Budget 2022: FM focuses on speeding up cargo movement, improving logistics network

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In her budget speech on Tuesday morning, Finance minister Nirmala Sitharaman reiterated the importance of the PM Gatishakti Mission, which Prime Minister Modi announced on Independence Day last year. This masterplan will oversee all major infrastructure projects across different line ministries. The plan will be used to develop 100 PM Gati Shakti Cargo terminals in the next three years, as Sitharaman said the logistics efficiency is one of the seven engines of the masterplan.

The development of multimodal logistics parks, roads, cargo terminals etc. under the Gati Shakti framework is likely to improve pan-India connectivity and reduce the logistics costs. The highway network will be expanded by 25,000 km and Rs 20,000 crore will be mobilised in innovative ways of financing to complement Budgetary resources, the minister said.

"The data exchange among all mode operators will be brought on a unified logistics interface platform designed for application programming interface. This will provide the efficient movement of goods, reducing logistics costs and time in moving freight; assisting just-in-time inventory management and eliminating tedious documentation. This will provide real-time information and increase international competitiveness," the finance minister said.

Contracts for multimodal logistics parks in four locations will be awarded in FY23, the minister said, and the railways will enhance logistics services for small farmers and MSMEs.

“This Budget continues to provide impetus for growth. Big public investments for modern infrastructure readying for India@100. This will be guided by PM Gatishakti and synergies of multimodal approach," Sitharaman said.

Improving India’s logistics infrastructure has been a key agenda item for the Modi government. India’s logistics costs, as a percentage of GDP, stand at about 14 percent, compared to an Organisation for Economic Cooperation and Development average of 6-8 percent. In her 2020 budget, Sitharaman had proposed a national logistics policy, formulated by the commerce ministry, which was expected to streamline rules and address supply-side constraints and lead to lower logistics costs and greater competitiveness for Indian products, besides lowering logistics costs to 10 percent of GDP.

As per Economic Survey 2017-18, a 10 percent decrease in indirect logistics cost could lead to an export growth of 5-8 percent. But the start of the COVID-19 pandemic that year put paid to these plans.

Last December, however, news reports indicated that the Union government was going to propose a new policy for warehouses, a lynchpin for the logistics sector, which would map out the roadmap for the development of exclusive warehousing zones on a public-private partnership mode.

Formulated by the National Highways Authority of India, the policy is meant to bring down associated costs and strategically integrate highway projects and other connectivity initiatives such as inland waterways and railways in tandem with the freight distribution ecosystem. The ministry of road transport and highways, which already oversees key infrastructure undertakings like the Bharatmala project and works in tandem with the development of the dedicated freight corridors, will formulate the development of inland container depots, cold storage and cold chain networks, free trade warehousing zones and mini logistics parks, especially outside key urban centres.

The government may also recycle the capital (estimated Rs 28,900 crore) it raises from monetising existing warehousing assets of Food Corporation of India and Central Warehousing Corporation under the National Monetisation Pipeline to build newer assets.

The government’s support to the logistics and warehousing sector will also likely increase interest from the private sector, which is keen to digitise India’s warehousing landscape. A November 2021 report from HSBC Global Research said that 90 percent of all businesses are expected to adopt internet-of-things and data analytics in warehouse automation by 2030. Cost efficiencies, better supply chain insight and reasons of environmental sustainability will drive this adoption.

“The FM's budget speech starting with PM Gati Shakti shows the focus and commitment of the government to boost logistics infrastructure in India. Rs 20,000 crore allocated to strengthen the overall transportation network in India is sure to boost the manufacturing sector as well as exports from India,” Nilesh Ghule, Co-founder and CEO, TruckBhejo, said.

“It is encouraging to see the government emphasising sustainable growth via Gati Shakti scheme, ensuring increasing penetration of digitalisation. The Gati Shakti plan aims to achieve synchronous decision-making to create a world-class, seamless multi-modal transport network, on the back of which India will be transformed. This will be further supported by Gram Sadak Yojana getting an additional boost by the FM that will help connect rural India better. This is a great opportunity for the Indian tech-based logistics sector to take its rightful place in the larger scheme of things.”

Listed firms like Allcargo Logistics, Mahindra Logistics, Aegis Logistics, TCI, Concor, Snowman Logistics, Sical Logistics and VRL Logistics are likely to see a boost from today’s announcement.