Logistics costs to GDP: Can Budget 2026 finally move the needle?

India’s logistics system has quietly crossed an important milestone. Recent government assessments suggest that logistics costs have fallen to around 8 per cent of GDP, a dramatic improvement from the 13–14 per cent levels long cited as a structural disadvantage for India. This shift didn’t happen overnight. It is the cumulative result of GST, FASTag, e-way bills, digital tracking systems, and the massive expansion of highways and freight corridors under PM Gati Shakti.

But if the past decade was about building infrastructure, the next one must be about sweating those assets. The challenge has flipped: India no longer needs to chase headline cost reductions, but must now defend its gains. With freight demand projected to grow 7–8 per cent annually, the risk is clear — without sharper execution and better utilisation of what already exists, logistics costs could creep upward again.

Budget 2026 is the moment to prevent that.

The Modal Mix Problem We Can No Longer Ignore

Even with improved highways and faster truck movement, India remains far too road-reliant. Trucks carry 60–65 per cent of all freight, rail just 27–28 per cent, and waterways under 2 per cent. This mix is simply uneconomic.

Hauling a tonne of goods for a kilometre costs ₹2.5–₹3.0 by road, versus ₹1.5–₹1.8 by rail and barely ₹1.0–₹1.2 by waterways. India has extracted much of what was available from road-led gains. Further reductions will require a structural modal shift—one that has barely begun.

Budget 2026 should push three levers:

· Last-mile rail links to industrial clusters, ports, and logistics parks.

· Viability gap funding for waterways for five to seven years to build steady cargo volumes.

· Incentives for containerised rail freight, especially scheduled, reliable services.

A small 5–7 percentage point shift from road to rail could safeguard 0.5–0.8 per cent of GDP in logistics savings. That is low-hanging fruit — but only if policy moves beyond announcements and into execution.

The Trucking Productivity Crisis

India operates over ten million trucks, but they remain dramatically under-utilised. An Indian truck covers 250–300 km a day. Its American counterpart clocks 700–800 km, and a Chinese truck more than 500 km.This productivity gap is the one of the few threats to India’s logistics competitiveness.

The reasons are well known:

· 25–30 per cent empty return trips

· Congestion, toll queues, and loading delays adding one to two days per trip

· Fragmented, small-fleet ownership that limits efficiency gains

Every 10 per cent jump in utilisation reduces long-haul freight rates by 6–7 per cent. No reform offers a bigger bang for the buck.

Budget 2026 must therefore move boldly on three fronts:

1. National Freight Digitisation 2.0 — integrate FASTag data, GPS movement, and e-way bills into a single system that reveals congestion, detention, and idle time in real time. This alone can cut corridor travel times by 15–20 per cent.

2. Cut Empty Miles — open, neutral freight exchanges and incentives for fleets running below 15 per cent empty can eliminate nearly ₹1.5–2 lakh crore in wasted logistics costs.

3. Modernise the Fleet — expand scrappage-linked finance, promote LNG/CNG for long-haul routes, and introduce fuel-price stability for operators. With more than 40 per cent of trucks older than a decade, the efficiency upside is clear.

MMLPs Need Throughput — Not Just Land and Buildings

India’s plan for 35+ Multimodal Logistics Parks risks underperforming unless it shifts from real-estate development to throughput-driven performance. A well-run logistics park can cut total logistics costs by 10–12 per cent, improve turnaround by 20–25 per cent, and reduce inventories by 15–20 per cent.

Budget 2026 should prioritise 10–12 high-traffic parks in NCR, Mumbai, Chennai, Bengaluru, and the eastern corridors — and tie incentives directly to cargo handled, not land developed.

Digital Systems Must Deliver Actual Savings

Despite FASTag and ULIP, trucks still lose six to eight hours per trip to manual interventions. Ports still see three to four days of dwell time versus global norms of one to two. Detention and demurrage add ₹20,000–40,000 per container. Budget 2026 must enforce outcome-based digitisation: end-to-end cargo visibility, automated dispute resolution, and incentive frameworks for states and ports that reduce delays. Done well, this alone can save 5–7 per cent of logistics value.

The Policy Imperative

Reaching 8 per cent logistics cost is an achievement. Keeping it there — and pushing it lower — will define whether India’s manufacturing and exports can genuinely scale.

Budget 2026 must deliver the shift from building infrastructure to extracting productivity from it. If India acts now, logistics can become a long-term competitive advantage — not a chronic bottleneck.

(Views are personal; the author is Partner- Deal Advisory and Head, Transport & Logistics, KPMG in India and Varun Wadhwa, Director, M&A Consulting, KPMG in India)