Central Idea: India’s Logistics Progress
- India improves in the logistics ranking of the World Bank by jumping 6 places to Rank 38 out of 139 countries in the 7th edition of Logistics Performance Index (LPI 2023).
- This is a strong indicator of India’s global positioning, with this development being powered by our Government’s laser focus on reforms for improving logistics infrastructure.
Reasons behind
- GatiShakti: In October 2021, the Government of India launched the PM GatiShakti National Master Plan (PMGS-NMP) towards a coordinated approach, leveraging technology, for infrastructure planning and development.
- National Logistics Policy (NLP): In September 2022, the Prime Minister launched the National Logistics Policy (NLP) which acts as a guiding document for States / UTs seeking to formulate logistics policy (19 States / UTs have notified their logistics policy).
India’s logistics sector: A backgrounder
(1) Road Transport
- The country faces a skewed logistic modal mix with nearly 71% of all freight transport being done by roads.
- Highways only account for 2.2 % of the entire road network but carry 40% of all freight traffic, thereby putting immense strain on the highway network of the nation.
(2) Railways
- The Railways’ share in freight transport has dropped from 89% in 1950-51 to only 18%in 2020.
- The average speed of a freight train in India is only 25 km/hour with a permitted axle load (freight capacity of wagons) of around 20 tonnes.
- The US, which has a vast rail network like India, runs its freight trains at an average speed of 38 mph (60 kmph) and permits an axle load of nearly 30 tonnes.
(3) Air Cargo
- The picture is similar in terms of the air cargo handled.
- According to the Ministry of Civil Aviation’s Annual report 2019-20, India has 23 domestic cargo terminals and 20 international cargo terminals which handled a total of 3.56 million tonne (mt) of cargo in 2018-19.
- In contrast, the Shanghai Pudong International Airport in China alone handled 3.63 mt of cargo in 2019.
What is NLP?
- First introduced in 2020 during Finance Minister’s Budget speech, the policy will bring in an integrated and tech-enabled approach to logistics operations to bridge the efficiency gap.
- A comprehensive action plan is proposed under the policy, with major features including:
- Integrated digital logistics systems;
- Unified logistics interface platform;
- Ease of logistics and standardisation of physical assets and
- Benchmarking service quality standards, state engagement,
- Human resource development and capacity building,
- Export-import logistics
- Sectoral plans for efficient logistics, and facilitation of the development of logistics parks.
Need for such a policy
- Organizing and consolidating the sector: India’s logistics sector is largely unorganized and fragmented. As per estimates, the worth of Indian logistics market is over $200 billion.
- Reducing logistics cost: This is why the country’s logistics costs are as high as 14-15% of the GDP, against 7-8% in developed nations such as Singapore and the US, who leverage it to boost exports. The NLP aims to bring down India’s logistics cost to 8% in the next five years.
- Preventing waste of perishable items: As per some estimates in India, about 16% of agri-production is wasted at different stages of the supply chain.
- Warehousing development: Moreover, due to factors such as limited capacity and availability of warehouses, the cost of transaction increases.
- Multi-modal integration: The new policy is going about simplification, technology and will have a multimodal approach that will combine rail, water, and air — all modes of transport.
- Reducing operational complexities: The sector is complex with more than 20 government agencies, 40 PGAs (Partner Government Agencies), 37 export promotion councils, 500 certifications, over 10,000 commodities.
- Employment generation: The sector provides livelihood to more than 22 million people and improving it will facilitate 10 per cent decrease in indirect logistics cost leading to the growth of 5 to 8 per cent in exports.
What are the focus areas?
According to several reports, the policy is expected to touch upon four main steps:
- Integration of Digital System (IDS): This system will look forward to integrating 30 different systems of seven different departments, which are road transport, railway, customs, aviation, foreign trade, and commerce ministries.
- Unified Logistics Interface Platform (ULIP): This system will monitor smooth cargo movement.
- Ease of Logistics (ELOG): Under this, the new policy will simplify the rules, which is expected to simplify basic business.
- System Improvement Group (SIG): This system will be used to monitor all logistics-related projects regularly and will facilitate the removal of any hurdle. An empowered group of secretaries (EGoS), constituted under the PM Gati Shakti, would monitor and review the implementation of the policy.
How will the NLP increase the participation of state governments?
- Under the policy, every state in India will have to set up a State Logistics Coordination Committee/Cell.
- The policy will also annually review the performance of every state through the Logistics Ease Across Different States (LEADS) index.
- The central government will also let states develop their logistics ecosystems and provide a roadmap for improving logistics efficiency.
- The SIG will also carry out the annual LEADS performance index of states and union territories in India.
- The agency will work closely with the states and prepare a comprehensive annual State Engagement Report covering the above-mentioned aspects.
Policy measures till now
- Mission Gati-Shakti: This mission has been launched as a national master plan for multi-modal connectivity.
- Bharatmala Pariyojana: The 34,000 km of road infrastructure works would be undertaken, of which, 11,000 km have been targeted to be completed by March 2022. (Also read about Sagarmala, Parvatmala etc.)
- High budgetary allocation: Government allocated Rs5.54 trillion towards capital expenditure across various ministries in the Union Budget 2021-22, a 34.5% jump from the previous year.
- Dedicated freight corridor: There is Eastern and Western Dedicated Freight Corridors commissioned which can be a game-changer for boosting railway freight share
- National Air Cargo Policy: This has also been formulated that seeks to build air transport shipment hubs in all major airports by 2025.
Various challenges
- Skewed modal mix: Nearly 71% of all freight transport is done by roads, while other modes such as railways, air cargo, and waterways remain underutilized.
- Congestion on highways: Highways carry 40% of all freight traffic, despite accounting for only 2.2% of the entire road network, putting immense strain on the highway network of the nation.
- Decline in railways’ share: The Railways’ share in freight transport has dropped from 89% in 1950-51 to only 18% in 2020. The average speed of a freight train in India is only 25 km/hour with a permitted axle load of around 20 tonnes, which is significantly lower than that of other countries like the US.
- Limited air cargo infrastructure: India has only 23 domestic cargo terminals and 20 international cargo terminals, which handled a total of 3.56 million tonnes of cargo in 2018-19. This is much lower than other countries like China.
- Fragmented sector: India’s logistics sector is largely unorganized and fragmented, with more than 20 government agencies, 40 PGAs (Partner Government Agencies), 37 export promotion councils, 500 certifications, and over 10,000 commodities, making it complex and challenging to navigate.
- High logistics costs: India’s logistics costs are as high as 14-15% of GDP, against 7-8% in developed nations such as Singapore and the US, which affects its competitiveness and reduces its ability to boost exports.
- Wastage of perishable items: About 16% of agri-production is wasted at different stages of the supply chain, leading to significant economic losses.
- Limited warehousing capacity: The availability and capacity of warehouses are limited, increasing the cost of transactions.
Way forward
- Use of blockchain technology: The use of blockchain technology can improve transparency, efficiency and traceability in the logistics sector. It can also help reduce fraud and errors, and increase security.
- Promote inland waterways: The government can promote the use of inland waterways for freight transport by building more ports and terminals, improving infrastructure and providing incentives to transporters.
- Use of UAV: The use of drones can help improve last-mile delivery and reduce delivery times. They can be used for delivering packages in remote areas and for monitoring the movement of goods in real-time.
- Encourage multi-modal transportation: Multi-modal transportation involves using more than one mode of transport for freight movement.
- Collaboration between private and public sector: The government can collaborate with private players to develop a robust logistics infrastructure.
- Development of logistics parks: The government can develop logistics parks that provide warehousing, cold storage, and other facilities required for efficient logistics operations.
- Green logistics: The government can promote green logistics by encouraging the use of electric vehicles, promoting the use of renewable energy and adopting sustainable logistics practices.
