Unable to understand basis for assumption on logistic cost: EAC-PM official

Economic Advisory Council to the Prime Minister (EAC-PM) member Rakesh Mohan on Tuesday said he is unable to find the basis for assuming that logistics cost account for 14 per cent of India's GDP and the assumption forms the basis for government initiatives like production-linked incentive (PLI) schemes.

Addressing an event organised by economic think tank ICRIER, Mohan further said he failed to find out how 14 per cent logistic cost number was arrived at by think tanks or researchers.

"It seems to be generally accepted that India's logistics costs are significantly higher than global benchmarks. I have tried to look into this, but I can never find what is the basis of this data... this report (CRIER report) repeats the often used number of India's logistics costs being 14 per cent of GDP," former deputy governor of RBI said.

The government is going by certain estimates which suggest that logistics cost in India stands at about 13-14 per cent of the country's GDP. The government has rolled out a national logistics policy and PM Gati Shakti initiative to boost competitiveness of industry and cut logistics costs.

"There's no way that (it) can be true... what is the share of manufacturing in GDP... 17 per cent. So are you telling me logistics value added or logistics cost is the same total manufacturing value added in the country... these numbers, I just don't understand," the eminent economist said.

According to Mohan, the acceptance of this argument that India's logistics cost is 14 per cent, leads to policy actions that industry loves, like the PLI scheme.

"(Industry people say) we are uncompetitive because of this (high logistics cost), so give me money. But (they also) say don't give money to farmers, but give money to us," he said.

The government has announced PLI schemes for 14 sectors, including white goods, textiles and auto components.

The objective of the PLI scheme is to make domestic manufacturing globally competitive, create global champions in manufacturing, boost exports and create jobs.

"These things have to be done very seriously. Because it does actually lead to fiscal expenditure," he emphasised.

Mohan pointed out that the economic think tank NCAER report, which was submitted to the logistics division of the Ministry of Commerce and Industry in 2019 had calculated India's logistics cost 8.8 per cent of GDP in 2017 -18, which is not high compared to the other countries.

"But one never sees the mention of this (NCAER) report. We keep repeating the Economic Survey's data which came after the NCAER 2017-18 report.

The Economic Survey 2022-23 had pointed out that logistics costs in India have been in the range of 14-18 per cent of GDP against the global benchmark of 8 per cent.

Mohan observed that it is true that India is not globally competitive in manufacturing, and especially in labor intensive products.

Last month, the commerce and industry ministry had said that a task force will be set up for formulating a framework to determine logistics costs in the country.

The task force members would include representatives from NITI Aayog, Ministry of Statistics and Programme Implementation (MOSPI), National Council of Applied Economic Research (NCAER), academic experts and other stakeholders.

The government is going by certain estimates which suggest that logistics cost in India stands at about 13-14 per cent of the country's GDP. The government has rolled out a national logistics policy and PM Gati Shakti initiative to boost competitiveness of industry and cut logistics costs.