The logistics and supply chain management industry in India has been receiving greater attention in the last few years. Yet, in spite of its huge potential, the sector’s growth has not kept pace with India’s wider economy and this is a threat to our future competitiveness.

The acceleration in industrial production and changes in consumption patterns have resulted in a high demand for basic and specialised logistics management, both at the local, and cross-border levels. Indeed one recent study suggests the Indian logistics industry will grow at 15-20 per cent per annum between now and 2015, by which point it will be worth $385 billion.

Growth drivers

There are two major reasons for this growth. First, demand has been fuelled by the growth in industries that tend to outsource — automobiles, consumer packaged goods, hi-tech, telecom and retail, amongst others. The movement of basic commodities, domestically and globally, has led to an increase in so-called ‘multi-modal’ and bulk transportation and to the emergence of many new ports and port-related service providers.

This growth should be driven further by the impending change in the Indian tax system from state-level value added tax (VAT) to a national and uniform Goods and Services tax (GST), which will help create a national market for many goods and services.

The logistics sector is likely to respond by making more use of hub-and-spoke systems, large-scale warehousing and specialised services.

A gradual opening up of key sectors such as retail, aviation, defence, etc, will also help drive expansion. The entry of multinational companies (MNCs) in sourcing, manufacturing and distributing could be the other growth driver.

Hurdles in the way

But challenges persist that threaten this growth trajectory. For one thing, India currently spends around 12 per cent of its GDP on logistics, yet despite the huge scale that has been built up, the industry as a whole is very fragmented and disorganised.

Another challenge is the inefficiency of Indian logistics versus its international peers. Today, 57 per cent of freight in India still moves on the road network.

The main reason for this heavy dependence on a mode that is in many ways inefficient and has high carbon intensity is the lack of a railway system capable of responding to the needs of industry.

This is putting a real strain on infrastructure: national highways account for 2 per cent of the road network but transport around 40 per cent of freight tonnage.

Lack of coordinated planning, intra-State border issues, cumbersome documentation, bureaucracy and corruption leave the average speed of trucks at only 21 km/hour. Hence a truck can cover only 300-500 km per day versus almost double that figure in the larger developed countries.

In ports, capacity and turnaround times are still well below global benchmarks, and logistics parks, warehousing and other support infrastructure are also at an early development stage.

Policy priorities

Bringing India’s logistics up to modern, world-class standards will be a tough but by no means impossible task.

At the World Economic Forum’s Global Agenda Council on Logistics & Supply Chain, we help identify policy priorities that will lead to meaningful improvements on an international scale. For India, we have spelt out three policy priorities: The first thing that the government needs to do is draw up a comprehensive national logistics policy. Currently the various components of logistics (surface transport, railways, shipping, air, commerce, finance) are all separate entities. There is a need to drive policy in a synchronised manner.

The second national priority should be focused investment in logistics infrastructure.

This means direct investment into alternative traffic modes to road, particularly rail and coastal shipping, in order to ease traffic congestion, bring down costs and minimise carbon emission.

Lastly, we need to invest more in our people. With the growing complexity of supply chains, we need more skilled people to manage them.

Here, there is a clear need for both the government and private entities to create focused and sustained skills and training programmes.

There are several other areas, such as technology adoption and policy simplification for trade facilitation that are also worthy of attention and focus.

Getting these right, too, will put our country firmly on the right track. It’s time for all stakeholders to pull in the same direction.

(The author is Joint Managing Director, Transport Corporation of India)

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