How India’s much-awaited National Logistics Policy can provide a major boost to the sector
The National Logistics Policy (NLP), aimed at strengthening and streamlining India’s logistics sector, has been held back for several reasons. SMBStory decodes how it, once enforced, can help boost the sector.
The National Logistics Policy (NLP) is aimed at streamlining and strengthening India’s logistics sector, promoting the seamless movement of goods across the country, and increase the ease of doing business for players in the sector.
The policy, which is in its final stages, along with other measures taken by the government for the sector will essentially enable “closer collaboration with the logistics division” according to a report by the Ministry of Commerce and Industry.
While it was set to go to the Cabinet since March, inter-ministerial tiffs seem to be holding it back. SMBStory speaks to various stakeholders to dive deeper into the provisions of this policy and how it will uplift MSMEs, the logistics sector, and the economy at large.
Challenges besetting India’s logistics sector
Considered to be the backbone of the economy, the true importance of the logistics sector was proven even more strongly during the nationwide lockdown imposed last March due to the COVID-19 pandemic.
However, it is important to note that the sector suffers from numerous bottlenecks. Fragmentation and informalisation are some, to begin with.
According to research reports, the estimated size of the Indian logistics market is $215 billion, growing at a CAGR of 10.5 percent. But only 10-15 percent of the overall market is owned by organised players.
Wastage due to the high turnaround time is another challenge that besets the sector. Owing to infrastructural issues and lack of streamlined processes, goods are taking longer to reach their destination.
Furthermore, a McKinsey report reveals that issues like a lack of skilled drivers, struggles with unpredictable backhaul availability and long detention times, middlemen (one or many) bridging the distance between the shipper (load provider) and truck/fleet owner are adding up to the costs of the ecosystem.
Currently, India’s logistics and supply chain cost is around 13-14 percent of the GDP whereas the global average is 8 percent.
The US stands at 8 percent ($1.6 trillion) while Germany at 7 percent (€15 billion). Bringing down these costs is something the NLP intends to achieve, experts tell SMBStory.
Resolving the woes of the logistics sector
Vineet Agarwal, President of ASSOCHAM, says, “It is important to see logistics not just from the domestic perspective but also from an international lens,” adding that a comprehensive national policy for the logistics sector is “very critical” as it will help the country understand how it can reach its economic goals.
Apart from reduction in wastage and cost, Vineet mapped out other aspects NLP will contain — standardisation, informalisation, digitisation, and becoming more competitive in the international market. “The policy will help integrate local supply chains with international supply chains better,” he explains.
Seeing the sector’s contribution to the GDP (India’s contribution being 13-14 percent), Vineet says comparing it to others like the US or China may not be the best idea as every country operates differently.
According to him, the Logistics Performance Index (LPI) is a more accurate measure of understanding India’s performance and carrying out a comparative analysis, which takes into account other factors such as customs, infrastructure, international shipment, logistics competence, and more
The ranking, rolled out by the World Bank, ranked India at 44th position in 2018. It was given a score of 3.18 in 2018. “And this will indicate how efficient we are in terms of logistics in our country,” he says. Currently, India’s ranking according to Vineet is not a bad place to be in.
The countries that secured top spots in this ranking system are Germany (first), Sweden (second), Belgium (third), Austria (fourth), and Japan (fifth).
Vineet says the NLP will also enable companies to start adopting better systems and processes, including digital tools so that the sector gets “more recognised and formal”.
McKinsey’s report states that if India wishes to propel its logistics sector forward, it will need to bring down the following costs — fuel (through fuel cards through partnerships), finance (lower interest rates), toll fees, working capital and other fixed costs, and more. This will also result in higher margins for the companies in the sector.
A multimodal system
Experts from the sector also believe that the NLP will lead to diversification and integration of the modes of transport.
According to Abhik Mitra, Managing Director and CEO of Spoton Logistics, the new policy is going about simplification, technology and will have a multimodal approach that will combine rail, water, and air — all modes of transport.
Some projects that follow a multimodal approach in India are already in progress. For instance, the Kochi Metro Rail Limited.
In an earlier interview with SMBStory, Tata Elxsi’s Chief Strategy Officer, Nitin Pai,had shared that the KMRL project will not just integrate metro services, but also bring together bus services, taxis, and other local transport systems.
This way a customer’s journey from home to the final destination is taken care of. Additionally, Tata Elxsi is also developing a smart card the customer can use for making one payment for the entire course of the journey.
The government is also planning to introduce a national grid of logistics parks and terminals to make the ecosystem more unified.
Becoming tech-enabled and following a multimodal approach seems to be the next logical and rational step for this sector.
The government’s thrust on enabling greater adoption of multimodal is also visible. An example of it being allocating higher funds in the FY20 Railways Budget, developing two dedicated freight corridors from Mumbai to Delhi, the Sagarmala Programme, planned development of the National Waterway.
Investing in “pilots”
McKinsey’s report highlighted that India’s $110 million logistics market can be divided into two categories — full truck load (FTL) and less than a truck load (LTL, which is 35 percent of the road transportation market). This means that owners of fewer than five trucks provide more than half of all goods vehicles on the road.
In India, the conditions under which truck drivers work are also a cause of concern. Truck drivers in the country are said to belong to the lowest (37th) category in the caste system.
Several reports reveal that the lives of truck drivers, which is mostly spent on roads, are mired with alcoholism, drugs, and unprotected sex. Highway conditions, meeting deadlines, long detention periods, and lack of sleep add to their woes.
All these challenges put significant financial and psychological pressures on the drivers themselves as well as their families.
While the sector has evolved to some extent with truck drivers now being called “pilots,” right conditions for the trucking industry is one of the leakages the NLP should solve, improving their working conditions.
Additionally, if road and warehousing are such important components of the logistics sector, then companies and the government will also have to invest in them.
Vineet says, “Companies need to upskill their employees more so that their teams are ready for the next set of reforms and even understanding other dynamics such as warehousing and ecommerce.”
Ecommerce as an enabler
India is poised to become one of the fastest-growing economies in the world alongside China, the US and Brazil.
During his visit to India in 2020, Amazon CEO Jeff Bezos told the media, "I predict that the 21st century is going to be the Indian century."
In the last couple of years, ecommerce has also grown remarkably in India. This booming sector will further bolster India’s logistics sector, a fact further testified by the COVID-19 pandemic.
When all other sectors were experiencing a downturn during the pandemic, ecommerce kept going with companies in the personal care, pharma, and other segments reporting sales greater than even pre-pandemic levels.
In fact, ecommerce is expected to reach $200 billion by 2026, according to IBEF.
While there continues to be some conjecture around when the policy will be rolled out, it is confirmed that the policy will be outlined on the premises of formalisation, standardisation, and digitisation. Moreover, it is expected to bring greater transparency and visibility within the logistics sector of India.
The National Logistics Policy has the potential to become a great disrupting force for this sector, which has been largely neglected for a very long time.
And if the cards are played right, it can not only ensure that supply chains become more resilient but also enable India’s global competitiveness to reach new heights towards 2025 and beyond.
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Edited by Saheli Sen Gupta