Six government initiatives that have major impact on Indian logistics sector

Diesel de-regulation, big thrust on building highways, Carriers' Act, dedicated freight corridor, GST and Make in India campaign can be game changers for logistics sector, says Anil Syal

Peter Drucker once said - in management speak ‘logistics’ is the last Dark Continent. What he meant really was managers across the world have looked at improving logistics rather late in the day. If that were true at the time, then so is it true that its roar can be felt far and wide, in recent times. Surely, logistics came very late in management priorities to improve, to optimise and to automate. 

Businesses in India have been no different in their delayed realisation to the virtues of logistics optimisation. While ‎corporates have woken up to the potential of logistics delivering an extra-ordinary competitive advantage to a supply chain, credit must also go to recent government initiatives, which have provided, or will soon provide, immense potential to bring logistics in the front-and-centre of business operations.

Given below is the list of six key government-led initiatives - some true catalysts, over the last 10 or so years - which have changed the prominence of logistics completely:

Diesel de-regulation

It is a known fact that our fiscal dependence on fuel import is very high. But it is diesel, which has remained one of the biggest laggards for India in the past. Couple of years ago, political compulsions were kept aside for once to deregulate diesel and today we reap its benefits. Breaking the shackles of fuel subsidy has changed our perspective completely. No longer do we see any threats of strikes or bandh with each Rupees’ change in diesel price. As a result, logistics costs have become more accurate, with diesel prices moving in tandem with international fuel prices. This forces us to be competitive globally.  

Big thrust on highways build-up

In the first decade of this century, we saw highways and infrastructure become focus sectors. Highways, which are the backbone to goods transportation, got a major boost. Many schemes later, our connectivity to major production and consumption centres across India has improved, even if not world class.

Road freight, carrying 60 percent of all goods transport in India, got a major leg up. Truck turn-around times have improved, transit times have got upgraded, vehicle down times have reduced, productivity is better and this has resulted in improvement in inventory related costs - reduction in transit claims, reduced cost of inventory on road and such. With focus returning on highways build-up of this current government, there are even more long-term gains around the corner.

Carriage of goods by road act, 2007 

Anil Syal, CEO, Flywheel Logistics

All acts are pointless if not implemented properly. Sitting between the lines in the new Carriers’ Act are some long-term benefits. 

Bringing organisation - and hence governance - to the road transportation of goods is a desperate need for India. With lack of political will, little has been done yet to start implementation a portion of the act where it demands ‘registration’ of all goods transporters. Registration of transport service providers will bring order to a largely scattered sector with hundreds of thousands of operators.

When the Carrier’s Act 1865 was repealed – along with it went the outdated liability clauses for the goods in transit, which were not keeping up with the complex reps-and-warranties in bilateral agreements of the modern day commerce. With appropriate caveats in place in the new Act, there will be far more accurate apportionment of responsibilities and liabilities. This will also have an effect on subrogation clauses with the underwriters and hence also on insurance costs.

Dedicated freight corridor

For merely recognising freight as a crucial and indispensable component of Indian economic activity we have already won a small battle. If and when implemented the freight corridor will deliver an ecologically and economically sensitive edge in the business of freight that we need. On high intensity corridors, there is a possibility of transitioning loads from road to rail, especially by way of dedicated freight corridor. This will be ecologically smarter as well as economically competitive.

‎Goods and Services Tax

The discussions on Goods and Services Tax (GST) have taken-over the collective imagination of many. Besides the advantages from the tax point-of-view, there will be a major impact on logistics sector once GST is in place.

Majority of Indian corporates today organise their supply chain with an eye on the indirect-tax cost. After GST is implemented, the determining factors of planning logistics will be the fundamental principles of logistics - demand, supply, near-to-customer, sourcing, transportation costs and inventory costs. This will ensure a major shift and/or consolidation in warehousing locations, transportation costs and will also impact the trends of certain commercial vehicle classes.

Make in India 

The shift in India’s economy from a large agriculture economy to a large services economy was akin to a missed opportunity for logistics because manufacturing got bypassed. With attention being redirected, in no small way, India is now attracting some big ticket manufacturing investments. Make in India over the next five years will add more than $ 20 billion to the Indian logistics sector, mainly because 20 of the 25 focus sectors in the Make in India have a high logistics dependence.

Skill India, mentioned here under honorary capacity, is by far one of the best initiatives we like. A major focus on training and skilling has come as a breath of fresh air. With growth of logistics, we will require more than 8 million more skilled workforce in various realms of logistics including drivers, mechanics, loaders, MHE operators, delivery persons, operations and yard assistants.

By far, these government-led initiatives have potentially redefined the logistics business in India. As a result, global investors have realised the merit in investing in Indian logistics businesses, logistics infrastructure and logistics networks. 
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Anil Syal is the chief executive officer at Flywheel Logistics