Budget 2022| Budget to give further push to logistics & announce policy, sources say

The National Logistics Policy being formulated by the Commerce Department is touted to improve India’s trade competitiveness, create more jobs, improve India’s performance in global rankings and pave the way for India to become a logistics hub.

The policy will create a single-window e-logistics market, aim to double the employment in the sector currently pegged at 22 million, and make MSMEs competitive.

Most importantly, it aims to reduce the logistics cost from the present 14 percent of GDP to less than 10 percent in the next 3 years. A government study has estimated that facilitating a 10 percent decrease in indirect logistics costs will directly translate to a growth of 5-8 percent in exports.

"The policy is dynamic and involved inputs from a plethora of government and 46 partner government agencies. It has a lot of moving parts and the initial timeline for completing all these were tighter than it should have been. But now, work is on its last legs. We expect the Finance Minister to mention the work in this regard in her budget speech and highlight some of the salient new features of the policy," a senior official said.

Officials clarified the national logistics policy will be separate from the PM GatiShakti - National Master Plan for multi-modal connectivity, which has been launched to bring India's infrastructure development on a common path.

This envisages a centralised portal comprising all existing and planned infrastructure initiatives of as many as 16 central ministries and departments. As a result, every department will now have visibility of each other’s activities, providing critical data while planning and executing projects in a comprehensive manner.

Long wait

The national logistics policy has till now been held up due to inter-ministerial spats. Reports had earlier emerged that the government was looking to shift significant chunks of existing schemes from some departments to the proposed logistics division under the Commerce Department. As a result, a tussle had ensued between it, and the Ministries of Road Transport and Highways, Rail and Shipping.

Sources said internal tensions had risen after it was suggested that some of the marquee projects of the Ministry of Road Transport and Highways may be handled by the logistics Division under Commerce Department.

Case in point, the series of logistics parks envisaged under the broader Bharatmala scheme of the road transport ministry may now be implemented by Udyog Bhavan, which has championed the plan to reduce high logistics costs.

"Setting up a separate fund for start-ups in the logistics sector, and creating individual plans for separate products, is also on the cards," another official said.

The India Institute of Foreign Trade (IIFT) had also been commissioned to assess the unique difficulties faced by high-value, labor-intensive sectors in the logistics space, he added. In the first phase, this focuses on electronics, marine products, apparel, agriculture, gems & jewellery, chemicals, engineering goods, and pharmaceuticals.

According to the government, logistics services and infrastructure remain highly concentrated in just 15 states and union territories, which account for 90 percent of the total exports by value. To spread this out, the government has pushed states to actively cooperate on the national logistics index.

Developed in partnership with Deloitte, it ranks states in terms of the logistical support they provided to promote goods trade, through parameters such as the competitiveness of pricing, timeliness, and availability of infrastructure, and that of services, among others.

A special focus has also been kept on the transportation of agri goods, sources said. This came after Commerce and Industry Minister Piyush Goyal flagged on multiple occasions, the high levels of food wastage due to inefficiencies in the sector.

Growing fast

India’s logistics sector is currently highly defragmented and complex. According to the Commerce Department's own estimates, it involves more than 20 government bodies, 40 Partner Government Agencies, and 37 export promotion councils.

Providing livelihood to more than 22 million people, it encompasses nearly 10,000 commodities, 200 shipping agencies, and 36 logistics services. Further, permission from 81 authorities and more than 500 certifications, are required for exports. Nearly 129 Internal Container Depots, 168 Container Freight Stations, along with 50 IT ecosystems, banks, and insurance agencies are also part.

According to consulting firm Redseer, it is estimated that India's logistics market is around $209 billion as of 2022. Seeing sharp growth year-on-year, this is set to rise to $350 billion by 2025.