Indian Economy & Policy
| August 01
Draft National Logistics
Policy for Synergistic Progress
biggest bottlenecks that plague the agri-commodities sector in India are insufficient
formal sector finance and inadequate logistics (which encompasses storage).
While the Government is doing all it can to professionalize this space, a shot
in the arm to logistics in India, coupled with a technology booster, will make
the entire agri-commodity value chain more robust and help to completely
redefine the fate of the sector. And with the
announcement of the Draft National Logistics Policy, we are hopeful that this
logistics overhaul is around the corner.
plays a crucial role in various spheres of economic growth. As a facilitator of
better distribution of goods and services, it could reduce the component of
inflation that is triggered by shortages. It could also result in more
efficient pricing of goods and minimize wastages, especially of perishable
commodities such as agricultural produce.
unfortunately, India has a long way to go in terms of achieving efficient
logistics. Although this segment is a key economic driver, it is plagued by
inefficiencies which culminate in high costs. As a result, according to various
official sources, logistics costs in India amount to as much as 13%-14%
compared to 8%-10% of GDP for global counterparts. The good news is that the
government is committed to bringing down this cost to 9% of GDP by 2022, with
the help of a Draft National Logistics Policy.
Setting the Goal
the Ministry of Commerce and Industry (Logistics Division) released the Draft
National Logistics Policy on February 5th 2019, they announced an ambitious plan to not only
bring down the cost to GDP but more importantly, to make India a logistics hub.
draft policy has been crafted in consultation with the Ministries of Railways,
Road Transport and Highways, Shipping and Civil Aviation, with consideration
and inputs from 46 Partnering Government Agencies (PGAs) with the primary aim of
enabling integrated development of the logistics sector in India.
A Quick Recap
over 3.287 million square kms, India comprises of numerous far flung
villages, beyond tier 1 and 2 towns and metros. As the locations of industries
and agricultural produce and markets have emerged largely through organic
tradition, rather than strategic plans, logistics plays an important role. Yet
it is largely unorganised in nature and has a highly skewed multi-modal mix in
favour of road transportation. It is estimated that in India around 60% of
freight movement takes place by road. This is significantly higher than that of
most developed economies, where the share of rail cargo is much higher.
anomaly is compounded by the fact that numerous departments and ministries
manage different parts of the logistics value chain. Further, until recently,
warehousing, which constitutes anywhere between 15–35% of the total logistics
costs, was completely inadequate and became another weak link in the smooth
functioning of supply chain networks.
The Policy Aims and Targets
the importance of the logistic sector, the Centre began to address constraints
that it faces, but in parts. In 2017, the logistics and warehousing industry
received infrastructure status. Then, the Centre advocated an independent
policy framework for the sector in the form of the Draft National Logistics
Policy. Once the final policy is constructed, it will be debated and proposed
as a national act with a common outlook. It can then serve as a single point of
reference for all states and offer guidelines for states to lay down their
respective policies. The policy is also aimed at driving logistics cost as a percent
of GDP down from current levels by optimizing the modal mix, amongst other
efficiencies. It also seeks to improve first mile and last mile connectivity
and increased digitization and technology adoption while ensuring
standardization in logistics. While there have already been initiatives to creating
a national logistics e-market, the policy seeks to speed up the pace and
efficacy of these initiatives. The end game is to improve India’s ranking in
the World Bank’s Logistics Performance Index to between 25 – 30 from 44 in the
July 2018 ranking (rankings are published by the World Bank every two years).
terms of funding provisions and focus areas, the draft proposes the setting up
of a non-lapsable logistics fund. It also suggests a reduction in logistics
costs through innovations like RORO on flat rail wagons and promotion of the ‘farm
to plate’ concept for start-ups. The policy draft also outlines the roles of
the various stakeholders and a model for expeditedclearances on the lines of
PARIVESH by MoEF.
The Road Ahead
based on the draft under consideration, the Commerce and Industry Ministry
intends to formulate the logistics policy. If rightly implemented, it would
benefit India on various fronts – enhance our trade competitiveness, create
more jobs, attract more funding and business ventures into the country and,
most importantly, reduce prices, shortages and wastage. Most importantly, this
move could increase productivity in the agri-commodities sector, and contribute
substantially to the government’s mission to double farm incomes by 2022. And if
all goes as planned, we could see our global rankings move up and India could become
a futuristic logistics hub too.