Relevance: GS-3: Infrastructure: Energy, Ports, Roads, Airports, Railways, etc.

Key Phrases: Logistics costs, Logistics sector, Logistics Performance Index, Poor Warehousing and Storage, Infrastructural Bottlenecks, World-class road network, PM Gati Shakti, National Infrastructure Pipeline (NIP), National Logistics policy.

Why in News?

• India’s logistics costs as a percentage of the Gross Domestic Product (GDP) are set to reach the levels of advanced economies such as the US, EU, and China in about five years, offering massive efficiency gains to the economy.
• One driving force behind this change is the fast-paced growth of a world-class road network in the country.

Importance of Logistics Sector:

• As per the data published by Indian Investment Grid, an initiative of the Ministry of Commerce and Industry, the Indian logistics sector was valued at USD 160 billion in 2019, and by the end of 2022, it is expected to be valued at USD 215 billion. It is expected to grow at a CAGR of 10 percent.
• As per the World Bank’s Logistics Performance Index, India’s rank has escalated from 54 in 2014 to 44 in 2018.
• The logistic sector is expected to create 3 million new jobs by 2022, with the road freight industry alone contributing nearly 63% or 1.9 million new jobs.
• Consequently, the logistics industry provides an overall positive scope and opportunity to the Indian economy as well as India’s infrastructure sector.

Challenges in the Logistics Sector

• Infrastructural Bottlenecks:
  • Pathetic condition of roads, poor connectivity, high toll rates, corruption on highways and hinterlands, and inadequate air and seaport capacities are the major infrastructural bottlenecks.
  • Government has already taken steps to expand and improve existing road and rail networks and modernise harbours and airports.
  • But the expansion of logistics infrastructure is not synchronised with the expected industry requirements.
• Fuel Costs and Policy Changes:
  • Fuel costs and policy changes directly impact the logistics sector, since the higher the costs of fuel, the higher the transportation and freight costs which would directly impact the logistic companies and businesses to stay afloat.
  • The economic and socio-political changes in policy would also result in inflation of prices, and in turn, affect costs and disrupt the supply chain.
• High Logistics Cost:
  • India's logistics cost as a percentage of GDP is around 13-14 %.
  • These high costs are, in part, a result of low logistics efficiency due to
    • a fragmented market,
    • lack of standardised trucking assets,
    • old vehicles, and
    • obsolete warehousing technologies.
• Trade Regulations:
  • Regulations exist at several different tiers, imposed by national, regional, and local authorities.
  • Regulations often differ from city to city, hindering the creation of national networks.
• Poor Warehousing and Storage:
  • Poor facilities and management are to blame for high levels of loss, damage, and deterioration of stock, especially in the perishables sector.
  • Part of the problem is insufficient specialist equipment, i.e., proper refrigerated storage, and containers, but it is also partly down to lack of training.
• Lack of Research and Development (R&D):
  • Although both the practitioners and the academicians are increasingly aware of the importance of logistics and supply chain, however, the field is still underpenetrated as far as research is concerned.

Reforms in the logistics sector:

• Grant of Infrastructure status to Logistics sector:
  • In a major push to the sector the government granted ‘infrastructure status’ to the logistics sector which allows providing credit to the exporters at competitive rates and on a long-term basis, reducing logistics costs.
• Logistics Division:
  • The Logistics Division in the Department of Commerce was created and has been given the mandate to develop an Action Plan for the integrated development of the logistics sector in the country, by way of policy changes, improvement in existing procedures, identification of bottlenecks and gaps and introduction of technology in this sector.
• Some process-related reforms towards improving logistics efficiency:
  • GST, revision in axle load norms for heavy vehicles leading to better carrying capacity, paperless EXIM trade through eSanchit, faceless assessment by ‘Turant Customs’, scanners at major ports, Radio Frequency Identification (RFID) tagging of all EXIM containers, mandatory electronic toll collection system (FASTag), etc.
• Infrastructure Initiatives:
  • Bharatmala Pariyojana, Sagarmala, Multi-Modal Logistics Parks, Dedicated Freight Corridors, Greenfield expressway projects, PM Gati Shakti, National Infrastructure Pipeline (NIP).
• Digital/Technological Initiatives:
  • Logistics Planning and Performance Monitoring Tool (LPPT) for real-time monitoring of operational performance and asset utilization of various logistics infrastructures such as ports, airports, etc.
  • India Logistics Platform (iLOG) is being developed for integrating all logistics-related digital portals such as Port Community System, Freight Operations Information System (FOIS) by Indian Railways, and VAHAN(National Vehicle Registration System), etc.
• Green logistics
  • One of the key trends for future growth will be the emergence of Green Logistics.
  • With India targeting Net Zero emissions across sectors, Logistics companies will need to reduce their carbon footprint at the same time and grow rapidly.
  • India is introducing GPS-enabled Toll to ensure zero wastage of fuel and resultant emissions across hundreds of Toll Plazas.
  • Modern logistics parks are built with solar rooftops and sell carbon-free electricity rather than consuming it.
  • E-commerce companies have committed to delivering 30 percent of shipments using Electric Vehicles.

Conclusion:

• With the pro-active efforts of the government, it is hoped that in the next 5 years the targets set by the National Logistics policy to improve India’s ranking in the Logistics Performance Index to 25 and to reduce the cost of logistics in India by 40 % will be met.
• This will ensure that the logistics sector serves as an engine of growth and a key driver for transforming India into a 5 trillion-dollar economy.

Source: Live-Mint

Mains Question:

Q. What are the challenges with the logistics sector in India and what steps are being taken by the government to improve the performance of the sector? Discuss.