Logistics is an integral part of any economy. The fast and effective movement of goods forms the foundation on which other commercial sectors are built. India’s logistics sector is no different and has seen a rapid change in the last few years. Empirical evidence suggests that the industry grows at about 1.5 to double the pace of economic growth in the country. Its growth is driven by that in the manufacturing, retail, FMCG and e-commerce sectors.
Looking ahead to the next year and beyond, there are four main trends that will impact the logistics sector. The first is the GST Bill, which is finally slated for discussion in Parliament and implementation. The second is the Land Acquisition Act and its effect on logistics infrastructure growth. The third is the impact of the scheduled increase in transport links across the South Asia Region. The fourth is a sought maximization of inter-modal efficiency to keep up with new demands placed on the logistics sector, especially by government programs like ‘Make in India’.
GST and Land Acquisition Act
The GST Bill, once passed as expected, should lead to the beginning of a restructuring of the logistics sector in 2016-2017. Small and unorganized players may seek tie-ups with medium-sized players enhancing the reach and reliability of networks. The result could be an efficient usage of infrastructural assets benefitting all concerned. Also, warehousing would undergo a change as well with a move towards the hub and spoke model of warehousing foreseen. Towards the end of 2014 the Government pushed for the Land Acquisition Act. The ease of acquiring land that is a result of this Act should allow for the building of rural infrastructure and industrial corridors that would greatly enhance transport and logistics infrastructure projects.
Enhanced regional linkages
Enhancing regional links across South Asia, with countries like Bhutan, Nepal and Bangladesh, should improve cross-border transportation and provide regional seamless service links to clients. There is also some talk of India participating in China’s One Road One Belt project, and though that may take some time in transpiring, that would further increase the reach of transport networks beyond just the South Asia region.
Domestically, intermodal efficiency will be a goal that will be sought after by the Government and by private players. Road, rail, aviation and shipping networks will seek to become more seamlessly interconnected, improving travel time and making it easier for the sector to deliver on the ambitious goals of the ‘Make in India’ program and the ‘Smart Cities’ program. If India’s growth stays at about seven per cent, the sector will have enough to do in terms of providing for the growth and is slated to do just that with the sector’s own growth slated to be a consistent 14 per cent till 2020.
Challenges to the sector
The usual challenges to the sector will still be present. India still has poor infrastructure when it comes to logistics. There is insufficient integration of transport, warehousing and information technology facilities. There is a real dearth of manpower that is skilled that can support this sector as it grows. The GST Bill, though it would make the functioning of the sector smoother, has still not been passed through and there is the very real fear that a political deadlock may occur again. Also, there is a shortage of investment in research and development capability. For a sector to innovate and consistently reinvent itself as is necessary for a growing sector, R & D should be an integral part of the endeavor.
The logistics sector, despite its many limitations, is slated for significant growth in 2016 and indeed the coming years. It remains to be seen whether this growth will be structured in a way to ensure sustainability in the sector’s operations. For logistics players, exciting times with many changes lie ahead. By positioning themselves well, players can ride the crest of the wave of changes to grow and become more profitable.
By Raaja Kanwar, Vice Chairman & Managing Director, Apollo International Ltd.