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National logistics policy may prove to be a game changer and strengthen India’s economy: Here is how

Developing India's production capacity & its exports could provide multiplier effects on its economic growth if the government's steps & programs are implemented correctly.

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Earlier this month, the central government unveiled national logistics policy. This policy was introduced in the budget speech of Finance Minister Nirmala Sitharaman back in 2020. The national logistics policy aims at easing the transportation of goods from any corner of the country & outside, thereby fostering India’s trade sector. It includes an elaborated action plan with diversified aspirations to meet the global trade benchmark by 2030. But what exactly the government wants to achieve by implementing this policy, why is it even necessary to give a push to this sector & how the new policy can prove to be a major game changer in the growing Indian economy are a few questions which arise. Well to talk precisely, the size of the Indian logistics market was around 250 billion in 2021.

The new policy is estimated to intensify the size of the market to worth 380 billion by 2025 at a compound annual growth of 10-20 percent. In recent times of covid, we witnessed how the entire supply chain & transportation of necessary goods got collapsed entirely which included FMCGs & pharmaceutical products like oxygen cylinders, and hospital beds as well. Ideally, when we say logistics, we mean only the transportation of goods but this sector is highly complex as it contains several other aspects like warehousing, developed modes of transportation, efficient supply chain, etc.  The logistics sector serves as the backbone for every other sector as it connects every consecutive aspect right from the possession of raw materials to the delivery to the end consumer. From the broader perspective of an economy, it’s crucial to strengthen the supply chain.

A nation cannot skyrocket its economic growth amidst the lack of an efficient logistics sector & smooth supply chain. World bank’s logistics performance index of 2018 ranks India 44th whereas our neighbour country china ranks 26th. The reason behind it is the highly disoriented & complex structure of India’s logistics sector. It requires approval from around 20 different government agencies, 40 partner agencies, 37 export promotion councils & nearly 500 certifications.

These act as the major hindrance & make the supply chain inefficient. Apart from the above-mentioned points, More than 85% of transporters own less than 20% of trucks. There’s an acute shortage of proper warehousing & clod-storages in India which makes its usage limited to profitable & sizeable industries only. The lack of proper warehousing & poor infrastructure makes the government waste at least 16 percent of its agricultural outputs. India also lacks an efficient mode of transportation system which makes the majority of the loads carried by the roadways while bare minimums are transported via railways.

If we compare the situation with developed countries we would find their scene is reversed, the majority of logistics happen by freight trains & minor with roadways. The question may arise why is logistics via roadways a problem? Well, there are a lot of repercussions of delivering goods via roadways which include negative environmental issues, higher fuel consumption, rising fuel import in India & lack of efficient & trained drivers. Knowing yet, there’s a major dependence on roadways for logistics. The reason behind it is the unavailability of freight trains in India and their improper functioning. Freight trains have to compete with passenger trains which hamper the delivery of goods across the country and make them time inefficient.

The average speed of freight trains in India is 25kmph which shall be increased to around 50kmph. India also faces a deficit of proper infrastructure & efficient ports in its export-import sector.  Even though the government has allowed the transportation of goods via inland waterways but it requires approval from different segments of both central and state governments which makes the entire process hectic & complex. There’s also a deficit of land transport to shipping ports due to which the ports become cluttered with goods which in turn increases the turnaround time of a ship. Apart from the major obstacles in the inland waterways transportation system, its structural defects also act as a major hindrance. Multiple constituent elements, Inter state movement, and shortage of multi-mode transportation system make the entire taxation system, regulatory certifications & payment settlement system complicated, non-standardized & face a deficiency of technological advancements due to which this sector remains undermined & couldn’t generate profits. The logistics cost in India estimates to be around 14% of GDP while our other counterparts of BRICS carry logistics at almost 11% whereas in Singapore and USA this cost is only 8% of GDP. So, for smooth national & international trade and faster economical growth, the logistics sector shall be economical, advanced & strong. 

Conclusion

Given all these drawbacks, The Indian government announced The national logistics policy. This policy contains mainly 4 major steps which are 1. (IDS) Integration of a Digital System in which 30 different departments of government will be linked together digitally including road transportation, aviation, railways, foreign trade, customs, etc. Their interconnectivity & integration would lead to the development of inter-states projects at a faster pace. 2. (ULIP) A unified logistics interface platform will act as a developed interface to ensure short distance & smooth cargo movement with time efficiency. 3. (ELOG) Ease of logistics would prioritize the rules & regulations related to logistics business & operations to make it more streamlined & efficient. It would also involve establishing coherence between industry associations & government channels to resolve the issues concerning the industries quickly & rapidly. 4. (SIG) system Improvement group will monitor & track the developments related to logistics projects on regular basis and resolve their associated obstacles. Back in 2017, the ministry of commerce established a separate division of logistics to especially emphasize this policy & concerns related to the industry.

Programs like the PM Gati Shakti scheme or the national master plan would link sectors like railways, roadways, aviation, Power, telecom & 16+ other sectors to sync the data between each constituent department for proper infrastructure planning & execution. If these steps & programs are implemented meticulously we might expect the effective cost of logistics to go down below 10% of the GDP & which can prove to be a major transformation in the economic growth of India.

The central government aims to bring India amongst the top 25 countries in the global logistics index. Apart from economic growth, improvements in this sector could also generate huge employment. The economic survey of 2021  elucidates around 22 million workers are employed which is estimated to be raised at a rate of 10.5 percent in the next 5 years. To revamp the logistics sector of India, the dependence on carrying goods shall be shifted from the roadways to the railways. This is why the recent project of DFC, dedicated freight corridors, could prove to be a major game changer when it comes to revamping the distorted logistics sector. Over a decade has passed since the UPA government first discussed the DFC project back in 2006. The DFC is divided into two separate lines which are E-DFC & W-DFC. E-DFC would run from Howrah in West Bengal to Ludhiana in Punjab, and W-DFC would run from Dadri near Delhi to JNPT Port in Mumbai. It has been decided not to allow passenger trains to run on these DFC’s lines in order to ensure time efficiency & scheduled delivery of goods across the country. In addition, goods containers could be loaded directly from the trains onto ships at the port, reducing turnaround time. By connecting the ports by rail, the cluttered logistics park could be decluttered. Developing India’s production capacity & its exports could provide multiplier effects on its economic growth if the government’s steps & programs are implemented correctly.

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