A trifecta of initiatives by the Indian government aimed to boost Indian exports will help lay the groundwork for decades of economic expansion.
On September 17, the Government of India launched the long-awaited National Logistics Policy, which aims to streamline shipping, and lower costs throughout the country. As the Goods and Services Tax (GST) reform package encouraged investments in cross-state trade, the NLP could help transform the shipping landscape — boosting domestic supply chains, and enabling Indian businesses to access global value chains.
For decades, India has been held back by logistics costs that far exceed its competitors in East and Southeast Asia. The World Bank’s Logistics Performance Index pegs India at 44th globally, behind other Asian competitors such as China, Vietnam, and Thailand. Importantly, India’s performance was dragged down in two measures that are critical to growing and attracting export industries — logistics infrastructure, and the timeliness of clearance process.
The NLP could propel India to the top echelons of logistics in the region while lowering logistics costs, and streamlining what has been a fragmented logistics system. One key area is in warehousing, where a lack of standards and regulations has led to interpretations on national policy that differ across states. Greater transparency, and clear and consistent standards in warehousing will help support domestic supply chains, which depend on cross-state trade in high-value added sectors, such as avionics, and healthcare.
The NLP will also push for greater standardisation for equipment, which will support increased multi-modal transport options for suppliers, and lower costs over time. Coupled with digitalisation efforts that are more closely linked with customs data, both Indian businesses and foreign investors will find it easier to integrate manufacturing within India, reducing the time it takes to trade, and supporting Indian export growth.
Importantly, the measures laid out in the NLP will greatly improve the reliability of Indian logistics, which the global pandemic has shown to be of utmost importance in global supply chains. The resiliency, and dependability of the logistics ecosystem — made up of governments, logistics providers, and supply chain manufacturers — is often just as important as cost and time for their proper functioning.
While these reforms are part of an essential part of India’s 21st century economic agenda, they will also require massive investments in supporting infrastructure. That’s where the PM Gati Shakti master plan will play an important role. PM Gati Shakti is an ambitious plan to ensure that investments in infrastructure are well-coordinated across transport and energy modes. This addresses a key gap that has often led to infrastructure investments not maximising their potential to unleash economic growth. But with logistics, multi-modal investment, and energy supply being co-ordinated, businesses have greater assurance that their investments will be supported in the long term.
Critically, PM Gati Shakti is not just about public investment — though that plays an important role. It is about providing regulatory approvals, and greater certainty for private sector investors. In the dynamic express delivery sector, which is critical in high-value added supply chains, the plan commitment towards upgrading civil aviation infrastructure will help ensure that the benefits of trade are spread more widely across India, including in second and third tier markets, which have often struggled to attract supply chain investments.
The final piece of the puzzle is in a more open foreign for trade policy. Here, we are witnessing a level of ambition that could lay the groundwork for India playing a dominant role in global supply chains. India’s commerce ministry has and is pursuing trade deals with the United Arab Emirates, Canada, the European Union, Australia, and the United Kingdom. They are also part of the US-led Indo-Pacific Economic Framework. As these agreements are signed, Indian manufacturers will be able to increase their integration into global supply networks, access new markets for Indian goods, and help to build resiliency and trust with key trading partners.
Importantly, with India’s already strong services sector, especially in IT, India will be able to attract global manufacturers that increasingly depend on not just inputs for assembly, but a service sector that can complement it.
Taken together, the NLP, PM Gati Shakti, and new trade deals have the ability to transform the Indian market for both Indian and foreign investors.Ufku Akaltan is President, Indian Subcontinent, Middle East, Africa, and Central Asia, UPS. Views are personal, and do not represent the stand of this publication.