The central government on December 14 released its estimate for the total logistics cost of the country. According to the estimate, the total logistics cost of India stands between 7.8 percent (lower bound) to 8.9 percent (upper bound) of total GDP for 2021-22.
The centre has arrived at this estimate using supply and use tables, national accounts statistics and analysis of logistics cost from NCAER’s 2019 report.
As per the government’s ‘ballpark’ assessment, the logistics cost stood between 8.7-9.9 percent of GDP in 2011-12 rose to 8.8-10 percent in 2012-13 and then fell below the maximum upper bound of 9.4 percent of GDP between 2014-15 till 2021-22.
The fall, as per the government, could be due to a faster growth in nominal GDP than in logistics cost as well as a fall in fuel prices, “as expressed by Wholesale Price Index”, a presentation during the release of number read.
“We intend to make the process going forward even more robust,” Secretary DPIIT, Rajesh Kumar Singh said during the release.
“During industry consultations, it was found that the industry too agrees that logistics cost should not be more than 10 percent of the GDP,” Singh said responding to a Moneycontrol question.
Logistics play a key role in facilitating trade and enhancing the competitiveness of traders. A baseline estimate of logistics costs will help DPIIT show a clear year-on-year comparison of how the National Logistics Policy (NLP) is helping reduce such costs.
“The policy aims to cut down logistics cost and bring it below 10 percent of GDP, while also bringing our international rank below 25. The kind of infrastructure India is making in terms of roads, bridges, ports, as well as digital infra, will all help us do data-based planning and policy-making,” Secretary DPIIT Singh said.
A lack of scientific framework, factoring in direct and indirect costs were hindrances that DPIIT came through while coming to an approximate cost, Special Secretary Sumita Dawra said while releasing the data.
The government was earlier expected to announce the baseline estimate by October, but the process has been delayed due to the complexity involved in accurately coming out with an estimate.
"A large section of India’s logistics sector is unorganised and it’s very difficult to come up with accurate projections and estimates for this. Which is why the government is refining its estimate and not rushing to announce a number," Dawra told Moneycontrol in an exclusive interview on December 4.
"No other country in the world has come up with an accurate baseline estimate for its logistics costs. There is no methodology we can follow," Dawra had said, adding that the DPIIT has shared its methodology with the World Bank, which has accepted it.
While the government has not done any surveys to arrive at an estimate, going forward, the DPIIT is looking to carry out surveys to come up with a more accurate figure.
"It is very difficult to accurately come out with an estimate for logistics costs. You have to start with a baseline and improve its accuracy every year," Dawra added.
The numbers
Currently, the industry works with estimates ranging between 8-14 percent of the GDP.
The government arrived at its estimate by looking at the Ministry of Statistics and Policy Implementation (MoSPI) data sets and supply and use tables, among others. These tables show the structure of the costs of production and the flow of goods and services.
The DPIIT has used MoSPI data for transportation costs, warehousing costs, supportive and auxiliary transport activities, etc.
Transportation remains the biggest component in India's baseline estimate for logistics costs due to gaps in the country’s logistics infrastructure.
"Look at countries like the US, Australia, and Russia, that are as large as India or larger. They have a connected logistics infrastructure to transport goods. India still suffers from infrastructure gaps," another DPIIT official said.
The government is currently working on 119 projects worth Rs 11.93 lakh crore to plug gaps in the infrastructure.
"The identified gaps have been shared with respective ministries, and will likely be completed in three years," Dawra told Moneycontrol.
Of the 119 projects, the Ministry of Road Transport and Highways is managing 52 projects worth Rs 446,717 crore, the Indian Railways is handling 47 projects worth Rs 6,19,204 crore, the Ministry of Housing and Urban Affairs is running eight projects worth Rs 79,016 crore, and the National Industrial Corridor Development Corp is looking after five projects worth Rs 12,781 crore.
The Ministry of Petroleum and Natural Gas is managing four projects worth Rs 9,056 crore, the Ministry of Ports, Shipping and Waterways is handling two projects worth Rs 5,963 crore, and the Ministry of New And Renewable Energy is running one project worth Rs 20,774 crore.
The government is working with members of industry as well as taking advice from foreign experts to arrive at an estimate of the total logistics cost.
The task force includes representatives from Niti Aayog, MoSPI, the National Council of Applied Economic Research (NCAER), academics and other stakeholders.
Professor Kyoung Kwon of the Asia Pacific School of Logistics, Inha University, Korea, and Keku Bomi Gazder, MD and CEO of Aviapro Logistic Services, are also members of the task force. Dawra has been the Chairperson of this 18-member team. The task force was formed in March 2023 when a need was felt to develop a framework for the calculation of logistics costs periodically.
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