COVID-19, viability issues & turf tussles stall govt’s mega plan for logistics parks

Slowdown due to COVID-19

The outbreak of the pandemic has not only delayed the completion of feasibility studies of the proposed parks, it has also hit expectations of both goods and passenger traffic at these locations.

"COVID-19 has brought forward some issues that question the viability of some of MMLP projects, especially in areas where transport infrastructure needs to be developed, in particular aerial coverage and shipping coverage," the official said.

The main objective of the proposed parks is to reduce logistics costs by permitting state-owned or private firms to develop and manage these terminals which will be linked by rail, road and airways.

“This is a good initiative but just an idea as of now and it remains unclear on how it will help reduce logistics cost. Isolated projects such as the construction of the Dedicated Freight Corridor (DFC) will go a long way in bringing down congestion and directly impacting cost,” an analyst from ICRA said.

However, the country's aviation sector, road transport sector, and shipping sector are currently facing issues of their own due to the outbreak of COVID-19.

While the aviation sector is unlikely to see large investments due to limited air passenger traffic, the country's shipping industry is struggling with a container shortage and high tariffs. The road transport industry in the country also faces uncertainty.

Fuel prices, state politics, and interest from private players
Rising fuel prices, including prices of petrol, diesel, and aviation turbine fuel have been the biggest issue the logistics industry in India has faced while trying to reduce tariff rates in India.

With fuel prices in India currently at a very high level, the feasibility of setting up MMLPs at the current price range is also being questioned, the government official said.

"Crude prices rising worldwide has led to a rise in fuel prices in India. Expectations are that they will remain at current levels for a while until the world economy picks up again. This has also brought to question the viability of some projects, and they are facing delays, as they may not attract interest from private players," the official said.

On average, the proposed multi-modal logistic parks are expected to entail an investment of Rs 100-300 crore. As part of the government's initial proposal to set up these parks, it was planning to enter into public-private partnerships to develop these parks.

"Our feasibility studies are trying to find land parcels which will make it attractive for players to invest in these parks. At the moment due to the pandemic and the slowdown in the economy, our expectations are that private participation will be limited if projects are rushed," the official said.

Furthermore, due to the lack of a nodal agency to supervise the construction, execution and working of these MMLPs around 50 different approvals are required from various central and state ministries in order to develop and operate, this is also expected to fend off investors, KPMG said in its report.

State governments also play an important role in the development of logistics infrastructure by providing land, political support, subsidies and requisite approvals. However, with the financial health of state governments also taking a hit in recent times, the viability of projects is also being questioned.