Reforms Required To Improve India’s Logistics System

Abstract 

India’s logistics industry plays a crucial role in the country’s economic growth, providing the backbone for the transportation and distribution of goods. However, this industry faces significant challenges, including inefficiencies, high costs and many more. To address these issues, Prime Minister Narendra Modi unveiled the National Logistics Policy, aimed at reducing logistics costs from 14% of GDP to around 8% and aligning India’s logistics sector with global standards. The key focus of this plan is digitization and the creation of a centralized platform to streamline logistics operations. This policy paper outlines the objectives, strategies, and challenges associated with the National Logistics Plan, emphasizing the need for complementary infrastructure development to achieve its goals.

Introduction 

India spends around 14% of its GDP on logistics costs and is in desperate need of reducing the cost to a global benchmark of 8-10% to meet the needs of the stakeholders and international companies. According to the World Bank Logistics Index of 2022, India is ranked 38th in logistics cost which is a significant improvement from its previous ranking of 44th in 2018 and 54th in 2014. Logistics management is an area of research that has been getting increasing attention from academicians and practitioners over the last two decades since it leads to reduced operational costs, improved delivery performance and increased customer satisfaction levels, thereby making an organization more competitive in terms of cost, quality, delivery and flexibility. The logistics sector serves as the linchpin of India’s international trade, facilitating the diversification of exports and bolstering the manufacturing of products. Changing government policies on taxation and regulation of service providers is going to play an important role in this process. The paper discusses about the current Indian scenario of logistics in India, problems faced by each sector, the policy introduced to tackle all these challenges and some suggestions to improve its implementation based on learnings from other countries.

Indian Scenario: Current Scenario

Logistics is the backbone of the economy, ensuring the efficient and cost-effective flow of goods.  It thrives on the foundation laid by other sectors of the country, and India’s logistics industry is poised for exponential growth. Orchestrated by the symphony of infrastructure, technology, and innovative service providers, the logistics industry can empower businesses to optimize logistics costs and deliver exceptional service. The Indian logistics industry is expected to reach $563 billion by 2030, growing at a compound annual growth rate (CAGR) of 9.4%.

Despite economic challenges, with the right investments and policies the logistics and warehousing industry continues to thrive, buoyed by the growth of retail, e-commerce, and manufacturing logistics.

Problems in the Indian Logistics System

The reality of Indian logistics system is a critical nightmare for Indian businesses despite it being a critical pillar of our Indian economy. The logistics sector which appears to be highly unorganized, according to the government, there is a lot of complexity in the sector with more than 20 government agencies, 37 export promotion councils, and 500 certifications which results in delays in the services provided by the various industries.

Looking at the transporting per metric ton Kilometer Cost difference between different modes of logistics in 2021:

Figure 1.

It costs around ₹18 per metric ton per kilometre by Airways. By Road is ₹3.6 and Rail is by far the most economical mode of transport with just ₹1.6 per metric ton per kilometre (Figure 1). Looking at the statistics, it should be clear that the majority of goods are transported by rail. But the truth is around 71% of goods are transported by road and only 17.5% of goods are by rail and only a small segment of goods are transported by waterways (Figure 2). This is because the Indian government don’t have enough rails or trains to cater to the demand for the quantity of goods being transported in India. Here’s some data, The Indian Railways transported more than 1.29 billion tonnes of freight in 2022, up from 1.21 billion tonnes in 2021, this is a 6.6% increase; nonetheless, despite the increase in freight traffic, there was a backlog of almost 18 million tonnes of freight to be transported in 2022. Adding to this, the Indian Railways’ freight utilization ratio was 95% (means that the Indian Railways was using 95% of its capacity to transport freight). The freight utilization ratio is a key indicator of the efficiency of a railway system. A high freight utilization ratio suggests that the system is operating at close to its capacity, which can lead to congestion and delays. The Indian Railways’ freight utilization ratio has been increasing in recent years, which puts additional strain on the system. In order to improve the efficiency of the Indian Railways and reduce the freight utilization ratio, the government needs to invest in new infrastructure and is in need of new rail lines. According to a study by the IR Board, India will need to build an additional 20,000 kilometers of rail track by 2025. Secondly, both passenger and good trains in India run on the same track with the passenger trains being given more preference over the good train which delays freight good train by 3 to 4 days to reach it’s destination. Like this major reforms are required in each sector of logistics for the growth of this industry.

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