Logistics: Key to India’s economic success
• In the post-globalization era, more and more countries have become enmeshed in the global supply chain. To be properly enmeshed in this international network, a robust logistics sector has a crucial role.
• India’s logistics industry has lagged behind its international counterparts evident in its low rank of 44 on the World Bank’s Logistics Performance Index in 2018 versus counterparts like China (26), Thailand (32), Vietnam (39) and Malaysia (41).
• This is due to the fact that the sector faces numerous challenges like regulatory hurdles, skill gaps and infrastructural deficiencies.
• A more systematic infrastructure planning that enables coordination between various stakeholders, coupled with an improvement in operations are imperative to fuel the sector’s development and fast track the country’s development.
“The world is a global village,” so goes the popular adage; and nowhere is this notion more applicable than in the field of economics. Ever since the world embraced itself with the idea of globalization, more and more countries became enmeshed in the global supply chain network. This is even more relevant today, as an array of corporate honchos are exploring newer markets as an aftermath of the US-China trade war.
It is interesting to note that while India has performed consistently well on several economic parameters like the Ease of Doing Business Report, jumping 14 spots from 77th position last year to 63rd rank this time around, it is still outmaneuvered by other developing nations like Thailand & Vietnam as a preferred investment destination. This is, in part, to do with the overtures being made by countries like Thailand through a string of investor-friendly packages. But a number of intrinsic factors in India also play a role; and one of them that comes up often in discussions is logistics.
This is a serious issue for any economy since the contribution of logistics cannot be underestimated. According to the findings of Economic Survey 2018, the country’s logistics industry is expected to touch US$ 215 billion by 2020, growing at a CAGR of 10.5%. Further, it provides employment to more than 22 million people. Finally, apart from increasing trade, a robust logistics network will also augment programmes like Make in India, and also enable India to become an important part of the global supply chain.
What has prevented logistics from being the driver of the Indian economy’s growth is the fact that this sector is mired by a repertoire of challenges. This is quite evident when one looks at India’s performance in the Logistics Performance Index calibrated by the World Bank in 2016 (35) versus its performance in 2018 (44). The country’s lackadaisical performance becomes even more apparent when seen in comparison to some of the other developing countries – China (26), Thailand (32), South Africa (33), Vietnam (39) and Malaysia (41).
Source: World Bank
One of the major challenges confronting the Indian economy is the lack of proper infrastructure across the country. Businesses lament about inadequate and low-quality modal and terminal transport infrastructure, inefficient and ill-designed storage facilities for cargo and containers and unproductive operational and maintenance protocols, lack of end-to-end connectivity and poor adoption/adaptation of technology.
The fact that all’s not well with India’s infrastructure sector is also corroborated by the fact that core sector growth (which measures the output of eight major infrastructure sectors of the economy), entered negative territory for the first time in over four years in August’19, as five out of the eight sectors constituting the index shrank in size. This escalates the costs and inconveniences involved in the supply chain network.
Apart from this, there’s also the challenge of a skills gap, which mars the sector. Logistics companies are plagued by inadequate organizational skills, weak leadership qualities at the mid-tier and managerial levels & inadequate working conditions. Moreover, there are limited institutes for soft skills, and operational and technical training.
Arun Goyal, Director, CTC Freight Carriers Pvt Ltd, elaborates:
We do not have till date any such mechanism to hire fully trained drivers, certified by any institutes or government agency about their credentials etc., We do hire Drivers (who are most important part of this industry) from mouth to mouth publicity and just with a hope that the person whom we are hiring is well qualified and expert in his job.
The third major challenge crippling the performance of this sector is the lack of full-scale adoption of new age digital technologies like IoT, Big Data Analytics and AI. Albeit according to IDG’s 2018 State of Digital Business Transformation report, 89% of enterprises have plans to adopt a digital-first business strategy, only 38% of traditional enterprises have one. As a result, the country’s logistics ecosystem is fraught with grave operational inefficiencies.
Understanding the crucial role of this sector, the government is aiming to reduce logistics cost to less than 10% of GDP by 2022. A National Logistics Portal is also being developed by the Ministry of Commerce and Industry to facilitate ease of trading in the international and domestic markets. The creation of a dedicated Department of Logistics and constructive dialogue between the public and private sectors is another welcome move. . The Eastern and Western Dedicated Freight corridors, once complete, will also be a major boost to the sector’s performance. Further, Goods and Services Tax (GST) is set to boost the efficient movement of cargo within the country as this movement can now respond to purely economic considerations.
But transformation of the logistics industry is incomplete without a more holistic outlook towards planning, coordination and efficiency. Better infrastructure planning creates the need for a National Logistics Policy in India. Malaysia, for example, developed a National Logistics Plan 2006-20, which focused on goals like intensifying the application of new ICT in the industry and ensuring an adequate supply of competent workforce to meet the long term requirements of the industry. It also involves strengthening the institutional support through inter-ministry and agency coordination in the planning, implementation and monitoring of policies and measures affecting the industry. The policy is also clamorous for facilitating coordination among numerous stakeholders and transforming the sector a ‘point-to-point’ to a ‘hub- and-spoke’ model.
From service providers to consumers, everyone needs to be on the same page. At the same time, we need multi-modal transportation to bring about the smoother transformation of the sector. Technology is another essential element is facilitating integration, as a vehicle to enhance the overall effectiveness and efficiency of the logistics system. As NITI Aayog states in its September ’18 report titled Goods on the Move, “A digitized platform to integrate supply chain, right from demand forecasting to load consolidation and truck routing and dispatch scheduling, can reduce the delivery time and costs.”
Thus, be it tracking shipment, automation or online documentation, technology makes a lot of things easily accessible and assessable for stakeholders and reduces a lot of transaction time.
Dr. V. Sivakumar, Associate Professor, Department of Logistics Management, Alagappa University, tells TPCI:
Digital technology is the key for making logistics sector more profitable. It is not adopted by many existing logistics players. The foremost reason is cost and I am of the view that the Government may think of providing a soft loan for this or encourage the players to adopt digital environment.
Countries like Germany, Singapore, Hong Kong and US, which possess more sophisticated logistics networks have showcased how digital transformation has benefited their entire logistics value chain, including warehousing operations, freight transportation, and last-mile delivery. For example, Germany’s Port of Hamburg uses ‘smartPort Logistics’ technology platform for predictive and preventive maintenance.
In case of India, big data can be employed for things like improving demand projections and reducing safety stock holdings; digitization of blocks and signals in the rail network and using electric vehicles in transportation systems. Similarly, technologies like cloud computing can help the Indian logistics sector by optimizing asset utilisation and enabling storage and easy access of data.
To sum up, India’s success and economic growth in the future is heavily dependent on the evolution of its logistics sector. This is essential not only for generating employment or providing broad social benefits to farmers and low-income workers, but also for competing with the rest of the world in terms of last mile connectivity, efficient transportation, time of delivery, etc. This will give an overall boost to India’s image as an attractive investment destination and facilitate India’s manufacturing export performance.