Logistics sector in India Akanksha Sharma, Policy Officer, S&T Samenvatting De Indiase logistieke sector kent een sterke groei vanwege de groei van o.a. retail en food. De sector is zich bewust dat zij nieuwe technologieën moeten ontwikkelen en toepassen om competitief te blijven. Dit besef wordt versterkt doord buitenlandse bedrijven die de Indiase markt betreden. De huidige R&D initiatieven zijn gefragmenteerd en in een beginfase. India groeit naar een geïntegreerd transportsysteem met de daarbij behorende technologische uitdagingen. Deze uitdagingen zijn kansen voor Nederlandse kennis en kunde. Summary Indian logistics sector has witnessed high growth in recent years on account of developments across various sectors such as retail and food & beverage among others. As multinational companies continue to enter Indian market and number of organized players continue to grow, companies have realized the need to keep pace with technology in order to stay competitive and deliver quality services. The current R&D initiatives are fragmented in nature and are still at a nascent stage. As the country progresses towards integrated transport system and faces technological challenges along the way, it will offer numerous opportunities for the Dutch knowledge sector. Introduction The logistics sector in India has today become an area of priority. One prime reason for the gained prominence stems from the fact that years of high growth in the Indian economy have resulted in a significant rise in the volume of freight traffic moved. This large volume of traffic has provided for growth opportunities in all facets of logistics including transportation, warehousing, freight forwarding, express cargo delivery, container services, shipping services etc. The growth path has also meant that there is an increasing need for the sector to provide the solutions required for supporting future growth. Going forward, the strength of logistics sector will be one of major drivers of the pace of future growth of the economy. Various estimates put the market size of the logistics sector in India to be between USD 90-125 billion for the FY 2011-12 1. It is also estimated that the industry employs over 45 million people and is growing at the rate of 15% with sub- sector growing at even 30-40% per annum 2. The Emerging Market Survey 2011, conducted by Transport Intelligence, highlights India s attractiveness as a strong growth area for logistics in the future. The survey found that nearly half of its respondents agreed that India would emerge as a major logistics hub in the future. NOST New Delhi Embassy of the Kingdom of the Netherlands 6/50 F Shantipath, Chanakyapuri, New Delhi 110021 India Ph: +91 11 24197600 delhi@nost-india.org Page 1 of 6
Logistics Flows Three components of India s logistics network account for over two- thirds of total freight traffic flow in the country. The first of the components are the seven long- haul corridors that connect high growth clusters in India. Major locations in the logistics network in India are represented in the map below. Fig 1: Major freight routes in India Source: McKinsey report Freight routes through these corridors witness highest traffic volumes in the country and will continue to do so. These are majorly connected through National Highways and Railways. Over 150 medium distance connectors that link the corridors form the second component of the logistics network. They are 100 to 300 km in length and typically branch out from the corridors. These connectors include rail links and state and national highways as well as major district roads. The final component would be 750 last mile links of up to 100 km, which form a critical component of India s logistics network. These links connect key production, consumption and transit points such as ports, mines and industry clusters to the corridors and connectors. The poor quality of these links or their absence altogether is often the cause of bottlenecks and poor service levels. Page 2 of 6
Sector Dynamics It is estimated that while outsourced logistics account for 54% of total logistics spending in India, organized players have a share of only 10% 3. In road transportation, which accounts for the biggest portion (36%) of logistics spending, 74% of operators are small- time players owning a single vehicle. In outsourced warehousing, 92% of players are from the unorganized sector 4. Even among the organized logistics players, few have offerings across multiple modes (air, water, rail and road) and services (transportation, warehousing and value- added services such as packaging, cold chain and customs clearance). With the advent of multinational companies and growth of organized players in the industry, companies have realized that they need to keep pace with the advances in technology in order to stay competitive and deliver quality services. However, R&D activities in the sector are still fragmented and one does not see any major initiative being taken in this area. The country certainly lacks an institution or a facility dedicated towards logistics research. Government Initiatives Indian Government has been scaling up the investments in Infrastructure regularly including this year s budget (2013-14) in order to cater to the growing logistics demand that is cause by developments across sectors such as retail, food and beverage among others. The logistics industry is gradually seeing changes that are streamlining the logistics value chain. The Delhi Mumbai Industrial Corridor (DMIC) project with an investment of US$ 90 billion aimed at developing an Industrial Zone spanning across six states in India is a major step in the direction. In the 12 th five- year plan for the country, Planning Commission 5 of India has mentioned that Indian logistics industry is witnessing a major transformation over the past decade and this means an increased focus on containerization, and constant technological up- gradation of production. The Commission has suggested that focus needs to be given to integrated transport solutions in preference to individual transportation and distribution services. Some of the initiatives that are being implemented or are on the anvil and are expected to make a significant impact to the state of multimodal logistics in India are: Introduction of National Maritime Development Program (NMDP) with an investment of US$ 9.5 billion to address the challenges of growing international traffic demand of the country and to develop port facilities at par with global standards. Page 3 of 6
Dedicated freight Corridors being implemented will see a major boost in implementation of ICDs/CFS 6. As part of the development of Western Dedicated Freight Corridor (DFC) between Delhi and Mumbai, Indian Railways have proposed development of Freight Logistic Parks at six locations to enhance rail based traffic along the DFC 7. Introduction of the uniform Goods and Services Tax (GST) to remove differential state- level taxes. This will free the decisions on warehousing and distribution from tax considerations and decisions will be based purely upon operational and logistics efficiency. The GST regime will usher in the emergence of the organized service providers since taxes will no longer be added costs for the businesses. Recently proposed Amritsar- Delhi- Kolkata Industrial Corridor (ADKIC), that seeks to promote industrialization spanning seven States. The estimated funding for the project is around US$ 958 million for building an Integrated Manufacturing Cluster in each State it passes through. The industrial corridor is expected to upsurge demand for logistics. Cold Chain Cold Chain is a critical component of the logistics chain in order to preserve perishable items and normally consists of pre- cooling facilities, cold storages, refrigerated carriers and warehousing. The total cold chain market in India is worth USD 475 million, of which the biggest chunks are emerging segments including ready- to- cook, ready- to- eat and ready- to- serve foods, followed by the ice- cream industry. It is estimated that India s current cold chain capacity is around 32 million tons, of which 80% is for potato while less than 1% is for other fruits and vegetables. A recent study by ASSOCHAM states that India s post- harvest fruit and vegetable loss is over USD 30 billion annually, owing to inadequate cold storage and processing facilities. The same study also says that an additional 35-40 million tons of capacity is required for fruits and vegetables alone. The area has garnered significant attention form the Government and has been declared as a thrust area by the Planning Commission in its 12 th five- year plan. Some of the favorable Government policies in this area have been listed below: Viability Gap Funding 8 scheme of GoI applicable to cold chain infrastructure 100% FDI permitted Relaxation on customs and excise duty on cold storage conveyor belts and refrigeration panels National Centre for Cold Chain Development has been established to address technical issues Page 4 of 6
Role of Technology Technology plays a crucial role in logistics. With the entry of multi- nationals, doubled with growth noticed across various industries in India there has been an ever- growing demand for smart logistics and efficient supply chain management. Technology adoption in the logistics industry in India has however been relatively low, especially when compared with the global standards. While acceptance is perhaps not an issue any more, automation in processes is still at a nascent stage. With Information Technology sector evolving in India, many IT companies have developed products and solutions, which can be implemented in logistics companies. IT solutions in the form of Information Management Systems (IMS) find their applications in logistics companies, standardizing the processes across supply chain thereby making them efficient. The growth in Indian telecom industry can also be used to the advantage of logistics sector, with the country having more than 900 million active mobile phone users. In a country as vast as India, mobile phone applications can be effectively used to connect various decentralized areas. Many Indian companies are in the process of adopting or have already adopted identification technologies, like barcoding and radio frequency identification (RFID); proper data acquisition technologies like optical scanning, electronic notepads, voice recognition and robotics for information management and control. These available technologies save a lot of time and money in foot printing and tracing of products or shipments. The concept of Cloud Computing has rapidly picked up in the recent years. The top logistics firms, manufacturers and distributors have already invested in this technology. Apart from these, technologies like GPS, ERP systems and of course, mobile technology have helped the sector grow in recent times. Currently, logistics companies are either importing these systems from abroad or are sourcing them locally. Despite being a shared service and not contributing directly to the revenues of a company, investments in technology reap benefits indirectly. For the multimodal transport to evolve in the country, it is highly essential that the companies make investments in technology up gradation and focus on innovation. The strengths of the Dutch Logistics sector, in terms of its knowledge, would be very beneficial for the Indian logistics sector to evolve and meet the growing demand, both in the coming future as well as in the long run. Page 5 of 6
Opportunities for Dutch Knowledge The Netherlands plays a leading role in European transport and logistics and is also considered the gateway to Europe. With some of the biggest ports and an evolved network of inland waterways together with deep knowledge of logistics, the Netherlands is well equipped to address the complexities of the Indian market, be it in the form of size, topography or with limited access to technology in the rural areas. As noted above, the Government has already taken several initiatives and the private sector is in the process of developing intermodal/multimodal transport services. Delhi- Mumbai industrial corridor where work has already commenced and the recently announced Amritsar- Kolkata corridor present various possibilities that need to be explored. Indian companies are realizing the importance of investing in technology and are making efforts to match the quality of services being delivered by multinationals. With India s advancement in the ICT sector, it is also a key area for the Dutch to explore. [streamer] Going forward, the strength of logistics sector will be one of major drivers of the pace of future growth of the economy References: 1. Deloitte report on Logistics sector in India, 2012 2. Source same as above 3. Knowledge Paper on Multimodal Logistics in India by PHD Chamber of Commerce, New Delhi and EBTC 4. Source same as no. 3 5. Planning Commission is a prestigious institution in the Government of India, which formulates India's Five- Year Plans, among other functions 6. An Inland Container Depot (ICD) also referred to as Dry Ports are an effective way for handling and temporary storage of containerized cargo as well as empty containers. They are usually located where different modes of transport networks intersect, thereby reducing cost and time. 7. These locations include Navi Mumbai, Vapi, Ahmedabad, Gandhidham, Jaipur and the National Capital Region of Delhi 8. Viability Gap Funding means a grant one- time provided by the Public Sector (Central Government / State Government) for Financial Support to PPPs in Infrastructure, with the objective of making a project commercially viable. Page 6 of 6