GS Paper III

News Excerpt: 

India's logistics costs, according to a joint report by the National Council of Applied Economic Research (NCAER) and the Department for Promotion of Industry and Internal Trade (DPIIT), decreased to 7.8-8.9% of GDP in the fiscal year 2021-22.

Summary of the report:

•  A similar dip occurred during 2014-15 to 2016-17, with costs dropping from 8.3-9.4% to 7.8-8.8%.
• Logistics costs ranged between 8.7% and 9.9% during 2011-12, showing a decrease to 7.8-8.9% in 2021-22.
• Faster growth in nominal GDP compared to logistic costs and a fall in fuel prices contributed to the reduction during 2014-15 to 2016-17.
• The report emphasizes the significant investments in physical and digital infrastructure in India, creating an enabling environment for data-based planning and policy-making.
• NCAER, on behalf of the government, calculates these figures, contributing to the development of a framework for credible logistics cost estimates.  The report aligns with India's National Logistics Policy, aiming to reduce logistics costs in the country.
• The recommended hybrid approach for estimating logistics costs involves primary and secondary survey data, coupled with real-time Big Data analysis.

Challenges before the Indian Logistics Sector:

• High Logistics Costs: The sector grapples with disproportionately elevated logistics costs, constituting 13-14% of India's GDP, significantly surpassing the global average of 8%.
• Competitiveness Gap: Indian businesses face a $180 billion competitiveness gap in 2020, projected to widen to $500 billion by 2030, adversely affecting their ability to compete globally.
• Infrastructure Challenges: Inadequate and outdated infrastructure, including roads, railways, ports, and terminals, hinders the sector's overall efficiency and contributes to higher costs.
• Technology Adoption: The slow adoption of advanced technologies, such as automation, digitalization, and data analytics, impedes operational efficiency and cost reduction in the logistics processes.
• Skill Development and MSME Support: Insufficient focus on skill development and support for Micro, Small, and Medium Enterprises (MSMEs) hampers the sector's growth and competitiveness. 

Suggested measures for the Indian Logistics Sector:

• Cost Optimization through Infrastructure Upgradation: Investments in upgrading physical infrastructure, like roads and ports, are vital for enhancing overall efficiency and reducing logistics costs.
•  Technology Integration: Embracing automation, digitalization, and data analytics will bring transformative changes, streamlining processes, reducing manual labor, and enhancing overall efficiency.
•  Skill Development Initiatives: Investing in training programs and skill development initiatives will create a more capable workforce, crucial for the sector's growth.
•  MSME Collaboration: Fostering collaboration between MSMEs and larger logistics players will promote knowledge sharing and capacity building, strengthening the logistics ecosystem.
• Global Standards Adoption: Embracing global standards for visibility, interoperability, tracking, and warehouse management will enhance transparency, efficiency, and overall performance in the logistics sector.