Reducing logistics cost to 8% of GDP in five years will be a mini revolution: Vinayak Chatterjee

Vinayak Chatterjee, founder and managing trustee, The Infravision Foundation. He is also Chairman of the Confederation of Indian Industry's Mission on Infrastructure, Trade and Investment.

For the first time, the National Logistics Policy puts an integrated target for reducing logistics costs, which will help in tracking its planning and success, said Vinayak Chatterjee, founder and managing trustee, The Infravision Foundation.

He is also chairman of the Confederation of Indian Industry's (CII) Mission on Infrastructure, Trade, and Investment. Talking exclusively to Moneycontrol’s Rachita Prasad, Chatterjee spoke about what differentiates this policy from earlier steps taken for the logistic sector, the five key challenges, and also the shortcomings.

If India manages to reduce its logistics costs from 13 to 8 percent of Gross Domestic Product (GDP) in five years, it will be nothing short of a “mini-revolution,” he said. Edited excerpts:

What is the biggest positive coming out of the policy?

The biggest positive is the official recognition that freight cost has to be brought down from 13 to 8 percent. Till now, nobody has quantified it, tracked it, or tried to solve it as a unified whole.

We were tinkering with different parts without seeing the overall jigsaw puzzle. I think quantification will also lead to evaluation on a quantitative basis in the 15 key industries that are in focus.

Another big positive is the plan to integrate e-platforms; digital is the way to go to track performance and make changes.

Prime Minister Narendra Modi said that the main aim is to reduce logistics cost to single digits at the earliest, as this will be crucial for India to be globally competitive. How achievable is this goal?

It's a huge goal. Just look at the quantum of change: from 13 to 8 percent of GDP. At current prices today’s  GDP is about Rs 240 lakh crore. Even if we reduce costs by 5 percent of that it amounts to Rs 12 lakh crore. Can you imagine logistics costs at current prices coming down by Rs 12 lakh crore? That is humongous. By when will we be able to come down to the target of 8 percent? My guess is as good as yours. If this is achieved in five years, it will be nothing short of a mini-revolution.

What would be the biggest challenges?

I think the biggest challenge would be to remove the known bottlenecks. The first known bottleneck is in the railway system relating to door-to-door delivery. Door-to-door delivery is possible right now by truck.

For instance, a cement manufacturer can send a truck to a dealer with minimum loss in the handling of cement bags. The railways need to perfect their multi-modal system (railways, along with trucks and ships) for handling commodities, as well as parcels.

The second challenge is the port interface for exporters and importers. While roads may have made it easier to reach ports on time, but when a truck reaches a port, it gets caught in a big jam, both inward and outward.

Also, the logistics of loading and unloading trucks and wagons, the interface with customs, and the time taken for the process is the second big challenge.

The third challenge is refrigeration. India wants to be an exporter of fruits, vegetables, and flowers. Our refrigerated cold chain from the farm to the port or airport is imperfect.

The fourth challenge is that while we have emphasised a lot on inland waterways and coastal shipping, the truth of the matter is that not much has been done. Inland waterways and coastal shipping is proving to be a far bigger challenge than envisaged because movers of freight are finding it very inconvenient to load and unload the cargo, carry it to a river or a coastal port, and then unload to again load it to a truck. It is important to have seamless multi-modalism in inland waterways.

The fifth and final challenge that I see is the integration of various e-platforms; there are many e-platforms and all of them need to be integrated seamlessly into one platform, which will be a huge task.

The policy talks about digital integration at many levels – business-to-business, business-to-government, and even at the state and central levels. Given how fragmented the sector is right now, how long would this process take?

Not very long. We have gone almost fully digital in toll plazas; Fast Track now has 95 percent penetration. You could have argued five years ago that it was a very fragmented market. We have converted the entire goods sector into e-way bills. It is important to begin the digital journey, for it is not insurmountable.

Once a platform is created, people jump on to it. I don't think that will be an issue. The fact that it's going to be done now is a welcome move.

One of the key things needed for the success of this policy is the involvement and cooperation of states. Is this going to be a challenge?

Every policy requires states to come on board in this country. If you see Gati Shakti, most states have come on board because they realised it was to their advantage. Similarly, for  the NSWS (National Single Window System), 16 of the 30 ministries, and some 18 states of 29 states have come on board. The state political system and bureaucracy have found out that they will be at a disadvantage if they don’t join. While theoretically it remains a challenge, I think those days are gone when states stubbornly stayed outside the system.

Logistics parks have faced issues in the past, especially relating to land acquisition. What is different this time that may actually help take it forward?

I think the narrative is shifting from logistics parks to multimodal stations, where goods will be transferred from one mode (say, railways) to another (boats, for example). That is where we're headed. I have come to the conclusion that where there is political will, land acquisition is not a problem.

Any shortcomings in the policy?

I have not seen much on aerotropolises in the policy. Much of our high value cargo, from pharmaceuticals, to gems and jewellery, to flowers, etc., would need this. I think the policy needs to embrace air shipment also, which we have not really taken seriously in the past. I think cold chains and aerotropolises are something that you should probably apply your mind to.