India to Cut Logistics Cost to 9% by Year-End

Syllabus: GS3/ Infrastructure

Context

• The Union Road Transport and Highways Minister has said that India’s logistics cost will come down to 9% by the Year-End.

Background

• Logistics cost refers to the total expenditure incurred to move goods from the point of origin to the point of consumption.
  • It includes Transportation cost, Warehousing cost, Inventory carrying cost and Packaging and administrative cost.
• The Economic Survey 2022-23 pointed out that logistics costs in India have been in the range of 14-18% of GDP against the global benchmark of 8%.

India’s logistics sector

• The logistics industry plays a vital role in the dynamic economic landscape of India by enabling the efficient movement of goods and services throughout the country’s large territory.
• The Indian logistics sector is one of the largest in the world and presents a huge addressable opportunity.
• The warehousing and logistics sector contributes 13-14% to India’s GDP and is expanding to keep pace with the country’s rapid economic growth.
• In 2023, India ranked 38 out of the 139 nations in the World Bank’s Logistics Performance Index (LPI), up six places from the previous rankings in 2018. 

Benefits of a Robust Logistics sector

• Economic Competitiveness: Efficient logistics reduces overall cost of goods and services, improving India’s ability to compete globally.
• Boosts Exports and Trade: Reliable, cost-effective logistics reduce turnaround time and improve delivery commitments.
• Industrial Growth: Reduces input cost and improves Just-in-Time (JIT) production models.
• Improves Ease of Doing Business: Efficient goods movement reduces compliance burden and inventory cost for businesses.
  • Encourages both domestic and foreign investment.
• Strengthens Supply Chain Resilience: Minimises disruption risks and delays, enhancing supply chain predictability and flexibility.

Challenges with Logistics sector in India

• Lack of Technology Adoption: Slow adoption of advanced technologies, such as Internet of Things (IoT), RFID (Radio-Frequency Identification), and automation.
  • The lack of technological integration results in manual processes, errors, and increased costs.
• Infrastructure Bottlenecks: Inadequate infrastructure, especially in terms of roads, ports, and last-mile connectivity, along with Poor road conditions and congestion can lead to delays and increased costs.
• Higher logistics costs: India’s expenditure on logistics costs amounts to approximately 13-14% of its Gross Domestic Product (GDP), which is considerably higher than the global average of around 8%. 
• Inefficient Warehousing: Inefficiencies in warehousing, such as outdated infrastructure, lack of automation, and inadequate storage capacity, contribute to higher logistics costs. 
• Limited Modal Choice: Overreliance on road transport and limited use of alternative modes such as rail and coastal shipping contribute to higher logistics costs. 

Steps taken by Government of India

• Grant of Infrastructure status to Logistics sector: The government has granted infrastructure status to the logistics sector, enabling the industry to access cheaper finances. 
• PM Gati Shakti’s initiative: It is a National Master Plan focused on multimodal connectivity to reduce logistics costs and stimulate economic growth.
• National Logistics Policy (NLP): In 2022, NLP was launched to ensure quick last-mile delivery, end transport-related challenges, and ensure desired speed in the logistics sector.
  • The policy aims to reduce logistics costs from the current 14-18% of GDP to 8% by 2030, aligning with global best practices. 
• Dedicated Freight Corridors (DFCs): The government is working on the construction of dedicated freight corridors such as the Eastern Dedicated Freight Corridor and the Western Dedicated Freight Corridor.
• Bharatmala Pariyojana: This is a flagship road and highways development program aimed at improving connectivity across the country. The project includes the development of economic corridors, inter-corridors, and feeder routes.
• Sagarmala Project: This initiative focuses on promoting port-led development to reduce logistics costs for domestic and export-import trade. It includes the development of ports, coastal shipping, and inland waterways.

Way Ahead

• Digitalisation: It enables the digitisation of documents and transactions, reducing paperwork and improving the overall efficiency of logistics operations. 
• Data analytics: It can provide valuable insights into supply chain performance, allowing for better decision-making and optimisation of routes, inventory management, and resource allocation. 
• Technology upgradation: Technologies such as barcode scanning, RFID, and real-time tracking can significantly enhance tracking and tracing capabilities, improving operational efficiency and reducing costs.
• Warehouse efficiency: Improved inventory accuracy, reduced warehouse stock, and optimized on-shelf stock availability, can enhance overall warehouse efficiency.

Concluding remarks

• As India positions itself as a global manufacturing alternative to China, efficient logistics will be key to outpacing competitors like Vietnam and Indonesia. 
• Improved logistics performance will enhance trade competitiveness, generate employment, and help India emerge as a regional and global logistics hub.

Source: AIR

Read this in Hindi: भारत द्वारा वर्ष के अंत तक रसद लागत को 9% तक कम करने का लक्ष्य