Logistics can be defined as the art of getting goods and people from point A to point B, at least cost in the least time with the maximum efficiency. India has always lagged in this respect. The National Logistics Policy (NLP), which was formally launched on September 17, 2022, targets removing the frictions that lead to unacceptably high costs and delays.
It used to be the case that the fastest way to get a shipment from Bengaluru to Mumbai was to send the consignment to Chennai in the opposite direction, ship it from there to Colombo, Sri Lanka, and then transship it from Colombo to Mumbai. This was not due to the lack of road or rail connections; it was because of long holdups at state borders and at octroi posts around Mumbai. Similar problems arose at other state borders.
While the red tape has improved somewhat and the roads are better, the transport of goods still involves excessive red tape and delays, adding substantially to logistics costs. By some measures, India’s logistics costs can go as high as 13-14 per cent of the GDP – and this is at least double the cost compared to other large economies. If the costs can be reduced, along with fewer delays (which add to costs and reduce downstream competitiveness), both the domestic economy and the export-oriented sectors would benefit hugely.
Imparting efficiency to logistics can be a very complex and long-drawn process. It involves the improvement of physical infrastructure, as in road, rail, port and airport capacity and interconnectivity. It involves the creation of digital infrastructure to streamline and integrate regulatory processes. It involves the review of regulations to ease red tape, and eliminate redundant and conflicting rules. Each of these tasks, in turn, requires the coordination of multiple government agencies, at both the central and state levels.
The sector is regulated by over 20 government agencies, 40 partner government agencies, 37 export promotion councils, 500 certifications, etc. The present market size of the logistics sector is $160 billion-equivalent and it provides employment for around 22 million people. It is estimated that efficiency improvements across logistics could translate into a 10 per cent decrease in indirect logistics costs and help increase export growth by 5-8 per cent.
The NLP has to take all these variables into account in order to be effective. The NLP comes with a Comprehensive Logistics Action Plan (CLAP), which details specific targets. According to the latest available World Bank Logistics Index of 2018, India ranked 44th in logistics costs, whereas countries such as China and Vietnam were at the 26th and 39th positions respectively. The CLAP targets reducing India’s logistics costs to be comparable to global benchmarks by 2030, and it aims to be among the top 25 countries by 2030 on the Logistics Performance Index.
The structure and allocation of responsibilities and tasks in the NLP are as follows:
- The focus areas include the Integration of Digital Systems (IDS), Unified Logistics Interface Platform (ULIP), Ease of Logistics (ELOG) and System Improvement Group (SIG).
- IDS will integrate 30 different systems of seven different departments such as customs, aviation, road transport, railways, international trade and commerce.
- ULIP aims to ensure continuous monitoring of cargo movement.
- ELOG will seek to simplify procedures and achieve ease of doing business.
- SIG will monitor all projects relating to logistics on a regular basis and ensure the removal of hurdles faced in the sector.
- An empowered group of secretaries has been constituted under PM Gati Shakti to monitor and review the implementation of the NLP.
While formally inaugurating the policy, the prime minister asserted that the PM Gati Shakti National Master Plan will be designed to support the policy.
The NLP will work through a network planning group (NPG), which will work with the SIG to improve coordination across ministries, and between the centre and state bodies. The NPG will include members from the ministries of railways; road, transport and highways; ports, shipping and waterways; civil aviation; petroleum and natural gas; and power, and new and renewable energy; and the Department of Telecommunications. The SIG will include members of the NPG and also members from the Ministry of Housing and Urban Affairs, Department of Revenue (CBIC and GSTN), Department of Commerce, DPIIT and any other co-opted members.
It will be the task of the SIG to advise the government on changes in existing laws and processes in order to improve cargo movement. The SIG will also submit reports and recommendations suggesting areas of intervention to the concerned ministries and will coordinate with the state governments to improve ease of cargo movement across states. The SIG will also carry out an annual exercise of creating a Logistics Ease Across Different States Performance Index to help states and union territories track and improve their performance. It will prepare a comprehensive annual state engagement report covering the above aspects.
ULIP will integrate all the digital services relating to the transportation sector on a single portal, thus reducing the long and cumbersome process of paperwork, which could be of special help to exporters. A new digital platform, the Ease of logistics Services or e-logs has also been launched to enable industry associations to directly approach government agencies on any matters that are causing specific problems in operations and performance. A system has been put in place for speedy resolution of such cases.
Apart from tightening supply chains for industries, the NLP could facilitate a modal shift in logistics. There is currently an overdependence on roads (over 60 per cent share of traffic currently as against 25 per cent globally). Some of this traffic should ideally shift to the railways (30 per cent share currently against around 60 per cent globally) and to waterways, which currently has only 5 per cent share in the modal mix. Efficient logistics should automatically result in gains in terms of reduced warehousing costs and easier inventory management. As the sector formalises, it would also create new employment opportunities.
Part of the NLP, in fact, consists of building upon a process of digitalisation and technology adoption that has already started. (The intention to draft an NLP was announced in the 2020-21 budget, although it has been given formal shape and been introduced only in September 2022.)
The PM Gati Shakti National Master Plan, which was launched last year, has already made a positive difference and it will tie in with this broader initiative. Notably, the government has introduced measures such as paperless EXIM trade processes through e-sanchit, faceless assessment for customs, provisions for e-way bills and FASTag. These have already resulted in increased efficiency. Integrating these, and adding to the digital provisions in a way that ensures all the agencies and ministries mentioned above work on a single standardised platform or compatible platforms, will be a big boon for all stakeholders.
An integrated digital logistics system as envisaged will help streamline processes and reduce red tape. It could accelerate growth rates in the small and medium enterprise and micro, small and medium enterprise segments and that, in turn, would generate employment. Exporters will heave a sigh of relief if their products can be delivered faster and more cheaply.
Digitalising and maintaining compatible standards will involve integrating the varying digital systems of different departments such as road transport, railways, customs, aviation, foreign trade and commerce. ULIP will also allow for information exchange on a real-time basis in a confidential manner. In addition, the NLP must ensure that this works with the already functional Logistics Data Bank Project of the National Industrial Corridor Development Corporation and the newly created Logistics Division in the Ministry of Commerce. ELOG’s attempt to simplify the rules will also have to be taken into account. The SIG has the key role of monitoring all this.
On the physical side of things, both road and rail networks are being upgraded at a reasonable pace. Physical constraints due to poor roads or overloaded rail networks are being tackled through the Bharatmala programme, which is building over 80,000 km of new national highways, and various state road building and highway schemes. The railways have also continued to create capacity on the Dedicated Freight corridors, which is critically important when it
comes to moving bulk freight across the country. Sagarmala is another ambitious attempt to network India’s vast coastal resources by setting up a string of seaports, each with appropriate connectivity to the hinterland. More than that, it will also attempt to exploit the 14,000 km of navigable inland waterways, which could prove to be a valuable adjunct to move bulk shipments.
On the legislative side, there are plans to overhaul the Multimodal Transportation of Goods Act, 1993 and replace it with a National Logistics Efficiency and Advancement Predictability and Safety Act. But the details of this will have to be worked out.
At the launch of the policy, the prime minister remarked that a cost reduction in logistics is low-hanging fruit. Indeed, there could be rapid efficiency gains from the NLP, which would, in turn, lead to improved efficiencies across manufacturing and commerce, and create employment both in the logistics sector itself as well as downstream in industries where better logistics enable faster growth.
Devangshu Datta