Logistics Sector in India: Enhancing Efficiency and Reducing Costs

Logistics Sector of India

Logistics Sector in India: Enhancing Efficiency and Reducing Costs

Why in News?

India’s logistics cost has been reassessed to be in the range of 7.8-8.9% of GDP for the year 2021-22, significantly lower than the previously circulated estimate of over 10%.

Key Insights

• The assessment was conducted by the National Council of Applied Economic Research (NCAER).
• This task was assigned by the Department for Promotion of Industry and Internal Trade (DPIIT).
• The World Bank has reviewed the methodology and recognized its robustness for future refinements.
• Past estimates include:
  • NCAER (2017-18): 8.9% of GDP
  • CII (2015): 10.9% of GDP
  • Armstrong & Associates (2016): 13% of GDP (widely accepted benchmark)
• The National Logistics Policy (NLP) 2022 aims to reduce logistics costs to global benchmarks by 2030.

Logistics Landscape in India

The logistics sector consists of multiple key components:

1. Procurement & Inbound Logistics: Sourcing raw materials, negotiating contracts, and transportation.
2. Warehousing & Inventory Management: Efficient handling, storage, and packaging.
3. Transportation & Distribution: Moving goods from production to the final consumer.
4. Supply Chain Optimization: Enhancing connectivity, accessibility, and reducing cost inefficiencies.

Significance of an Efficient Logistics System

• Enhances Supply Chain Efficiency: Ensures businesses meet consumer demand promptly.
• Strengthens Connectivity & Accessibility: Facilitates economic integration and expands market reach.
• Boosts Cost Competitiveness: Lowers operational costs, enhancing profitability.
• Generates Employment: Creates jobs in transportation, warehousing, and logistics services.

Government Initiatives for Logistics Sector Development

1. National Logistics Policy (NLP) 2022

• Aims to streamline logistics services and digitize processes.
• Complements PM Gati Shakti National Master Plan (NMP) for infrastructure development.
• Targets:
  • Reduce logistics costs to global benchmarks (8-9% of GDP).
  • Improve India’s Logistics Performance Index (LPI) ranking (aiming for the top 25 countries by 2030).
  • Establish a data-driven decision-making mechanism.
• Includes the Comprehensive Logistics Action Plan (CLAP), focusing on eight key areas, including digital integration and service improvement.

2. Key Government Interventions

• Unified Logistics Interface Platform (ULIP): Integrates 34 logistics-related portals across different ministries, with GST data inclusion.
• EXIM Logistics: Enhancing India’s export-import connectivity through infrastructure upgrades and procedural improvements.
• Infrastructure Status for Logistics: Facilitates access to lower-cost infra financing.
• Logistics Ease Across Different States (LEADS): An indigenous logistics performance index ranking states annually.
• Multimodal Logistics Parks (MMLPs): Plans for 35 MMLPs with a $6.2 billion investment to facilitate cost-effective freight movement.
• Bharatmala Pariyojana: Aims to construct 65,000 km of national highways for seamless freight mobility.
• Dedicated Freight Corridors (DFC): Targets increasing rail freight share from 27% to 45% by 2030.
• Sagarmala and Inland Waterways: Strengthens port-led development to leverage India’s 7,500 km coastline and 14,500 km inland waterways.

Challenges in India’s Logistics Sector

• Fragmented Supply Chain: Small independent players lead to inefficiencies.
• Regulatory Complexities: Multiple taxation layers and bureaucratic hurdles.
• Last-Mile Connectivity Issues: Poor road infrastructure, congestion, and mapping inefficiencies.
• Skill Shortages: Lack of trained professionals in supply chain management.
• Security & Cyber Risks: Threats to cargo, assets, and digital infrastructure.

Way Forward

• International Collaboration: Initiatives like India-Middle East-Europe Corridor (IMEC) to enhance global connectivity.
• Sustainable Logistics: Focus on carbon efficiency, emission trading, and compliance with global standards.
• Technological Innovations:
  • AI-powered predictive analytics for inventory and demand forecasting.
  • IoT-enabled real-time tracking for efficient monitoring.
  • Automation in warehousing and last-mile delivery to improve efficiency.
• Boosting Investments: Encouraging private and foreign investments for infrastructure expansion.
• Enhancing Rail Transport: The National Rail Plan aims to increase rail freight share to 45% by 2030.

MCQs on Logistics Sector

1. What is the estimated logistics cost as a percentage of GDP for India in 2021-22, as per NCAER’s latest assessment?

(a) 10.9%

(b) 13.0%

(c) 7.8-8.9%

(d) 9.5%

Answer: (c) 7.8-8.9%

2. Which of the following initiatives aims to integrate digital logistics systems and facilitate logistics-related data sharing in India?

(a) Bharatmala Pariyojana

(b) Unified Logistics Interface Platform (ULIP)

(c) Sagarmala Project

(d) Multimodal Logistics Parks (MMLPs)

Answer: (b) Unified Logistics Interface Platform (ULIP)

UPSC Mains Questions on Logistics Sector

1. Analyze the significance of the National Logistics Policy (NLP) 2022 in reducing logistics costs and enhancing India’s global trade competitiveness. Suggest measures for further improvement.
2. Discuss the challenges faced by India’s logistics sector in achieving the government’s target of reducing logistics costs to 8-9% of GDP by 2030. How can digital and infrastructural reforms address these issues?