India: A logistics powerhouse in the making?

The numbers are in: India now ranks 44th in the latest edition of the World Bank’s Logistics Performance Index, a relatively high score compared to other countries at similar income levels. This number matters not just to the logistics sector, but to India’s economy as a whole. Indeed, logistics can directly impact the competitiveness of an entire market, as its ability to serve demand is inextricably linked to the efficiency, reliability and predictability of supply chains.

Broadly defined, logistics covers all aspects of trade, transport and commerce, starting from the completion of the manufacturing process all the way to delivery for consumption. To say that it is a complex business is an understatement.

First, there is always a delicate balance between the public arm, which provides the roads, railways and waterways, and lays down the rules and regulations, and the private sector, which has responsibility for carrying out logistics operations in a smooth and seamless manner. This fine interplay is further complicated by the globalization of manufacturing which—with many more ports of call in the logistic chain—is putting ever-increasing pressure on the sector. In addition, there are very practical challenges in integrating different modes of transport, in speeding up border crossings, and in dealing with trade protections–all of which impact external trade.

But as difficult as it might be, creating a well-functioning logistics sector is essential to any nation looking to compete in the global economy. India is a case in point. To fuel its global ambitions, the country has taken active steps to up its logistics game:

• The government has made great strides in improving customs and trade facilitation.
• It is also spending more on the railways, roadways, inland waterways, and coastal transportation.
• The recently-introduced Goods and Services Tax (GST) is set to boost the efficient movement of cargo within the country as this movement can now respond to purely economic considerations.
• The creation of a dedicated Department of Logistics is another step in the right direction. Going forward, it will be essential for the new department to focus on regulating services, setting service level assurances and reliability standards, and taking any other measures that can promote better integration of transport infrastructure and services across the whole logistics chain. To make this happen, the department will need a high-level task force with a clear mandate, a consistent work program, seamless coordination among ministries, and constructive dialogue between the public and private sectors.

Taking on the challenges

While the measures described above have the potential to deliver promising results, many other opportunities – yet untapped - can improve the performance of Indian logistics:

• While the government is spending more on the transportation network, the capacity, condition, and predictability of these services, and their seamless integration into a multimodal system will need to be improved, as this will be critical to the smooth functioning of the private sector.
• The “trunk route – feeder network” approach for the development and integration of its logistics infrastructure will need to be used.
• As for the railways, their carrying capacity and reliability will need to be upgraded, especially since rail is losing market share to roads in overall freight transport operations. The Eastern and Western Dedicated Freight corridors, once complete, will go a long way in developing a separate network of high capacity rail freight infrastructure across the country.
• Roads could be a useful complement to other modes of transport, but the sector will need extensive reform. Apart from the general lack of organization and regulation in the sector, along with low safety standards, the long hours and less-than-ideal working conditions that most truck drivers have to endure are a significant concern.
• A digital platform for the logistics community will need to be developed. This can then seamlessly integrate information, documentation and the liability regime of its various components.
• Across the board, the level of service will need to improve dramatically. Currently, the sector is still plagued with unreliability, delays, frequent damage to cargo, and cumbersome processes. In fact, it is almost obligatory for businesses to set up their own in-house logistics departments in order to overcome these deficiencies and connect the dots between the different components of the logistics chain.

None of these challenges are insurmountable. If the Indian logistics sector can continue building on the current momentum while addressing regulation and integration gaps, there is no reason why the country shouldn’t be able to experience the tremendous benefits of a well-connected economy, both internally and with the world, and move up in the Logistics Performance Index.