Prospects for the Logistics Sector in India amidst Atma Nirbhar Bharat
Amidst the economic downturn due to COVID 19, the newly introduced Atma Nirbhar Bharat Yojana gave the necessary stimulus to boost the economy which is plummeting under unemployment, fallen consumer demand, stagnated operations, and a myriad of other micro issues. The idea of Atma Nirbhar or self-reliant India is built around three fundamentals — local manufacturing, local markets, and local supply chains. The 20 lakh crores stimulus, which is estimated at 10% of the GDP is expected to provide necessary relief to distraught sectors. At the heart of this stimulus is the support and revival of MSMEs- micro, small, and medium scale enterprises that have been steadily growing since the inception of the Make in India mission. There has been a provision of 3 lakh crore of Collateral free automatic loans to be provided through emergency credit lines, with a 12 month moratorium period. The eligibility for this has been pinned to enterprises with a turnover of 100 crores and is expected to help 45 lakh business units to resume business and safeguard jobs. Stressed MSMEs are also covered under a 20,000 crore total funding support. There has also been a change in the definition of MSMEs shifting from a focus on capital to one on profitability. These slew of injections come as a measure to spur growth and build a self-reliant India, one with global competitiveness, hosting global supply chains, and lowered import dependence. However, this import substitution and the expected surge in exports leave a lot of unexplained prospects for the logistics sector of India which can be met to revive the sector and require much-increased competence than before.
The logistics sector in India is among the most costly in the world and its costs accounted for 13% of its GDP in 2018. However, it has been progressing in the past decade, going up from number 54 on the Logistics Performance Index Rank to 35 in 2016, the criteria for ranking being ability to track and trace consignments, competence, and quality of logistics services, ease of arranging competitively priced shipping, the efficiency of customs clearing processes, frequency of shipments arriving within schedule and quality of trade and infrastructure. The strengthening of local supply chains to accompany the surge in Indian manufacturing will require increased investment across all components — trans liners, shipping, roadways, railways, and warehousing. This step, which echoes the one-China took years ago, will have to provide tough competition to the global supply chains that already exist and flourish in countries like China. Existing government measures across various modes of transport, such as the Pradhan Mantri Gram Sadak Yojana, industrial and freight corridors, Bharatmala and Sagarmala projects, Jal Marg Vikas, and UDAN Schemes are important enablers for enhanced logistics. However, we are yet to reach even a fraction of the competence and speed of the infrastructure in China.
Indian ports are largely underdeveloped in capacities and infrastructure. The drafts are not large enough to handle larger vessels that the world is increasingly adopting.
The roadways and the warehousing sector are highly unorganized and dominate the market. Road transport is deeply fragmented as half of the sector consists of owners with less than 5 trucks. . India’s modal mix is heavily skewed towards roads, with 60 to 65 percent of transport happening via road compared to 25 to 30 percent in developed countries, prompting higher costs. Also, the indirect costs are high, due to poor planning, forecasting, and inventory management. There also exist several clearance problems, from shipping lines to complex paperwork and bureaucratism. The market depends heavily on regional brokers and struggles with financing issues. Shippers face issues such as low-price power, low efficiency and transparency, and the limited visibility of vehicles and shipment in the value chain.
To truly achieve the potential of a self-reliant India, the logistics sector requires serious revamping. MMLPs that have seen a steady investment since 2017 will require higher funding, to develop into consistent and powerful ecosystems. While the Sagarmala and Bharatmala projects have been successful, the number of such projects must be doubled or tripled in the next five years to meet the requirements of a globally competitive supply chain. The Indian government’s thrust on multimodal logistics (through major projects in ports, inland waterways, and railways as well as roads) could help to modernize and upgrade infrastructure, deploy advanced equipment and technology and also establish new storage and transit facilities, thus attracting investors to an improved freight industry. Regional connectivity to tier 2 and tier 3 cities and rural areas should be increased to stimulate the demand in these untapped areas.
Logistics providers can use this opportunity to transform from service providers to knowledge partners Logistics companies could move from transaction selling to consultative selling by adding strong B2B sales and solution finding capabilities and use data and analytics to digitize transport transactions and also use data to develop more streamlined last-mile delivery systems.
Thus, it becomes vital to transform the existing logistics sector into one with up-to-the-minute technology and restructure the modality to reduce dependence on roadways. There are a huge number of prospects for the logistics industry, which is likely to gain from this move.
