Remove infrastructure holdups to put logistics sector on a growth highway

Amongst all the modes, road and rail transport are the most significant. The modal share between these two has changed over the years, from the 80 percent rail share in 1950-51, to the road share becoming 65 percent in 2011-12. Road overtook rail in the early 90’s. Further, during the last two decades, road infrastructure expanded rapidly on account of focused policies and investments. 

India has the second largest road network in the world with a road length of 4,320,000 km.  Rail and road account for 86 percent of the freight transport while the other modes account for 14 percent. Though extensive, but the road network is still inadequate and suffers from a number of deficiencies like inability to handle high traffic density, tolls, lack of travel infrastructure, poor conditions of roads etc. The average productivity of a truck in India is 280 km per day (KPD) in comparison to about 80 KPD in the developed countries. 

A concerted focus on the outages could easily enhance this output to 350-400 km just by reducing congestion. Roads in India account for more than 51 percent of the total freight traffic consisting of 3.2 million heavy duty trucks and 2.6 million light duty. The road freight movement is expected to increase at a compounded annual growth rate (CAGR) of 15 percent. There is a direct co-relation of economic activity in any country and the logistics and transportation infrastructure. Therefore, modernising the transportation infrastructure along with bringing trade friendly policies becomes inherent to developmental goals.

The transportation infrastructure includes roads, vehicles, railways, tracks, trains, ports, airports, ships and vessels. Road transportation is perhaps the most important because the railway tracks cannot be laid everywhere. The roads are the means by which the movement of people and goods from one place to another is ensured. Millions of people move out of their houses every day to reach their places of work, trade or business daily. The ministry has managed to scale up the road construction from the earlier 7-8 km perday to about 21-22 km. They have even managed to free up many of the stalled road infrastructure projects. Railways have been able to action many new gauges and freight corridors, however a majority of the plan is still being executed.

Opportunities the sector presents

While the current state of infrastructure in the country pose a big challenge, logistics solution providers see a window of opportunities opening up with the government’s effort to remove infrastructure bottlenecks and give a boost to manufacturing sector through the Make In India campaign. 

Infrastructure is the bedrock upon which the fate of the logistics industry rests. The focus on infrastructure can only bode well for the logistics sector. The special focus on roads is especially good since a vast majority of logistics work in India is done via roads. The second most used mode of transport is rail which is also going to be seeing some investment. Manufacturing and logistics are intrinsically linked as sectors. The transport of goods is essential after production to complete the cycle of manufacturing. Given the ambition of ‘Make in India’ initiative to make India a more of a global powerhouse when it comes to exports and reduce dependence on imports, more goods will be produced in the country than ever before.

These goods would be of all kinds and requiring different logistical capabilities to take them to their final required destination for use. The quantum of investment from the private sector, government regulation, the investment in infrastructure by the government year on year are all factors that determine whether the logistics sector will grow or be inhibited.

The logistics sector in India has been blessed by the booming e-commerce sector which is estimated to touch $ 220 billion in India by 2025. It is growing at an electrifying pace and if the growth of the nation is any indicator, wealth will be spread out across the country. The need for quality logistics for goods to be delivered to various locations speedily and a good manner will only increase. E-commerce needs the logistics section to function. Its growth to massive proportions will only spur growth in the logistics sector performing well in the last few years growing at a rate of 8.6 percent annum.

Challenges before the sector

India’s demographic scale is far wide and vastly spread. In addition to land we have over 7,000 kms of coastline. Thus making a supply chain design catering to such a large geography in itself is a challenge. The challenges being faced by the sector are broadly lack of infrastructure at ports, roads or rail lines connecting ports, state as well as central level taxation policies, multiple check points across states between the union of our country, procedures, single window clearance, lack of transparent guidelines and implementation of business policies, each state being like a country.

Recommendations & suggestions

Logistics being such a vital area of the economy, the sector should have an institutional/industry status with a clear definition and classification of supply chain activities, warehousing, credit allowances etc. It would be ideal that the upcoming budget encourages the ministry to meet with representatives from this industry and take stock of the concerns regularly.

Another factor that is critical to the growth and the development of the sector, is the introduction of the biggest tax reform that is the GST which although has been passed but stalled by few states where it needs to be implemented. Involving important stakeholders from the industry will smoothen the process of implementation. However, the industry will experience the biggest seeping change envisaged and also bring down the costs by about 15-20 percent as anticipated.
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Jyotheesh Kumar is the co-founder and CEO of ValueShipr