Prime Minister Narendra Modi recently launched National Logistics Policy, which was applauded by stakeholders, corporates, and think tanks alike. The idea emerged from PM Gati Shakti National Master Plan, a transformative approach to improve efficiency to provide seamless first and last-mile connectivity. The policy envisions “to develop a technologically enabled, integrated, cost-efficient, resilient, sustainable and trusted logistics ecosystem in the country for accelerated and inclusive growth.” There could not have been a more comprehensive, concise, and clear vision statement than this.
Logistics has remained one of the Achilles’ heels for infrastructure development and supply chain management. India ranks 44th in the Logistics Performance Index (LPI) 2018 released by World Bank, and the cost of logistics is around 12-13 percent of GDP, which is significantly higher than developed countries like Germany and the US, which are at 8 percent and 9.5 percent respectively. Therefore, logistics driven by a well-defined policy and framework is the key. Nearly 60 per cent of freight is currently transported by road, with the next largest share going to railroads (32 per cent) and waterways (5 per cent). In contrast, the global average for roads and railways is 25 and 60 percent, respectively. The logistics sector also becomes critical because the government is not merely a regulator but also a key stakeholder with the presence of publicly owned railways and roadways.
Broadly, logistics is the time, resources, and money invested in storing and transporting a commodity from its origin to destination. For instance, the fox nuts or makhana produced in Bhagalpur, Bihar when exported to Bangladesh, requires the additional cost of processing and transportation. This cost is added to the production cost along with taxes, duties, and profit margins, thereby increasing the product’s retail price. But a higher logistics cost eats into the margins of the poor farmers producing the commodity.
The key objective of the National Logistics Policy is the integration, standardisation, modernisation, optimisation, formalisation, and democratisation of the logistics sector. It targets to reduce the cost of logistics to the global benchmark by 2030, break into the Top 25 rank in LPI and create a data-driven approach for the sector. It is estimated that the size of the Indian logistics market would grow from $ 250 billion in 2021 to $ 380 billion by 2025, at a compound annual growth rate between 10 to 12 percent. By these estimates, the logistics sector would grow to $3 -3.5 trillion by 2047 when India celebrates 100 years of Independence. Therefore, it is pertinent to focus on logistics when India is entering Amrit Kaal (next 25 years).
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Shortcomings of the Indian logistics sector
There are various issues plaguing the logistics sector and the policy tries to provide solutions to deal with them. Despite overstretched network and route congestions, it is quite appreciable to note that the Indian Railways transported a record-breaking 1410 MT of cargo consisting of coal, iron ore, petroleum products, food grains, etc in the financial year 2021-22. However, on the supply side of things, the consignee requires a high degree of reliability in the movement of goods. In the present scenario, the Ministry of Railways does not provide scheduled movement of freight due to high pressure on its network.
The minister for road transport and highways said in Parliament that the total length of National Highways (NHs) in the country increased from about 91,287 km in April 2014 to about 1,40,937 km by November 2021. In 2018, the government increased the gross carrying capacity of two-axle trucks by 20 percent to 18.5 tonnes, which is still just one-fourth of the load carried by one wagon of a freight train. It means transporting one rake of train load through road would require at least 236 two-axle trucks.
In 2021, air transport remained the most expensive logistics mode costing around Rs 18 per metric ton kilometre, more than 10 times the cost of railway transport. It was followed by road transport costing Rs 3.6 per metric kilometre.
Moreover, roadways contribute to about five times more greenhouse gas emissions than bulk carrier railways. With the Indian Railways planning to become a net-zero carbon emitter by 2030, it has the potential to eliminate 7.5 million tons of carbon dioxide and other greenhouse gases each year.
However, we cannot undermine the role of road transportation for last-mile connectivity which other modes like rail, airways, and waterways would fail to achieve. The government plans to complete 49 projects spread over 4,970 km costing about Rs 1,13,000 crore which are about to be completed by 2023-24. To relieve the railways network from congestion, timely completion of Dedicated Freight Corridors, which are around 3,200 km in length, is also expected by 2023-24.
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Integration of all modes of transport
Till now, there was no comprehensive plan to integrate all the modes of transportation but the Comprehensive Logistics Action Plan (CLAP) under the National Logistics Policy 2022 has focused on key areas that are going to be game changers. The Integrated Digital Logistics Systems aims to break the silos of different departments for performance monitoring and reviewing the projects. The standardisation of physical assets and benchmarking of service quality standards will increase interoperability within the different modes.
For example, the size of the consignment would be such that it can be transferred from one mode to another hassle-free by using a digital Radio Frequency Identification system. The focus is also on Logistics Human Resource Development and Capacity Building to have a skilled workforce through competency mapping and programmes and courses. Currently, the sector employs around 22 million people and is expected to employ more than 1.2 million people by 2024.
Innovative solutions like the Joint Parcel Product (JPP) initiative of India Post and Indian Railways are being developed, wherein first-mile and last-mile connectivity will be provided by the former. Further, this can be extended to private e-commerce players like Amazon, Delhivery, E-kart, DTDC, etc.
The government should focus on the development of roads and ports through Sagarmala and Bharatmala under the Public Private Partnership model such as monetization of expressways where financial constraints are less on the public money.
Another solution would be to have logistics parks (such as Multi Modal Logistics Parks, Air Freight Stations, Inland Container Depots, Container Freight Stations, cargo terminals, etc.) as hubs for intermediary activities in the supply chain like storage, handling, value addition, inter-modal transfers, etc connected by a transportation network. The Ministry of Railways unveiled the first multi-modal Gati Shakti Cargo Terminal (GCT) Maithan Power Limited at Thapar Nagar, Jharkhand, that is expected to integrate the seamless movement of cargo from one mode to another.
To drive the states towards a competitive spirit, the Logistics Ease Across Different States (LEADS) Index by the Ministry of Commerce sets the benchmark and there is a need to have a methodology and a platform to share the best practices.
Lastly, the Centre should expedite bringing National Logistics Efficiency and Advancement Predictability and Safety Act (NLEAPS) which will replace the Multimodal Transportation of Goods Act, 1993 (MMTG) into the public domain for inviting suggestions from the various stakeholders. Therefore, leveraging logistics is the need of the hour for the sustainability of the PM Gati Shakti Master Plan in this Amrit Kaal.
Abhishek Tiwari is IRTS officer in Indian Railways. He tweets @Abhishek_IRTS. Views are personal.
(Edited by Ratan Priya)