Question

Logistics costs have been one of the biggest stumbling blocks for the Indian economy. In this context, how draft national logistics policy 2018 and implementation of GST will help in reducing logistics costs and provide stimulus to the growth of the logistics sector.

Answer 1

Approach:

• Give a brief introduction about the Logistics Sector.
• Write about challenges in the Logistics sector
• Write how logistics policy and GST will help in this regard
• Provide Conclusion based on arguments provided.

The presence of a robust logistics-related infrastructure and an effective logistics management system facilitates seamless movement of goods from the point of origin to that of consumption, and aids an economy’s movement to prosperity.

Logistics Sector at a Glance:

The Indian logistics sector is on a big growth tide.

• According to the domestic rating agency ICRA, the Indian logistics sector is expected to grow at a rate of 8-10% over the medium term.
• The logistics industry of India is currently estimated to be around US$215 billion.
• The last few years have seen significant development for this industry which is reflected in the global rankings. According to the Global Ranking of the World Bank’s 2016 Logistics Performance Index, India jumped to 35th rank in 2016 from 54th rank in 2014 in terms of overall logistics performance. In 2018, India stood at 44th rank.
• In 2017, the logistics sector absorbed 22 million people. Employment is expected to surge to 40 million by 2020.
• Experts predict that the logistics sector can be the largest job creator by 2022.

Some key challenges:

• The Indian logistics industry is highly fragmented and unorganized, with the organized players accounting for approximately 10% of the total market share.
• The high cost of logistics – impacting competitiveness in domestic & global market
• Unfavourable modal mix (Roadways 60%, Railways 30%) and inefficient fleet mix.
• Under-developed material handling infrastructure and fragmented warehousing.
• High dwell time and lack of seamless movement of goods across modes.
• The most serious challenge faced by the logistics industry today is insufficient integration of transport networks, information technology, and warehousing and distribution facilities.
• Regulations exist at a number of different tiers, is imposed by national, regional and local authorities. The regulations differ from city to city, hindering the creation of national networks.

Some of the key objectives Draft National Logistics the policy:

• The aim is to reduce the logistics cost from the present 14% of GDP to less than 10% by 2022.
• A National Logistics Portal is being developed which will be a single-window online marketplace for trade and will connect business, create opportunities and bring together various ministries, departments and the private sector. Stakeholders like traders, manufacturers, logistics service providers, infrastructure providers, financial services, Government departments and groups and associations will all be on one platform.
• A data and analytics centre for monitoring key logistics metrics
• A centre of excellence to drive innovation
• An Integrated National Logistics Action Plan for all logistics related development.
• Further, the policy envisages to create employment opportunities for 10 Million -15 Million people and also focus on enhancing skills in the sector, while trying to improve India’s ranking in the Logistics Performance Index to between 25 to 30.
• It also aims to promote inter-regional trade on e-commerce platforms.

GST a game-changer reform for logistics sector:

• GST has replaced at least 7 indirect tax heads and has eliminated the need for warehouse hubs across States.
• The GST regime is certain to expedite faster conversion of informal logistics setups to formal ones.
• Speed up freight movement at interstate borders due to dismantling of check posts and the reduction in truck turnaround time following GST is a major stimulus to logistics growth, leading to at least 12-15% reduction in the turnaround time of trucks.
• Pre-GST, the Indian logistics sector was struggling to add value to customers, compared to global peers. Indian firms were seen as labour contractors or mere transporters, which denied them the benefits of being a part of the supply chain. But the equation has changed now.
• Post GST, there is a marked improvement in the use of technology and digitisation by logistics players, third party logistics(3PL) players can become real ‘differentiators’ as they embrace technology to enhance visibility of load carried, turn-around time, vehicle utilisation, improvement in loading/unloading time by removing congestion at the docks, and the like.

Other initiatives taken by the government:

• A new Logistics Division has been set up in the Department of Commerce to coordinate integrated development of the sector by way of policy changes, improvement in existing procedures, identification of bottlenecks and gaps, and the introduction of technology-based interventions.
• Multi-Modal Logistics Parks Policy (MMLPs) are a key policy initiative of the Government of India to improve the country’s logistics sector. This initiative will lower freight costs, reduce vehicular pollution and congestion and cut warehouse costs to promote domestic and global trade.
• Logistics Portal: A National Logistics Portal is being developed in phases to serve as a transactional e-marketplace by connecting buyers, logistics service providers and relevant government agencies. This portal will be the single window marketplace to link all stakeholders.
• Logistics Data Bank: As a part of the India-Japan bilateral cooperation, a Logistics Data Bank Project has been commissioned to track containers on a ‘near-real-time’ basis. RFID tags are placed on every container coming out of the ports to track the container’s movement.
• The Government has launched many flagship programmes like the Bharatmala Yojana, the Sagarmala Yojana and the Dedicated Freight Corridors. The objective of these programmes is to develop infrastructure to meet the growing demand for logistics in the country and to make a modal shift on more cost-effective modes of transport.
• 111 waterways have been identified for development.
• Infrastructure status has been given to select logistics activities like warehousing, cold chains, Multimodal logistics parks and slurry pipelines.
• A subsidy is provided to develop cold chains and packhouses.

The commitment of GoI (Government of India) towards an integrated development of the logistics sector through policy amendments, infrastructural development, tax reforms and technology adoption will certainly deliver desirable results. It will enhance our trade competitiveness, create jobs, shoot up country’s performance in global rankings and pave the way for India to become a logistics hub. Such measures will also contribute to the creation of a New India by 2022.