India’s logistics industry, which is currently worth around US$160bn, is likely to reach $215bn in the next two years, according to a key report.
The Economic Survey 2017-18, tabled in Parliament on Monday, said the implementation of a Goods and Services Tax would contribute to the logistics market growing at 10.5% annually.
The Indian logistics industry, which provides employment to more than 22m people, has grown at 7.8% per year during the last five years, it added.
The survey, prepared by the Ministry of Finance, is a report card of the country's financial health. The annual document reviews the development of the country's major industries, including logistics.
The survey said the Global Ranking of the World Bank’s 2016 Logistics Performance Index showed that India jumped from 54th place in 2014 to 35th place in overall logistics performance.
However, the survey also warned that the logistics sector in India remains unorganised and the industry is facing challenges such as high cost of logistics impacting competitiveness in domestic and global market, undeveloped material handling infrastructure, fragmented warehousing and lack of seamless movement of goods.
“In order to develop this sector in an integrated way, it is important to focus on new technology, improved investment, skilling, removing bottlenecks, improving inter modal transportation, automation, a single system for giving clearance and simplifying processes,’ it said.
It noted that apart from increasing trade, better performance in logistics would augment programmes like Make in India, and also enable India to become an important part of the global supply chain.
It added that improving the sector would also have huge implications on exports. It estimated that a 10% decrease in indirect logistics costs could increase exports by 8%.
It said after recognising the importance of the logistics sector and to address the inefficiencies, the government had decided to include the sector in the Harmonised Master List of Infrastructure Sub-sector (HMLIS).
Indian banks have to finance a certain percentage of loans to the infrastructure sector – the HMLIS is a prioritised list of sectors that can be funded by banks as part of infrastructure financing.
The survey said the logistics sector’s addition to the HMLIS would help facilitate credit flow into the sector with longer tenures and reasonable interest rates.
It added that it would also simplify the process of approval for construction of multi modal logistics facilities, which include both storage and transport infrastructure.
“It will encourage market accountability through regulatory authority and will attract investments from debt and pension funds into recognised projects,” it said.
As part of recognising the importance of the sector, it said the government had also created a new logistics division in the Department of Commerce to coordinate the development of the industry, improve existing procedures, identify bottlenecks and gaps and introduce technology-based interventions in the sector.
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