India aims to reduce logistics expenses to 9% by the end of the year

Logistics cost denotes the overall expense involved in transporting goods from their source to the location of consumption.

It encompasses Transportation expenses, Warehousing expenses, Inventory holding costs, along with Packaging and administrative expenses.

The Economic Survey 2022-23 highlighted that logistics expenses in India are between 14-18% of GDP, compared to the global standard of 8%.

India's transportation industry

The logistics sector is essential in India's ever-changing economic environment by facilitating the smooth transportation of goods and services across the vast expanse of the nation.

The logistics sector in India is among the largest globally and offers a significant market opportunity.

The logistics and warehousing industry accounts for 13-14% of India's GDP and is growing to match the nation's swift economic development.

In 2023, India held the 38th position among 139 countries in the World Bank’s Logistics Performance Index (LPI), advancing six spots from its ranking in 2018.

Advantages of a Strong Logistics Industry

Economic Competitiveness: Streamlined logistics lowers total expenses for goods and services, enhancing India’s capacity to compete on a global scale.

Enhances Exports and Trade: Dependable, economical logistics shorten turnaround periods and enhance delivery promises.

Industrial Expansion: Lowers input expenses and enhances Just-in-Time (JIT) production systems.

Enhances Business Operations: Streamlined transportation of goods lessens compliance demands and lowers inventory expenses for companies.

Promotes investment from both local and international sources.

Enhances Supply Chain Stability: Reduces risks of disruptions and delays, improving predictability and adaptability within the supply chain.

Difficulties in the logistics industry in India

Insufficient Technology Embrace: Gradual uptake of cutting-edge technologies like Internet of Things (IoT), RFID (Radio-Frequency Identification), and automation.

The absence of technological integration leads to manual workflows, mistakes, and higher expenses.

Infrastructure Constraints: Insufficient infrastructure, particularly regarding roads, ports, and last-mile connectivity, as well as inadequate road conditions and traffic congestion, may result in delays and higher expenses.

Increased logistics expenses: India's logistics expenses represent about 13-14% of its Gross Domestic Product (GDP), significantly surpassing the global average of roughly 8%.

Ineffective Warehousing: Ineffectiveness in warehousing, including old infrastructure, insufficient automation, and limited storage capacity, leads to increased logistics expenses.

Restricted Modal Options: Excessive dependence on road transport and minimal utilization of alternative methods like rail and coastal shipping lead to increased logistics expenses.

Actions undertaken by the Government of India

The logistics sector has been awarded infrastructure status by the government, allowing the industry to secure more affordable financing.

PM Gati Shakti initiative: This is a National Master Plan aimed at enhancing multimodal connectivity to lower logistics expenses and promote economic development.

National Logistics Policy (NLP): Launched in 2022, NLP aims to facilitate rapid last-mile delivery, eliminate transport-related issues, and achieve optimal speed in the logistics industry.

The objective of the policy is to lower logistics expenses from the existing 14-18% of GDP to 8% by 2030, in line with global best standards.

Dedicated Freight Corridors (DFCs): The government is developing dedicated freight corridors like the Eastern Dedicated Freight Corridor and the Western Dedicated Freight Corridor.

Bharatmala Pariyojana: This is a prominent initiative for road and highway enhancement intended to boost connectivity throughout the nation. The initiative encompasses the creation of economic corridors, inter-corridors, and feeder pathways.

Sagarmala Project: This program emphasizes enhancing development led by ports to lower logistics expenses for domestic and international trade. It encompasses the advancement of ports, maritime transport, and internal waterways.

Path Forward

Digitalisation facilitates the conversion of documents and transactions into digital formats, minimizing paperwork and enhancing the overall effectiveness of logistics activities.

Data analytics: It offers important insights into supply chain efficiency, enabling improved decision-making and optimization of routes, inventory control, and resource distribution.

Technology enhancement: Technologies like barcode scanning, RFID, and real-time tracking can greatly improve tracking and tracing abilities, boosting operational efficiency and lowering expenses.

Warehouse effectiveness: Enhanced inventory precision, diminished warehouse stock levels, and improved on-shelf stock presence can boost overall warehouse effectiveness.

Final observations

With India establishing itself as a global manufacturing alternative to China, effective logistics will be crucial for surpassing rivals such as Vietnam and Indonesia.

Enhanced logistics efficiency will boost trade competitiveness, create job opportunities, and position India as a regional and global logistics center.