Budget 2024-25 to boost logistics infra with multimodal connectivity: Allcargo CFO

Mr. Deepal Shah, Group CFO, Allcargo Group

In the run-up to the budget -- the first budget of the NDA government after its re-election for a third term -- an encouraging development reinforces the government’s intent to prioritise transformation and the growth of the logistics industry.

The Department for Promotion of Industry and Internal Trade (DPIIT) and the Ministry of Commerce & Industry have partnered with the National Council of Applied Economic Research (NCAER) to develop a detailed framework for the assessment of logistics costs in the country.

It will conduct a comprehensive study of the logistics costs for 2023-24, assess the differentials in logistics costs across routes, modes, products, types of cargo, and service operations, and identify major determinants, along with the influence of logistics on different sectors.

The logistics sector contributes 5 percent to the nation's GDP and generates employment for 2.2 crore people. It is pivotal as the country moves a $6 trillion economy by 2030.

Do Not Miss | What can Union Budget 2024 deliver to excite markets further?

NCAER will submit the report within a years’ time. To the industry, which is regarded as a key growth enabler for the economy, it is a move in the right direction and fuels the hope that the government will carry on with the reform-led outlook in the budget and help the logistics industry to further bolster its efficiency, capacity deployment and utilisation and sustainability.

Expectation, stability and continuity

The interim budget tabled in Parliament earlier this year signalled the government's relentless focus on strengthening infrastructure and connectivity for a broad-based economic growth.

That budget proposed a capital expenditure of Rs 11.1 lakh crore, which is 3.4 percent of the GDP.

As part of the mission to redefine the infrastructure landscape, the budget announced three key economic railway corridor programmes -- port connectivity corridors, energy, mineral and cement corridors, and high traffic-density corridors.

In line with the vision of PM Gati Shakti National Master Plan, these initiatives are expected to boost multi-modal connectivity. Therefore, the industry expects the first budget of the third NDA government to maintain the momentum on the infra push.

Also Read | Budget 2024: Cement industry hopes for major boost to housing and infra sectors

The budget should offer continued support to these structural reforms, build a robust multi-modal connectivity and enable the smooth and efficient movement of goods across the country. A holistic approach to infrastructure development will elevate operational efficiency and global competitiveness in the logistics industry.

The continuity in policy measures related to infrastructure development remains crucial to sustain this growth trajectory.

Modal mix optimisation

A well-organised modal mix is critical for achieving both cost-efficiency and functional agility in logistics operations. In India, the modal mix is heavily inclined towards road freight movement, with road freight transport commanding around 71 percent of the overall logistics movement.

Only 17.5 percent of the freight moves through rail.  Road transportation eventually leads to congestion, carbon emission and higher logistics spend. In developed countries, like the US, rail accounts for a major share in the modal mix, thanks to a strong rail freight transport capacity.

In India, the road-centric freight transport ecosystem has somehow taken the focus away from the importance of building inland waterways, coastal shipping infrastructure and rail containerisation.

Also Read | Budget 2024: Railway industry calls for infrastructure upgrade, experts seek safety focus

Therefore, the budget's capex push needs to be in sync with the National Rail Plan, which aims to enhance the modal share of rail to 45 percent by 2030-31.

Earlier this year, the Inland Waterways Development Council announced an investment of Rs 45,000 crore to drive river cruise tourism and freight transport via inland waterways.

The goal is to increase the growth of cargo transport via waterways by 400 percent, touching the 500 MTPA-mark by 2047. The budget needs to offer a fiscal road map to achieve the goals, apart from offering an impetus to projects like Bharatmala and Sagarmala to facilitate decongestion and attract private investment in logistics infrastructure development.

Push to sustainable mobility

The logistics industry is increasingly switching to sustainable mobility to reduce the operational impact on the environment.

A boost to build a stronger EV ecosystem through manufacturing, battery recycling and charging infrastructure will accelerate EV adoption in the logistics industry in a big way.

Incentivising EV adoption in terms of subsidy or tax relief will pave the way for greater adoption of EV in logistics operations. Greater accessibility to sustainable mobility is a priority of the industry at the moment and the budget is expected to help logistics companies strengthen their EV fleets to reduce carbon emission and cut fuel cost.

Capital expenditure over revenue expenditure

The budget is expected to maintain policy continuity and fiscal consolidation while focusing on capital expenditure over revenue expenditure.

The dividend of Rs. 2.11 lakh crore from the Reserve Bank of India to the government for FY24 gives the policymakers the fiscal space to drive capex and manage fiscal deficit.

The infra push will definitely have a positive impact on the logistics industry's efforts to build capacity and capability to meet the growing demand.

Catalysing manufacturing and consumption

All in all, the logistics industry stands on the threshold of a remarkable growth, with the market valued at $435.43 billion in 2023 and projected to surge to $650.52 billion by 2028, at a CAGR of 8.4 percent.

To realise this vision, the budget needs to adopt a comprehensive approach, addressing critical infrastructure gaps and fostering an environment conducive for growth and sustainability, so that the industry can play a catalysing role in scaling up manufacturing and consumption, the two key growth drivers of the economy.

(Deepal Shah is the Group Chief Financial Officer of Allcargo Group)