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Pre-budget Expectation: What Is The Logistics Sector Anticipating This Year?

Since logistics is the proverbial growth engine of the economy, let us have a look at how the sector can add to the nation’s growth trajectory.

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As our nation envisions to make its GDP worth $5 trillion by 2025, it is clear to everyone that if any goal is not ambitious, it is not meant for India.

So, since logistics is the proverbial growth engine of the economy, let us have a look at how the sector can add to the nation’s growth trajectory.

The key to growth: So, what is the logistics sector expecting from the Union Budget 2020?

To begin with, it first must be acknowledged that the current economic landscape is a bit delicate because of various geopolitical factors. They include the simmering tensions in the Gulf (with its direct impact on oil prices), Trade War, weak local demand, and the stresses within our banking segment alongside others. 

This year’s budget is not going to be an easy one for the Finance Minister Nirmala Sitharaman. She will have to carve out a strategy that not only insulates the Indian economy from external pressures, but also unlocks India’s growth potential for attracting global investors. Apparently, the biggest challenge for the government is to stimulate demand despite its economic constraints. Here are some of the ways the Union Minister can do so:

Bring down the cost of logistics: Currently, the cost of logistics in India is about 14 per cent of the nation’s GDP. This cost is much higher than our western counterparts who have kept it well within 10 per cent. India can considerably catalyze its growth by bringing down its logistics costs. The government must address this core problem as part of its ‘Vision 2025’.

Inland Waterways: India has about 14,500 km of navigable waterways. However, only 13 of the 111 national waterways are operational at present. This is adding to the burden of road infrastructure which already accommodates 60 per cent of the national cargo. Fast-tracking the waterway projects will considerably reduce the load from the Indian road infrastructure and bring superior efficiency. The government must allocate appropriate funds for the same.

Warehousing Clusters: Transportation and warehousing involve the highest OpEx of the overall logistics costs. The government has given a positive stimulus on these two fronts with initiatives like Bharatmala and Sagarmala projects as well as multi-modal logistics parks. The Phase-I of Bharatmala Pariyojna is running smoothly and a timely announcement of the MMLPs will catalyze the development of warehousing clusters until the individual projects get completed.

Rural Connectivity: The digital bandwagon of India has now successfully reached its rural heartland. With it, Rural India is now experiencing double-digit internet adoption. The time is ripe for the government to bank on this ongoing development. Our nation can derive tangible value from these economic hinterlands by joining forces of e-commerce and logistics and solve the problem of last-mile delivery. A good way to do it can be by creating common collection centers in tier 3 and 4 cities and rural geographies. Another method could be to tap existing supply chains (like that of FMCGs) and deploying such collection centers across strategic locations. This will help resolve the prevailing challenge without causing financial burden.

The demand to revise income tax slabs has been coming in from all directions, but, as of now, seems unreasonable since the treasury is already expecting a shortfall in collections. The Finance Minister has a tough task this year. So, let us hope for the best and wait for February 1st to see how things finally pan out.

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.

Chander Agarwal

The author is Managing Director at TCIEXPRESS.

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