“The line between order and disorder lies in logistics” – is how Sun Tzu, the Chinese military strategist and philosopher defined the place of logistics in a nation’s growth drive. Sun Tsu’s basic proposition probably related to military strategy but since the logistic industry involves the management of the movement of goods from the place of origin to the place of consumption, its efficiency is crucial to economic growth.
Basic of logistics
Logistics is generally the detailed organisation and implementation of a complex operation. In a general business sense, logistics is the management of the flow of things between the point of origin and the point of consumption. The resources managed in logistics may include tangible goods such as materials, equipment, and supplies as well as food and other consumable items. The industry does a complex networking including integration of material handling, warehousing, packaging, transportation, shipping security, inventory management, supply chain management, procurement, and customs service.
The development in technology and the advent of new industry verticals have created high demands for logistics and delivery of products and services at precise time and location. The new set of requirements has risen from the sections with busy lifestyles and has also added to the increase in logistics demand.
The high economic growth during post-liberalisation era resulted in a significant rise in the volume of freight traffic movements in India. The large volume of traffic provided for growth opportunities in all facets of logistics including transportation, warehousing, freight forwarding, express cargo delivery, container services and shipping services. The growth path also suggests that increase demand is being placed on the sector to provide the solutions required for supporting future growth. Strength of the logistic sector is likely to be one of the key determinants of the pace of the future growth of the Indian economy.
Backed by higher economic growth, India’s logistics sector is growing fast. According to the domestic rating agency ICRA, Indian logistics sector is expected to grow at a rate 8-10% over the medium term. This is an improvement over the compound annual growth rate (CAGR) of 7.8% at which the industry grew during the last five years. The logistics industry of India is currently estimated to be around $ 160 billion. With implementation of the GST, the sector is expected to benefit and touch $ 215 billion-mark over the next two years, as per the Economic Survey 2017-18.
Government plans to organise the sector
Recognising the increasing importance of the logistic sector, the government has established a separate logistics division in the department of commerce to work for the integrated development of the industry - both in the domestic and the international domain. The ministry of commerce and industry in India, reportedly, has proposed framing of a unique dedicated online portal to look into the working of the logistics services in the country. The ministry of transport in India is also playing a key role in upbringing the logistics sectors by strengthening land connectivity through various programmes like the ‘Sagarmala’ project.
Supporting ICRA’s findings, the Economic Survey 2017-18 projected that the Indian logistics industry would grow at a CAGR of 10.5% and cross the $ 200-mark soon. The sector now employs an estimated 22 million people and is expected to nearly double the figure by 2020. With such a promising future of employment generation, the Indian logistics sector has become the new sensation, encouraging the government to frame a dedicated IT backbone for this industry. Even the import-export system has been upgraded, reducing the cargo release time significantly.
In addition, many start-ups and established enterprises have also entered the market equipped with the latest technology, quality warehousing, and functional transport facility to provide world-class services in the Indian market.
Key growth facilitators
The government has reaffirmed the importance of connectivity which is the lifeline of the logistic industry. The Budget 2019-20 has given a massive push to all forms of physical connectivity.
The ambitious Bharatmala project holds the promise of strengthening the countrywide road network and improving connectivity with the interior and backward areas of the country. The Sagarmala initiative is a key step in increasing India’s coastal shipping share in the country’s broader modal mix and aims at formulating a comprehensive shipping policy and optimising the country’s maritime assets. The project emphasises on improving maritime linkages and promoting port-led industrial development by setting up industrial clusters and manufacturing hubs along coastal zones.
The high-speed, freight-only ‘Dedicated Freight Corridor Project’ aims at decongesting a heavily saturated road network and reducing freight transit times from industrial heartlands in north India to ports on the eastern and western coasts of the country. Reducing significantly the freight transport times, the dedicated corridor initiative will promote economic growth and generate employment through the setting up of industrial corridors and logistics parks along the corridor routes.
New reform measures and policy interventions like the implementation of GST, relaxed FDI regulations for a number of sectors and granting of infra status has boosted the core competencies of the Indian logistics industry. GST is considered as a game-changer for Indian logistics as it has done away with the variable tax structures among states. It laid the foundation for the setting up of large format multi-modal logistics parks along key consumption and industrial centres which can function as freight aggregation and distribution hubs.
India in World LPI ranking
The growth in India’s logistic sector is reflected in the improvement in its position in Logistic Performance Index (LPI) over the years. Based on a worldwide survey of global freight forwarders and express carriers, the World Bank's Logistics Performance Index (LPI) is a benchmarking tool developed by the Washington-based institution that measures performance along the logistics supply chain within a country. Allowing for comparisons across 167 countries, the index helps countries identify challenges and opportunities and improve their logistics performance.
Logistic Performance Index is the weighted average of the country score of six basic indicators; efficiency of the clearance process by border control agencies including customs, quality of trade and transport related infra-structure (ports, rail, roads and information technology), ease of arranging competitive price shipments, ability to track and trace consignments and timeliness of ship-
ments in reaching destinations within the scheduled or expected delivery time. The World Bank conducts the survey every two years.According to the Global Ranking of the World Bank's 2018 Logistics Performance Index, India is placed at 44th rank in 2018 from 47th rank in 2010 in terms of overall logistics performance. The report also showed that India’s logistics sector has improved its performance on all the six parameters used in the ranking. India is
placed at the middle among the BRICS countries in terms of LPI ranking and is way ahead of both Russia and Brazil.
What is disturbing, however, is that India’s LPI ranking has gone down by nine places in last two years from 35th in 2016. And this decline in LPI score was largely due to infrastructure deficiency. LPI score of infrastructure between 2016 and 2018 has gone down by 0.43 points, bringing down the average weighted LPI score by 0.24 points from 3.42 to 3.24 during the period.