Draft National Logistics Policy for Synergistic Progress

The 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.

Logistics 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.

Now, 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

After 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.

This 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

Spread 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.

This 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

Recognising 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).

In 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

Now, 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.