Modi 2.0: Expect logistics costs to be driven down
May 23, 2019
There are many elements that can make Make-In-India thrive. A sound industrial policy is one of them. Logistics, and how efficient it is, certainly is another. As a percentage of the GDP, logistics costs in India form 13-14 per cent of the GDP. How can the new NDA government help bring it down to 10 per cent, or even below?
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Here's what we can expect in terms of policy over the next few years.
- The Draft National Logistics Policy will be finalised and India could finally get an Integrated National Logistics Action Plan, like some of the more developed countries. 'Integration' has to do with the different ministries that currently deal in logistics -- Rail, Roads, Shipping, Civil Aviation. The draft policy mentions that "the Integrated National Logistics Action Plan will serve as an optimised master plan to define logistics priorities across ministries including MoRTH, Ministry of Shipping, Ministry of Railways, Ministry of Civil Aviation, D/o Posts and the user ministries (Ministry of Coal, Ministry of Steel, Ministry of Mines & others). Subsequently, it is important to define an annual execution plan, and continuously monitor progress against the set objectives of driving efficiency and reducing costs and dwell times. An immediate focus of the annual execution plan will be to identify and drive specific interventions to optimise logistics costs for key commodities across the top corridors."
- Modi 1.0 made some interventions for the logistics sector - GST being the most talked about. Same taxes across India meant that warehouses need not be in different geographic locations for taking advantage of tax arbitrage. It is early to say but there are reports that faster movement of goods is resulting in cost savings for corporate already. The next big revolution is expected to be around multi-modal transport. There is a heavy reliance on roads, which form roughly 60 per cent share of the transport mix today. Railways form 31 per cent of the mix while waterways are just about nine per cent. The Indian coastline and river networks are under-utilised. The cost of coastal shipping, per tonne per kilometre, is far lower compared to either roads or railways. A Deloitte-Assocham report states that "addressing these anomalies alone provides a huge potential to lower logistics cost in the economy by Rs 21,000-27,000 crore by 2025". Modi 2.0 is expected to work towards an international benchmark when it comes to multi-modal transport - about 25-30 per cent share of roadways, about 50-55 per cent share of railways and a far higher 20-25 per cent share of waterways.
- The logistics industry is largely unorganised. About 85 per cent of truck owners own less than five trucks. There will be value in organising the unorganised but this requires standardisation. Pirojshaw Sarkari, CEO of third-party logistics company Mahindra Logistics told Business Today recently that without standardisation, the cost of logistics will be very high. He cited the example of a pallet. "We store goods and move goods on a pallet. There is no standard pallet size. As a logistics company, when I pick up company A's load, I want to optimise the load depending on the pallet size of A. However, while returning, I have to take the load of company B, and if the size is different, I cannot optimise the load.
Standardisation is important not just for lowering costs but for safety as well," he said. We can expect some amount of standardisation, in the months ahead.
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