Indian logistics sector: High on delivery, low on cost

 Following India’s elevation to the 38th ranking among 139 nations in the World Bank Index in 2023, the focus in 2024 was on reducing logistics cost from the prevailing 10-14 per cent.

The electrification of the short railway lines connecting railway yards to inland container depots and container freight stations has facilitated faster movement and release of wagons by the Land Ports Authority of India (LPAI); additionally, the NLP Marine policy was launched for port-related logistics. 

The Goods and Services Tax (GST) has played a remarkable role in reducing logistics cost. The ‘one nation, one tax’ regime has cut the waiting time of trucks at State borders, thereby reducing travel time by nearly 30 per cent. This, in turn, has reduced logistics cost and increased the average distance covered by trucks to 300-325 km from 225 km, the survey said. A report by the National Council of Applied Economic Research in December 2023 shows that logistics cost declined by 0.8-0.9 percentage points of GDP between FY14 and FY22. The improvement in logistics performance is reflected at the State-level too.

Logistics is now a booming sector, given its crucial role in supply chains — whether road, rail, air, waterways or warehouses. Experts remain bullish on the sector’s future prospects. Rampraveen Swaminathan, Managing Director and CEO of Mahindra Logistics Ltd, says the industry underwent transformative changes in 2024, driven by macro trends such as deeper digital adoption, and an intensified focus on risk management...As the logistics landscape evolves, the 11.1 per cent increase in capital expenditure for infrastructure signals the significant growth opportunities in the sector, driving India’s ambition of becoming a $5-trillion economy by 2027, Swaminathan says.

According to Mahesh Fogla, Executive Director, Patel Integrated Logistics Limited, the robust growth in the logistics sector in 2024 was driven by a 12 per cent annual expansion rate, increasing domestic consumption, and government-backed initiatives like Gati Shakti and NLP...He lists key advancements such as infrastructure modernisation and the rollout of employee-linked incentive schemes, which addressed skill gaps and encouraged job creation. He calls for more efforts towards streamlining operations and enhancing workforce skills to fully unlock the sector’s potential.

E-commerce growth, demand for faster delivery, and export expansion driven by the productivity-linked incentive scheme will amplify goods movement, positioning India to capitalise on global trade opportunities, he says. He also foresees that government initiatives such as UDAN (to promote regional air connectivity) and NLP, alongside investments in technology, infrastructure, and workforce development will cut logistics cost by 4-5 per cent, enhancing India’s competitiveness in global markets.

Thanks to the NLP, the national maritime portal Sagar Sethu is now online, the Sagar Ankalan portal to monitor port deficiencies is in place, the Coastal Shipping Bill has been enacted, and a study has been launched to measure logistics cost in India, says Rajesh Menon, a maritime expert. What remains to be done, according to him, includes technology integration to further reduce logistics cost, measuring the ease of doing business on the ground, and bringing to fruition the maritime connectivity projects identified in the Union Budget with an outlay of ₹75,000 crore. The Indian Port Bill awaits implementation, while the transition from land-based to coastal transportation needs to be hastened, he says.