By Deepal Shah
There are no two opinions that the missing link in India's economic growth story was, and is, a robust infrastructure. Both official and unofficial estimates suggest that a 1 percent increase in infrastructure spending can lead to a 2 percent expansion in national output (Gross Domestic Product or GDP in short), and vice versa.
This just about sums up the key role infrastructure plays to support and sustain a durable economic growth for India at a time when the economy is showing signs of fatigue.
The granting of infrastructure status to the logistics sector, which covered cold chain and warehousing facilities, was seen as a strategic initiative meant to aid the sector in gaining access to institutional credit and boost its global competitiveness in the domestic and export markets. It was also meant to attract global investment inflows into the sector and facilitate its integrated development. The move was also meant to provide an impetus to the manufacturing sector and spur job creation.
However, the sector has not been able to leverage the benefits of the status as it has not gained widespread recognition from the financial institutions.
The budget should focus on mandating all financial institutions to recognise the infrastructure status given to Indian logistics. This will help in supply chain empowerment and help in reducing logistics cost.
Domestic waterways
The budget will also need to place onus on increasing the share of domestic waterways in India’s overall modal mix to facilitate seamless freight movement and de-congest the pressure on India’s clogged road and rail networks.
The government will need to build a robust Inland Waterways Transport (IWT) network to facilitate easy connectivity between domestic coastal routes for freight transportation. Advantages of using shipping channels included lower cargo breakage in transit and improved turnaround time (TAT).
PPP models should be encouraged to build world-class coastal infrastructure and corporatization of ports should be encouraged on a larger scale by addressing the concerns of private sector players and providing them with special incentives.
The country will also need to take the lead in building an intra-regional coastal trade network to establish a global EXIM trade footprint and build trade relationships with its neighbouring countries.
Tech-enabled
With technological disruptions impacting the operational dynamics of diverse business verticals, the logistics sector cannot be left far behind. For a sector that is conventionally manpower-heavy, technology holds the potential to boost productivity and last-mile capabilities across the supply chain spectrum.
Leveraging new age technologies like Artificial Intelligence (AI) and Internet of Things (IoT) can help in simplifying warehouse management systems and ensure improved inventory management.
However, the integration of technology into the logistics domain is all about the working of cost dynamics. The budget should provide tax breaks to technology investments in the supply chain sector to improve its efficiency, make it more competitive and avail of economies of scale by bringing down operational costs.
Single ministry
The constitution of a single ministry to look after the Indian logistics industry is the need of the day. FM Sitharaman can settle the long-pending demand of the industry by provisioning for a separate logistics ministry which will provide a policy mandate and centralized decisions for the sector.
Presently, the whole decision-making process for the sector is in disarray with different ministries looking after different sectors. The rail industry looks after rail logistics, shipping ministry after waterways and so forth. There is a need to synergize the efforts of various ministries through a common ministry and provide an end-to-end vision for the holistic and integrated development of the logistics sector in India.
There should be top impetus on scaling up the construction of the eastern and western dedicated Freight Corridor (DFC) projects in the country. This would remove the congestion on the overburdened rail and road networks and lead to speedy transport of freight from the place of origin to the place of destination.
The finance ministry reduced the corporate tax last year to address the investment cycle and supply side of the economy. However, reducing corporate tax is a long investment cycle and currently there is a slowdown on the demand side of the economy. This can be addressed through rationalisation of personal taxation, which will enable more liquidity in the hands of consumers. Since we are becoming a spending economy, this will lead to an increase in demand. The push in demand will boost the overall sales churn in the industry and coupled with lower corporate tax, a more confident investment climate may be seen by businesses. Hence this imperative that the personal taxation be rationalised/reviewed.
The government has also embarked upon rationalisation of the GST rate structure. This needs to be reviewed as many of the industries have been impacted due to GST and have made requests for rate rationalisation.
If the Finance Minister could remove such road bumps and cut necessary duties for the industry to scale up in technology, she will be paving a smooth road ahead for the economy to reach the $5 trillion mark.
(The author is Chief Financial Officer, Allcargo Logistics Ltd)
