doing business and ensuring the seamless movement of goods. It will ensure that India compares favorably with the best countries in global benchmarks by 2030 in the Logistics Performance Index ranking. How? By addressing infrastructure and procedural gaps, adopting international best practices to improve linkages with global value chains, and developing green channels for EXIM (export-import) trade.
"The creation of an integrated platform to bring all the agencies and documentation systems is a mammoth task," says Mihir Shah, Partner – Government and Public Sector (GPS), EY India. "But the policy paves a path for the development of the Unified Logistics Interface Platform (ULIP) and Ease of Logistics Services (e-Logs)," he adds.
ULIP is an integrated platform that seeks to bring together 30 systems of seven ministries that are directly or indirectly involved with the logistics sector by way of developing around 102 application programme interfaces (APIs) covering nearly 1,600 fields. E-Logs or a digital system for registering, coordinating, and monitoring the resolution of user issues, is being developed on which authorised user associations will register and upload their issues/suggestions. These two will enable information exchange on a real/near real-time basis amongst all stakeholders involved in the logistics ecosystem.
"There was also a need to benchmark and standardise the infrastructure and services across all the touch points. The New Logistics Policy at its core aims to provide this uniform look and feel to all stakeholders concerned. The visible benefit would be in faster decision making, lower cost of servicing, efficient deployment of resources and reduction in time to market with a lot more transparency built into the system," says Jagannarayan Padmanabhan, Director, CRISIL Market Intelligence & Analytics.
But the moot point is how long will it take for the policy to take effect? "The impact will start showing over the course of next 12 to 18 months while a few interventions will take long to show visible impact," says Ravi Jakhar, Chief Strategy Officer, Allcargo Logistics. “The visible impact that will be felt on an immediate basis is speeding up of the processes related to clearances as there is provision for several measures that make it easier for businesses to engage with government agencies and fasten the pace for requisite approvals and make it simpler and clearer. The policy also supports development of infrastructure with changes such as Indian Railways offering the land it owns at 1.5 per cent lease instead of earlier 6 per cent, which made many projects unviable.”
Unveiling the policy at Vigyan Bhawan in New Delhi on September 17, 2022, Prime Minister Modi called it a significant step in fulfilling the ‘pran’ of India becoming a developed country. “To ensure quick last-mile delivery, end transport-related challenges, save time and money of the manufacturers, prevent wastage of the agro-products, concerted efforts were made and one of the manifestations of those efforts is today’s National Logistics Policy”, the Prime Minister said.
While declaring that the PM Gatishakti National Master Plan would be supporting the National Logistics Policy in all earnest, Modi also acknowledged the support from states and the Union territories and mentioned that almost all the departments had started working together. “A huge data of information related to different infrastructure projects of state governments has been prepared. Today, data from the central and state governments in about 1,500 layers are coming on the PM Gatishakti portal,” the Prime Minister said, adding, “Gatishakti and the National Logistics Policy together are now taking the country towards a new work culture. The talent that will come out of the recently approved Gatishakti University will also help it a lot.”
Today, India’s logistics sector is hamstrung by a lack of skilled labour, lower penetration of technology/digitisation, non-standardised infrastructure assets and administrative procedures, and sporadic development of infrastructure.
Logistics cost is an important determinant of economic activity. Specific interventions to reduce logistics costs are dependent on an objective assessment of logistics costs. Logistics cost of the top 10 countries (as a percentage of GDP) ranges between approximately 8 per cent (US and Germany) and 11 per cent in Japan. In India, logistics costs assessed using statistical models range between 8 per cent and 14 per cent of GDP. These assessments are not uniform and do not necessarily reflect the ground realities of India. Thus, there is a need to measure logistics costs for domestic as well as exim trade using an objective cost measurement framework. As per an industry estimate, a reduction in logistics cost by 10 per cent could increase the country's exports by about 5-8 per cent.
The sector’s size is currently estimated to be between $250 billion and $300 billion. The share of rail has come down considerably over the last three decades with improved roads and delayed freight corridors. However, with renewed focus on freight corridors, rail is expected to increase its share significantly. The sector, though highly unorganised, has already adopted digitisation through E-WayBills, taxation post the adoption of the Good and Services Tax regime and the adoption of FASTag. These digitisation efforts have made the movement of goods across the country including last-mile deliveries more seamless and faster. With the National Logistics Policy government is aiming to standardise the processes over the next two years there by bringing the logistics industry on a digital platform and make the overall industry more efficient and cost competent.
Logistics is estimated to account for about 14.4 per cent of India’s GDP. More than 22 million people rely on it for their income. The Department of Commerce's logistics division was established on July 7, 2017 and given the responsibility for an integrated development of the logistics sector. In 2019, the sector was valued at Rs 15.1 lakh crore ($190 billion). Ninetynine per cent of the sector is unorganised and includes owners of less than five trucks, brokers or transport companies' affiliates, small-scale warehouse owners, customs brokers and freight forwarders, among others.
The NLP provides a vision for the development of an efficient logistics ecosystem across the country. However, its success hinges on active participation by states and Union territories to drive policy synergies and ensure effective implementation. Currently, 14 states and Union territories have developed their respective logistics policies along the lines of the NLP, and have components like setting up of warehouses, cold storage and container depots and earmarking land to set up logistics parks. "For 13 other states, it is in the draft stage. It is of paramount importance that the remaining states/UTs formulate policies aligned to NLP so that synergies and economies of scale can be achieved across the length and breadth of the country. States may also consider earmarking resources for the development of logistics infrastructure and adopt reforms in public procurement policies," says Shah of EY India.
In a recent interaction, Rampraveen Swaminathan, Managing Director & Chief Executive Officer, Mahindra Logistics said moving towards a multi-modal way of transporting goods would be one of the bigger challenges. Currently, nearly 65 per cent of India's cargo movement happens using road transport which entails high input costs including the fuel cost, delays etc. "Moving cargo away from roads and toward alternative modes of transportation (water, rail and air) will be critical to lowering logistics costs," Swaminathan said. Another challenge is the lack of proper logistics infrastructure, such as warehousing and cold chains, he added.
According to Padmanabhan of CRISIL, for NLP to become a mega success, it needs to overcome five major challenges. These are: to align the stakeholders with the common vision; building an open source system which can be a common interface; getting the states and their departments aligned to this objective; working in a time-bound manner to showcase the results; and building capacity at all levels and have training programmes.
Jakhar of Allcargo logistics is of the view that the dedicated freight corridors will bring in a paradigm change across the logistics sector when operational. When the Unified Logistics Platform is integrated and becomes much more integrated across the spectrum of logistics stakeholders, it would lead to transparency and visibility. To that effect, on an immediate basis the key will be to begin with collaboration across various logistics stakeholders and implementation of the policy will be the key when it comes to enhancing logistics competitiveness. "The biggest challenge is on-ground execution of plans and we must expedite freight corridors," says Jakhar.
T.A. Krishnan, CEO and Co-founder, Ecom Express agrees, “Although rail networks are much cheaper and could be an alternative however, multi-modal system for handling cargos and parcels needs to be in place to make this a successful replacement.”
The second challenge, according to Krishnan, will be the creation of a unified logistics interface platform and the adoption of digital infrastructure in the logistics space. “There are two clear challenges with this: One, the integration of various e-platforms will be a challenge as there are many e-platforms and all of them need to be integrated seamlessly into one platform, which will be a huge task. And second, the behavioural changes with a large set of users of such systems, especially with unorganised segments of businesses relying on this, to increase adoption of this integrated system,” Krishnan adds. However, since the journey towards digitisation for the country as a whole began a few years ago, it won’t be a humungous task to achieve this, says Krishnan. And we certainly hope so. In order to reap any benefits from key policy initiatives, it is most important that all stakeholders join forces to implement the project within the specified time period.