Though India is seen as the second-most attractive logistics market after China, issues such as shortage of skilled manpower, poor adoption of technology, with higher costs and lower profitability, have hampered development in this sector, consulting and financial advisory Deloitte said on Thursday.
In its report Indian Logistics-Focus on infrastructure creation to sustain and drive growth, Deloitte said, India was a fast-growing economy, with one of the largest consumer markets of automobile, pharmaceuticals, fast-moving consumer goods and retail, which will drive the demand for logistics in the country going ahead.
An efficient logistics system reduces the cost of trading, providing an edge and propelling economic activity, said the report.
Quoting a McKinsey study, Deloitte said, inefficiencies in logistics infrastructure costs the Indian economy an extra $45 billion, 4.3 per cent of the gross domestic product, every year. The study also warns a 2.5 times growth in freight traffic demand by 2020 (compared with 2010 levels) will strain India's infrastructure further.
However, such high demand prospects also present an opportunity for logistics companies in India, said Deloitte.
The Planning Commission has budgeted for an initial logistics infrastructure investment of Rs 4.1 trillion over the 12th Five Year Plan period (2012-2017), double that proposed under the 11th Five Year Plan (2007-2012).
But global and domestic slowdown over two years has stymied overall infrastructure creation, said the report.
Dull macroeconomic conditions have weighed on the risk appetite of lenders. Such conditions have distressed developers, whose balance sheets felt greater stretch on low liquidity and cash flows compared with earlier years. This was further complicated by changes in project viability in many cases as initial traffic projections were deemed over estimated, said Deloitte.
Creation of infrastructure was also delayed on account of issues related to environmental clearances, land acquisitions, as well as sector-specific challenges, that stalled financial closures for awarded projects or impacted investor interest for new ones, said Deloitte.
Highlighting the challenges faced by each of the segment of logistics infrastructure: Road, railway, port and air cargo, the Deloitte report concludes there are three key aspects the sector should look into. One, there is scope for capacity creation and efficiency improvement to ensure improvement on a 'logistics performance index'. Second, the opportunity in each segment is enormous and the 12th five year plan has set ambitious targets for expanding these capacities significantly over the plan period. Third, if the gap between current and potential levels has to be closed urgently, huge private sector investment will be required to bring in both funds and best practices.
