India’s logistics sector is experiencing double-digit growth but faces numerous challenges

The logistics sector in India is expected to grow in double digits by 2025, reaching $350 billion. The value of India’s logistics sector was US$250 billion in 2021. With an impressive annual growth rate of 10–12 percent, it could reach $350 billion by 2025.

The sector is a very important source of job creation, employing 22 million people in 2022, with the number of people employed expected to increase by 5 percent over the next five years. This was revealed in a concept paper by GS1 India, a standards body under the auspices of the Indian Ministry of Trade and Industry, in collaboration with top trade organizations and key government agencies.

The concept paper also mentions the critical challenges facing the Indian logistics sector and the potential for improvement and growth. According to the paper, India currently spends 13-14 percent of its GDP on logistics costs, compared to the world average of around 8 percent of GDP. This has created a competitive gap of $180 billion in 2020 that will widen to $500 billion by 2030. India ranked 42nd in the Logistics Performance Index (LPI) for 2018, well behind its international peers such as Germany, UK, Japan, Austria, China and the United States.

The paper points out that despite the growth and potential, the country’s logistics sector faces numerous challenges. Logistics costs in India account for 14 percent of GDP, with 60 percent direct costs and 40 percent indirect costs, compared to an average of 10 percent indirect costs in developed countries. Logistics companies in India are also facing challenges as a lack of transparency among trading partners and consumers leads to supply disruptions and delays in the value chain. Additionally, India is still in the early stages of process automation, lagging behind global practices that provide transparency and real-time data on supply chain activities.

The paper also points out that in India, about 60 percent of freight is transported by road, while rail and water transport account for a smaller share. This leads to high logistics costs and reduces export competitiveness. India’s logistics segment is also having to contend with poor physical infrastructure including modal and terminal transportation, national roads, freight train speeds and port facilities, which in turn is hampering the growth of the logistics sector in India. Additionally, the sector is dominated by disorganized companies, resulting in fragmentation, low margins, limited investment and challenges in streamlining supply networks. At the same time, the retail market is largely disorganized, which affects the complexity of the supply chain.

Interestingly however, according to the “Logistics Ease Across Different States (LEADS) 2022” survey, states like Telangana, Punjab, Haryana and Madhya Pradesh etc. have performed excellently and could serve as role models for other states to adopt and adopt logistics best practices development models. In terms of quality of infrastructure, the states of Punjab, Uttar Pradesh, Haryana and Telangana are at the top. Madhya Pradesh has the largest storage capacity in the country, while Gujarat and Karnataka are leaders in road infrastructure.

Recently, the Government of India launched the National Logistics Policy to create a trustworthy, reliable, cost-effective, resilient and technologically equipped logistics ecosystem in the country that enables rapid growth and bridges the competitive gap with global competition, resulting in a Reduction of logistics aims costs: The policy aims to reduce logistics costs from 14 to 18 percent of GDP to 8 percent by 2030, while aligning with global best practices. According to NLP, the goal is to be among the top 25 countries in the Logistics Performance Index (LPI) by 2030. The policy also aims to create a data-driven decision support mechanism for an efficient logistics ecosystem.

GSI recommends that the goal should be to eliminate data inaccuracies and inconsistencies in logistics operations, reduce logistics costs by enabling interoperability, simplify processes, provide unique identification, harmonize information, reduce duplication and standardize information sharing, and effectively implement the national logistics policy. Source: The Week

Related Articles

Back to top button