JLL Insight_India's Draft National Logistics Policy Outlines Trade Growth

Government of India’s Draft National Logistics Policy Outlines Trade Growth

The Policy provides the much-awaited clarity in strategies to transform the Indian Logistics into an organised sector with a consolidated problem solving approach. However, time-bound definitive execution plan by the government is mandatory to achieve its desired objective and extracting underlying benefits 

Chandranath Dey, Head of Industrial Operations, Business Development, Industrial Consulting & Supply Chain Consulting, JLL

by Priya Jadhav

n  The Logistics sector in its current form is a complex puzzle for the industry to optimise cost and delivery time

n  The much-awaited India Logistics Policy highlights vision to transform India’s Logistics sector into an integrated, seamless, efficient, reliable, cost-effective and technology-driven eco-system

n  It is expected to bring down logistics cost from 14% to 10% of GDP

n  Appropriate execution of the Policy, hopefully, can create a supply chain environment for achieving its desired efficiency and effectiveness.  

The Logistics and Warehousing sector has entered a new growth phase and continues to evolve. From getting the infrastructure status in late 2017 to an increase in investments in 2018 it received as a result of the status has resulted in growth and expansio n. Having realised the growth potential of the sector the government wishes to institutionalise the market. Government’s newly drafted National Logistics Policy aims to do just that.

It is worth mentioning that the Logistics Plan is now the most important element in bridging the gap between producers and consumers. It deals with extensive location range, diversified distribution chain, several layers of human intervention and diversity in product type. The ultimate goal is to optimise time and cost to be competitive and maintain customer satisfaction. 

However, the Sector in its current form is a complex puzzle for the industry!

The government defines the country’s logistics sector as highly fragmented. Currently, the sector comprises of four ministries (Railways, Road Transport and Highways, Shipping and Civil Aviation), ~100 Government bodies[1], 10,000⁺ Commodities and 12 million employees. And, the sector operates with several organised and unorganised operators and services providers. Under this complex platform, the Ministry is set to notify a common vision and goal for creating a co-operative environment for the sector. 

The key takeaways from the policyThe much-awaited India Logistics Policy highlights vision to transform India’s Logistics sector into an integrated, seamless, efficient, reliable, cost-effective and technology-driven eco-system and is expected to bring down logistics cost from 14% to 10% of GDP. The key goals and initiatives of the policy are as follows:

Key Focus	Aim of the Policy	Impact
Digitisation	Intervention for time efficiency, real-time tracking and procedural compliances through E-tolling, electronic documentation, digital verification	Developer: Develop digitally compliant spaces with in-house Command Centre Occupiers: Plan for central control over Warehousing and Cargo Movement
E-marketplace	Digital platform for MSME[1] for providing single window certification, transparent price recovery and direct access to consumers barring intermediaries.	Developer: Increased potential customer base from MSME Occupier: Medium /Small investors avail organized space at delivery point
Data Analytics Centre	Online portal to collect, collate and preserve all logistics data in product value chain of India.	Developer: Investment decisions should be more authentic backed by absolute data and in line with the supply chain trend of prospective tenants. Occupier: Big data emerges as an authentic decision making tool to identify best-suited storage point
Ecommerce Logistics	Emphasis on Ecommerc e and 3PL sectors for first/last mile connectivity by strengthening transportation/storage infrastructure, multi modal facilities, standardising logistics chain	Developer: As demand spread to Tier II and Tier III cities, developers can consider taking up speculative positions. Occupier: Bring in efficiency in ca rgo movement and reduced dwell time in interstate movement
Comprehensive Implementation Plan	Dedicated Logistics Wing under Ministry, Integrated National Logistics Action Plan and composite deve lopment plan amongst various Ministries and State Governments	Developer: Sectoral consolidation and demand escalation for organized warehousing Occupier: Enabling environment with increased logistics efficiency and minimizing transit losses
Impetus to Development	International best practices and formation of Centre for Trade Facilitation and Logistics Excellence for removal of bottlenecks  in overall logistics value chain	Developer: Need to develop facilities compliant to handle partial / full automation and robotic technology on infra-logistics front.  Occupier: Easy access to modern technology and compliant real estate assets
Support Infrastructure	New avenues in logistics value chain like coastal shipping, inland waterways, air cargo complex, upgradation of LCS/ ICP, cost effect green logistics	Developer: Alternative investment destination would arise considering alternative cargo handling locations and modes. Occupier: Can consider consolidation of compatible storage locations & spaces by cost analysis
Alternative Funding	Sponsored Logistics Fund for VGF, first/ last mile connectivity, remote area connectivity and Start-up Acceleration Fund for inclusion of modern technology	Developer: Shall might get better external infrastructure for th eir investment destination in the form of last mile connectivity Occupier: Efficient infrastructure and start-ups in this space will facilitate efficient supply chain planning
Warehousing special focus	Promotion of organised and standardised warehousing space with modern facilities and services, are in focus for capacity augmentation.	Developer: Opportunity would open up in specialised storage like agri- cargo storage, cold storage, air cargo etc. Occupier: Possibility of getting ready built spaces with desired specification, conveniently etc.

What is the opportunity?The timing to introduce a National Logistics Policy for the sector is perfect. However, there is a need to implement and work on it. Union Budget 2019-20 laid special focus on the development of Tra nsit Oriented Development (TOD) Zones and waterways for transporting cargo in the country. This will boost multi-modal access in the country.

The development opportunity is huge. India is ranked as the 7^th largest land area and 2^nd highest population base[2] and is one of the fastest-growing economies in the world. India’s Logistics sector currently valued at US$160 billion and is expected to be US$ 215 by 2020[3]. Road and railways are the key mode of transportation, comprising 90% of the total cargo[4] transportation. India has 5.5 million km road network (globally 2^nd largest) and 115,00 km Rail Network (globally 3rd largest).⁵

Considering the global level scale is on its way to 5 trillion economy by 2025[5], the sector requires robust transformation in the transportation system to optimise delivery time, cost and handling time. The sector is gaining its due importance for the last few years due to GST reforms, increasing income base, fast-changing consumption pattern, rapid industrialisation and attract foreign investment.

However, the Policy have its implementation challenges.

There are challenges which are acting as bottlenecks for the sector historically and might be a major hurdle for it to meet the desired goal, , if the prevailing key challenges are not addressed properly: :

·         Unorganised players: Unorganised players dominate the sector. Proba bly a ‘RERA’ like norm applicable to warehousing sector might be beneficial to bring in much needed transparency in the development sector.

·         Poor last mile connectivity: Non-paved road, lack of maintenance, intersections on highways are few bottlenecks. We believe the ‘Sponsored Logistics Fund’ as proposed in the Draft Logistics Policy can be utilized in development of the ‘last mile connections’ to large warehousing / hub locations of importance .

·         Lack of professionalism at human interventions: We believe a setting up training centre / skill upgradation centres in this domain would be helpful in easing out the concerns in this spectrum.

·         Monitoring of Execution of the Policy requires special attention: Special nodal agency should be there to monitor and evaluate the project progress in a time bound manner.

·         Easing out Land Acquisition hurdles: Land acquisition remains the biggest challenge. While the Government has shown proactive steps in the recent Union Budget, to identify land parcels for this purpose, it does not address the concerns around certain local norms like ‘ULCRA’ in West Bengal or ‘Zoning Restrictions’ in Maharashtra which provides significant hindrances for acquisition, aggregation and conversion of land.