An overview of India’s National Logistics Policy. Why, What and Next Steps. By Raghu Ramachandran, Business Analyst and Founding Partner of 13 Colony Global.

“At a time when the opportunity exists to be an alternative to the Chinese market, India requires a government more attentive to the country’s infrastructure needs and active deregulation to encourage Foreign Direct Investment (FDI) for the economy to grow at projected pre-pandemic rates in the near future. Only a nationwide structural – including labor and licensing – and consistent long-term reforms, along with spending on infrastructure will attract investments into India.”

This excerpt was taken from a whitepaper, written[1] in November 2020, discussing the Indian Logistics Market which was coming up for air after the pandemic induced shutdown of March 2020.

I quote this as a pre-amble to the National Logistics Policy of India – outlined as a need to reduce logistics costs by the finance minister in her 2020 budget – that was unveiled in September 2022.

Over the past several years (pre-pandemic), the Indian Government rolled out a series of measures starting with a nationwide Goods & Services Tax (GST) and electronic waybill for transportation providers who crossed state borders, which reduced corruption and expedited transit times. Along with those, doors were opened for additional funding including foreign direct investment for the logistics industry, by highlighting its dependence on basic infrastructure.

In 2017 a Logistics division was formed within the Department of Commerce, with an explicit mandate to develop an “integrated logistics sector.” This meant policy changes, improvement in existing procedures, identification of bottlenecks and gaps, and the introduction of technology in this sector. There have been sector specific development initiatives introduced for roads, highways, ports, and better air connectivity.

In the past year the federal government rolled out a master plan (Gati Shakti) to reverse the chronic delays and abandonment of major infrastructure projects by coordinating the development and rollout of them across different departments and in collaboration with the states. All these reforms – fiscal and process – laid the foundation for the roll out of the National Logistics Policy.

A key catalyst is the post Covid re-alignment of the supply chain and the very real possibility that India would be left behind the Southeast Asian countries as most manufacturers and multi-nationals moved towards a China+1 strategy. An ambitious multi step approach to reduce the logistics costs and improve India’s logistics performance index ranking to those of the developed countries was the basis for a logistics policy. While most developed countries have a low logistics cost to GDP ratio, the Indian costs have been in the 14 to 18% range for years.

The Indian government provided several incentives for increasing manufacturing and invested in road, air, and port infrastructure. However, with a lack of a coordinated end-to-end supply chain and logistics perspective, and the siloed investments, there remained huge challenges and increasing costs for the growing number of multinationals who had established operations to meet the Indian consumer’s needs.

Apple, with its global supply chain, is increasing its manufacturing outside China, and with India being an untapped market, saw it fit to expand operations in country. Auto manufacturers from Japan and Korea started this trend years earlier, and along with them, the parts suppliers. The early entrants improvised their logistics while the more recent manufacturers like Mercedes seek to reinvigorate the supply chain network to developed country standards.

While the pandemic exposed the challenges with cross border just-in-time replenishment, India faced an internal challenge with a supply chain network on different technology and communication platforms with minimal integration. The comprehensive plan of the recently unveiled logistics policy was influenced by the Confederation of Indian Industry’s (CII) strategic vision and key enablers for a successful logistics sector.

The main thrust of the plan is to provide a unified digital platform that the logistics sector can leverage and ease the processes for manufacturers including exporters and importers. The objective is to ensure end-to-end visibility to all parties and reduce inefficiencies. A forum through an ease of logistics services (e-logs) platform is also part of the plan ensuring that any operational issues are flagged for government agencies to resolve.

Besides the digital thrust, the logistics plan addresses, and encourages leveraging an integrated multi-modal network. A greater emphasis is placed on a shift and an increased use of an underutilized rail network, built with an emphasis on passenger transport and less for freight movement. Along with rail, inland water transport, coastal shipping, and use of pipelines to move bulk liquid is also part of the plan.

Along with transport, specific plans to meet the needs of 15 of the largest users of transport and logistics are being addressed with an effort to build a national grid of multi-modal logistics parks, with private investments taking the lead, around the key manufacturing and port locations. In sync with the logistics parks, standards, and guidelines – including clearances, for the expansion and development of warehousing industry and a system to rank and rate them – the plan also seeks to ensure there is an adequate pipeline of skilled resources to achieve the reduction in logistics costs and improvement of the LPI rank.

To paraphrase, the logistics plan is composed of

1. Unified digital platform
2. Integrated multi-modal network with an emphasis on using rail, inland ports etc.
3. Standardization of physical assets including warehousing and containers
4. Supply Chain Skills development

While there is uniform appreciation for the logistics plan, the challenge remains in the execution and rollout of the policies. The Indian logistics market suffers from mediocrity in comparison to the markets they compete with for attracting suppliers and manufacturers. The average turnaround time of the Indian ports is 20 to 40 hours behind the global average and the existing port infrastructure, not to mention the inland port structure, must be upgraded.

The business structure of the railroad is geared towards passengers and unless more freight corridors with greater high value goods, rather than bulk commodity cargo, and better transit times are established, they will continue to lag the fragmented road freight market. Only around 25% of freight, almost all bulk commodity, moves via rail currently. For an institution for whom customer experience has never been a priority, the Indian Railways needs to be fast, reliable, and flexible to accommodate the enterprise customers.

Admittedly it is difficult to assess the impact of Gati Shakti, Bharatmala, Sagarmala and myriad other efforts related to streamlining Infrastructure and lowering the logistics costs as a % of GDP. However, the combination and coordinated execution of these policies while removing bureaucratic hurdles is the key to a successful implementation of the National Logistics Plan[2].

[1] Economy, e-commerce, Growth: The Indian Logistics Sector, Sept 2020 Raghu Ramachandran, 13 Colony Global

[2] The information in this brief was gathered from Government Press releases, briefing documents, news articles