India’s logistics sector, valued at about $160 bn, is expected to grow to about $200 bn in just three years, according to Jagannarayan Padmanabhan, Director and Practice Lead – Transport and Logistics, CRISIL Ltd, the global analytics, ratings and research company. Multi-modal logistics parks (MMLPs) are going to be key to this growth:
Q: The government has been talking about lowering the cost of logistics. Has there been any headway on the front?
A: At 15-16%, logistics cost continues to be significant for India’s manufacturing sector. Though some measures have been taken to lower that, it remains a work in progress. The roll-out of GST and e-way bill are making a positive impact, but it is too early to say logistics cost is declining. The removal of check-posts has certainly eased inter-state movement of goods. The real impact would be seen in the medium term (about three-four years) as the hard infrastructure also has to come up.
Q: What other measures are being taken for the purpose?
A: Some areas where efficiencies can be brought in or increased are within the realm of policy. The Multimodal Transportation of Goods Act, expected to be amended soon, proposes to address inefficiencies across the transportation value chain, including modes of transport. Second, the sector is lagging on technology, though efforts are being made on that score.
Third, a material upgrading of skill-sets is required. Fourth, more logistics infrastructure such as multi-modal logistics parks and seamless connectivity across the modal mix will be necessary. Sure, some headway has been made, since India’s ranking on the World Bank’s logistics performance index has improved from about 55 to below 30 now.
Q: The MMLP initiative was unveiled in 2016. Has any progress been made on it?
A: Yes, the Ministry of Commerce is taking things forward. While 36 MMLPs were announced, about six-seven are being rolled out by the National Highways Authority of India (NHAI). Feasibility studies have been done and the NHAI would be developing these on its own, barring one or two that might be executed in PPP mode. Developing the first four-five parks would cost the NHAI about Rs 3,000 crore. The Indian Railways also would allocate some money for MMLPs. Some major ports are also toying with the idea. Since it is critical that states pitch in for such parks, governments have started moving in Nagpur, Mumbai, Chennai, Bengaluru, Guwahati, Surat and for one park in Madhya Pradesh.
There’s some doubt on the inclination and capacity of the private sector to be a part of the initiative but once two or three such parks are up and running, other feasible projects could be taken up by the private sector.
Q: Where are the developments visible besides roads and railways? What about ocean shipping and inland waterways, which are integral to the multi-modal mix?
A: The recent relaxation in cabotage rule has helped foreign shipping lines as they can now take cargo directly from one point on the coast to another. Foreign liners can also accommodate more containers and work on a marginal cost structure. This may help to bring down the overall cost of domestic freight. Having said that, a behavioural shift is needed in the freight forwarding community and shippers to use the coastal route in a more systematic manner.
On the policy front, there needs to be clarity on how GST applies to ocean, road and rail transport. As the origin and destination can be the same or vary, there is confusion. Also, excessive documentation needs to be rationalised so that there is just one common set for all modes of transport. Clearly, predictability of services and lower cost structure would accelerate growth in multi-modal transport.