Backbone Of A Nation’s Development
In the globally interlinked, or rather intertwined, society that we live in, supply chain efficiencies can be a matter of life or death for an economy. Just as we saw during the Covid lockdown, the ability to move cargo as much as the population, is a civilisational prerogative. It is also an economic compulsion in the geopolitically sensitive times we are in. Historically kings and emperors had showed the way to use waterways, much before roadways. They had even conducted global trade, using the power of the solar system, the seas, and human ingenuity.
The modern variant of this is the adaptation of digital, policy, trade and commerce. It is also one of the increasingly complex web of interactions between people, businesses, governments, scattered supply chains across countries and regions, and even in smaller geographic units. Competing in the modern day global trade needs efficient connectivity along roads, rail, sky and sea, and also in technology and digital, financial services and telecommunications. Supply chains have a huge impact on the way economies shape up, the way nations are built, and importantly, on how human behaviours are shaped. Imagine, how the world would have been impacted by a shortage in the Covid vaccine! We saw how we suffered and behaved when we had a shortage of oxygen tents and hospital beds. It comes down to the humble unseen unsung supply chain!
Atmanirbharta has been a clarion call for domestic resurgence of product making capabilities, as well as service delivery. It has had resounding scale efforts, as well as trade growth. It has set in smooth motion the nationalist pride of domestic manufacturers. For products manufactured in India to have acceptance, and significance of market share, a stable and scalable support system is necessary. This is where the National Logistics Policy (NLP) will help in strengthening the Indian supply chain sector, especially in the logistics space. A stronger logistics sector will not only aid economic activities, but also add to the quality of citizenry, enabling it to live better. It also has the potential to add to improved infrastructure development, additional jobs creation and helping smaller and regional businesses to start serving clients nationally.
*Indian Supply Chain 2.0
The World Bank’s Logistics Performance Index (LPI) measures how well countries connect to international logistics networks. It helps countries identify ways to improve their trade logistics performance. India is placed 44th in rank with Germany at the top. Japan, the United States, the United Kingdom and China are placed fifth, 14th, ninth and 26th respectively in the 2018 World Bank Logistics Index for logistics costs.
It is obvious that India must drastically cut its logistics costs to improve the competitiveness of its exports and domestic products. With reduced costs of logistics, it can be a catalytic play in improving domestic entrepreneurship. Currently India spends 13 per cent to 14 per cent of its GDP on logistics costs. Germany and Japan, both known for their manufacturing and export prowess, spend only around eight per cent of their GDP on logistics.
Data from the ministerial releases indicate that the Indian logistics industry is worth $200 billion and is supported by over 20 government agencies, 40 Partner Government Agencies (PGA), 37 export promotion councils and 500 certifications. It also includes 50 IT ecosystems, banks and insurance companies, together with 200 shipping companies, 36 logistics services, 129 inland container depots (ICD), and 166 container freight stations (CFS). This industry provides livelihood to over 22 million people. It has been estimated that a 10 per cent reduction in indirect logistics costs would increase exports by five to eight per cent.
*Efforts bearing fruits
Looking back a decade at the then condition of India’s transport and logistics poses a scary picture. It was a nightmarish and expensive proposition to move goods within the country. The red tapism, cumbersome paperwork, many being random jurisdictional issues, multiple regulatory and official checkpoints, poor infrastructure and long queues at interstate borders was just normal. No wonder India’s trucks ended up spending two-thirds of their life waiting on the road! India had one of the lowest average speeds (20-40 kmph) and lowest distance covered in a day (250-400 km), compared to developed countries (60-80 kmph and 700-800 km per day, respectively).
The National Logistics Policy has been shaped with eight years of research, dialogues and policy formation. It is not a stand-alone policy in the sense that it does not ignore the previous ones. It integrates multiple policies that impact the supply chain sector and brings in simplicity.
Schemes like Sagarmala and Bharatmala helped the work of the Dedicated Freight Corridors (DFCs) to improve logistical connectivity for systematic infrastructure development. For example, the total capacity of Indian ports has increased and the average turnaround time of container vessels has come down from 44 hours to 26 hours. For promoting exports, 40 air cargo terminals have been constructed. Thirty airports have been equipped with cold-storage facilities and 35 multimodal hubs are being developed.
Waterways are being built for eco-friendly water transportation. Sixty airports have the facility of Krishi Udan. The market has already moved to a paperless EXIM trade process through e-sanchit, faceless assessment for customs, provisions for e-way bills and FASTag. Change in drone policy and linking it to the PLI scheme helps the adoption of drones in the logistics space. It is expected that the National Logistics Policy will improve India’s ability to be a logistics hub for the world and to improve its standing in international rankings. But we have some more distance to cover before we can rejoice.
*Goals and process
The goal of the National Logistics Policy is to lower the cost of logistics from its 14 per cent of GDP currently to around eight per cent by 2030. This is an audacious goal, considering the fragmented shape of the logistics industry.
The National Logistics Policy 2022 will establish a single-window e-logistics market and assist in skills development, improving MSMEs and improving market and export competitiveness. It also establishes a broad, multi-jurisdictional, cross-sectoral framework for the growth of the entire logistics ecosystem in an effort to address concerns of high cost and inefficiency.
The government has also launched the Unified Logistics Interface Platform (ULIP) that will bring all the digital services related to the transportation sector into a single portal. This eases exporters from paperwork and delays in tracking them.
The government has also launched a new digital platform – the Ease of Logistics Services (e-logs) – through which industry associations can discuss issues with various governmental departments. A system has also been developed for speedy resolution of issues and grievances.
The various mechanisms and benefits of the NLP 2022 include:
Integrated Digital Logistics Systems:It will create a system of unified logistics interface to connect various data sources and to provide cross-sector use cases for stakeholders.
Standardisation of physical assets and benchmarking of service quality standards: With this, one can aim to increase interoperability, reduce handling risks, optimise processes and improve handling efficiency.
Logistics Human Resources Development and Capacity Building: Work on skill development and internal capacity building in the entire value chain.
State Engagement:Can help in speeding up the infrastructure as well as in setting up institutional frameworks. This can help in measuring and ranking various stakeholders as a performance feedback.
Facilitation of Development of Logistics Parks:Logistics parks, such as multi-modal logistics parks, air freight stations, inland container depots, container freight stations, cargo terminals, etc., serve as hubs for supply chain intermediary operations, including storage, handling, value addition, inter-modal transfers, etc. that are connected by a transportation network.
Service Improvement framework:Enhancing the regulatory interface to encourage standardisation, formalisation and interoperability.
Sectoral Plan for Efficient Logistics:In accordance with PM GatiShakti, Sectoral Plans for Efficient Logistics (SPEL) will be created for each sector, with the underlying principles of interoperability, resiliency, sustainability, and innovation. Infrastructure, process, digital advancements, policy and regulatory reforms, capacity building for a better workforce and logistics-related challenges would all be addressed by SPEL.
*Challenges of execution
For any ambitious multi-nodal, multi-party large scale policy impetus, execution capability within time and cost is a big worry. Having inefficient or inadequate systems of transportation, logistics, and trade-related infrastructure can severely impede a country’s ability to compete on a global scale. To achieve this efficiently, all implementational challenges including the operational ones and the Human Resources related ones have to be dealt with capably.
The other concern is that there are no uniform acceptable standards of pricing in the industry, as different operators charge different prices. There is a need to explore benchmark pricing policies while giving enough flexibility.
In addition, fleet upgradation is a need. Most of the current fleet are old and can cater to only a few specific types of cargo. However, investing in newer fleet models that are green and can carry multiple types of goods will help the industry gather better global business. In this aspect, the government can help with incentives and subsidies to encourage industry investment.
At a time when India has already announced its Net Zero objectives, it would be appropriate for the logistics sector to think of its own carbon footprint. Primarily the Indian industry is heavily dependent on roads, and the transportation sector is one of the leading contributors to global carbon emissions. Niti Aayog in its report ‘Transforming Trucking in India’had projected that adoption of zero emission trucks could result in savings of over $1.5 trillion by 2050. This would also make it important for the sector to think about its entire supply chain networks and work toward transforming itself to be green. This would need redesigning modes of transport, efficient consolidation of freight, greener and smart warehouses which help in data-enabled decisioning, as well as optimisation.
If we look at our investments in the national air cargo capacity, it’s is very low. Similarly, for a nation that has a vast coastline, we don’t have an Indian flag carrying shipping line that can match up to global standards, in terms of recognisable capacity – either tonnage, TEUs (twenty foot equivalent units) or routes. Our foreign trade competitiveness could be at times hampered by freight costs and even availability of cargo liners. This can be solved only when the Indian owned capacity across freight movement can happen. We need to enhance national capacity to counter foreign operators. Using our Atmanirbharta philosophy in this situation, we must improve both air cargo investments, as well as in Indian shipping lines.
The National Logistics Policy can lead to greater integration of India into global value chains, higher share in international trade, higher employment and accelerated economic growth.
The author is a Corporate Advisor & Independent markets commentator
@ssmumbai
