Every industry goes through a transformational phase driven by a host of factors ranging from policy changes to shifts in technology or flow of capital. The $280 bn logistics industry is largely influenced by three key factors – governmental policies, availability of infrastructure (Existing & Proposed), and availability of skilled labor.
The introduction of the GST in 2017 was a game-changer for the industry. Firstly, it led companies to, rightly, have warehouses closer to consumption centers, than locating at places for tax arbitrages. Next, it led to increased operational efficiency, and cost savings – all of them tangible. This has been followed by a host of new policies, and changes in regulations, culminating in the National Logistics Policy (NLP) of 2022. A good way to measure the impact of a policy is perhaps the capital that is allocated along with the private investments; budgetary allocations by the government have been significant, and this sector has continued to attract investments from the likes of sovereign wealth funds, international pension funds, foreign, and domestic institutional investors.
Infrastructure plays an important role, not just in terms of a direct impact on the industry, but the multiplier effect on the GDP. India has more than 6 million sq. km of roads. Sadly, highways account for only 2%, despite accounting for almost 40% of the flow of goods. Entering NHAI into the equation, they have been building on an average 23+ kms of highways daily over the past five years; in addition, the recently opened and proposed expressways between production-consumption centers, would also go towards the government’s plans to reduce logistics costs.
The past five years have also brought about changes to the movement of freight via railways, which now accounts for 30%+ of cargo movement. Once the dedicated freight corridors (DFCC) get operational, they would further augment the rail transportation, Likewise, the Sagar Mala, and the Bharat Mala projects are improving transportation using India’s coastal and inland river systems – transporting on waterways is not just economical, but also ecological. Whilst transport by air domestically accounts for a fraction of the overall cargo, with the advent of newer airports, and logistics hubs at terminals, it would play an important role.
The industry provides employment to nearly 30 million people, and increasingly both skilled labour and professionals are seeking a foothold, given the growth prospects, and the dignity of labour. With India fast emerging as a manufacturing hub, the need for logistics and professionals is only slated to grow further. The end-users no longer view logistics firms as their Vendors, but as Partners, an essential part of their supply chain. Hence, the quality of talent makes a large difference, both in pricing (reducing costs) and delivery (enhancing operational efficiencies).
The impact of policies, coupled with investments in infrastructure, and upskilling the workforce, can translate into the government’s vision of bringing down logistics costs.
(This article is authored by Krishnan S Iyer, Executive Director, NDR Group)