Decoding Budget 2020: Can the proposed national policy remove roadblocks for India’s logistics sector?
The $160 billion logistics market in India had a lot of expectations from Union Budget 2020, and they were not disappointed. Finance Minister Nirmala Sitharaman drew out a strong road map, including a national policy for the sector.
Speaking about the new National Logistics Policy, she said:
“It will create a single window e-logistics market and focus on generation of employment, skills, and making MSMEs competitive.”
The Union Budget did not make any announcements that would have had a direct, positive impact, but the many pronouncements are expected to provide an impetus to the logistics sector.
The Union Commerce Ministry, in a press release following the Budget presentation, listed out 24 points unveiled by the Finance Minister to provide strong support for creation of a robust national policy.
The highlights included geo-tagging of all warehouses, provision of viability gap funding for setting up of warehouses at block or taluka levels, Krishi trains, Krishi Udaan scheme for air transportation of perishable commodities like fruits and vegetables, and a Rs 100 lakh crore national infrastructure pipeline towards the creation of roads, railway lines, airports, and ports.
The commerce ministry stated, “India’s logistics sector is highly defragmented and the aim is to reduce logistics cost from the present 14 percent of GDP to less than 10 percent by 2022.”
The Indian logistics sector provides livelihood to more than 22 million people, and improving the sector will facilitate 10 percent decrease in indirect logistics cost, leading to a growth of five to eight percent in exports. It is estimated that the worth of the Indian logistics market will be around $215 billion in next two years.
On the impact of the Budget on the logistics sector, Anjani Mandal, CEO and Co-Founder of Fortigo Network Logistics, said:
“The Budget announcements were in line with our expectations…continuance of large outlays on infrastructure creation, building, and improving large sections of national highways to facilitate road transportation…one hopes that the new focus on analytics and machine learning is deployed for linking movement of goods (logistics) to the chain, from production to consumption, and then arresting GST-revenue leakages across all industries."
The Indian logistics sector has to be seen in the context of competing forces between established players and tech-driven new incumbents rewriting the rules of the game.
The sector has witnessed the emergence of unicorns like Delhivery and Rivigo, which are not only expanding the scope of this market but also coming out with innovative use cases driven largely through their technology platform.
Startups in the logistics space believe that the new policy will streamline regulations and provide much clarity, optimising India’s modal mix (road, rail and water) to meet global standards.
“The creation of a single window e-logistics market will not only reduce overhead logistics expenses but make the sector less fragmented,” says Kushal Nahata, CEO and Co-founder, FarEye.
The commerce ministry noted that India’s logistics sector was very complex, with more than 20 government agencies, 40 PGAs, 37 export promotion councils, and 500 certifications.
Kushal hoped that the government’s focus on promoting disruptive technologies like AI and IoT would also benefit the supply chain and logistics industry.
The critical point in the Budget was the plan to upgrade the logistics sector’s status and make the country a major hub.
R K Narayan, CEO, Allcargo Logistics and Industrial Parks, said:
“Facilitating seamless multimodal freight transfer will make freight movement for key commodities cost-efficient. The proposed policy also aims to standardise the key elements of a warehouse, which will lead to new demand and capacity creation of Grade A warehouses.”
For the logistics sector, a close companion is the warehouse segment - one cannot exist without the other. The Union Budget has unveiled various measures that are expected to expand the warehousing segment and make it a more organised industry.
The Union Budget also announced the allocation of Rs 1.7 lakh crore towards transport infrastructure, promising to monetise 12 highways, spread over 6,000 kilometres, by 2024. This would further benefit freight movement and transportation costs.
In a note, KPMG said, “Transport infrastructure is the backbone of our economy. Mega investments of $25 billion allocated to transport infrastructure covering roads, railways, aviation, inland waterways, and maritime as a part of National Infrastructure Pipeline projects, if implemented on a timely basis, could be a game-changer.”
Industry experts felt that the Budget announcements seek to bring down the cost of operations and improve efficiencies. A critical way will be to push towards infrastructure development, which, besides the roads and railway network, will also include creating supporting bases in terms of warehouses, storage facilities etc.
The Finance Minister also said the Goods and Services Tax had consolidated numerous taxes and cesses into one tax and facilitated formalisation of economy. It had resulted in efficiency gains in the logistics and transport sectors. The turnaround time for trucks has witnessed a substantial reduction to the tune of 20 percent due to abolition of checkpoints in GST. The dreaded “inspector raj” had also vanished.
T A Krishnan, CEO and Co-founder, Ecom Express, said:
“This (the policy) will result in lower distribution and transactional costs apart from promoting a conducive environment for businesses, especially MSMEs, to thrive competitively. The focus around creating a skilled workforce for logistics and supply chain, and further churning logistics professionals through skill development programmes will ensure availability of needed talent and quality manpower.”
India’s logistics sector does not only involve transportation of goods and materials within the country; it also includes exports. This is a complex exercise that involves multitudes of shipping agencies, aviation companies, banks, insurance companies, and multiple authorities that provide certifications.
The key to jump-start or streamline the logistics sector will depend on the execution of the new proposed policy. It also remains to be seen how the government will engage with new-age technologies like AI, machine learning, and big data to give an edge to the logistics sector.
The Union Budget has certainly provided a direction and hopes are that this will give a further boost to entrepreneurship in the logistics sector, resulting in significant job creation.
(Edited by Teja Lele Desai)