Context
- India recently announced its National Logistics Policy (NLP), which aims to streamline shipping, reduce logistics costs, achieve “quick last-mile delivery,” and eliminate transportation-related challenges.
- It was first announced in Budget 2020 in order to improve last-mile connectivity.
Relevance
GS Paper 3: Infrastructure
Mains Question
Better logistics are required in a modern economy with a complex supply chain. India has one of the least efficient logistics systems in the world. How can the logistics in India be improved? Discuss. (250 Words)
About Logistics
- Logistics Industry Description: The logistics industry encompasses all supply chain activities such as transportation, customer service, inventory management, information flow, and order processing.
- Other supply chain activities include warehousing, material handling, purchasing, packaging, and maintenance.
- Components: Logistics is comprised of five ‘R’s, which are as follows:
- Getting the right product; o Getting it in the right condition; o Getting it in the right place; o Getting it to the right customer
Logistics policy is required.
- Global standing: For decades, India has been held back by logistics costs that far outstrip those of its East and Southeast Asian competitors.
- For example, the World Bank’s Logistics Performance Index, 2018 ranks India 44th in the world, trailing other Asian competitors such as China (26), Vietnam, and Thailand.
- Importantly, India’s performance was hampered in two critical areas for growing and attracting export industries: logistics infrastructure and clearance process timeliness.
- Reduce future risks: The measures outlined in the NLP will significantly improve the dependability of Indian logistics, which has been demonstrated by the global pandemic to be critical in global supply chains.
- Opportunities to follow: The Indian logistics market is expected to be worth around $250 billion USD in fiscal year 2021.
- This market is expected to grow to 380 billion dollars by 2025, with a compound annual growth rate (CAGR) of 10 to 12 percent.
- Overcoming obstacles: Previously, exporters had to collect shipping bill numbers, railway consignment numbers, e-way bill numbers, and so on in order to track and trace goods and deal with multiple authorities. However, technology, as the backbone of NLP, aims to simplify this process.
About National Logistics Policy (NLP)
- Aim: The National Logistics Policy (NLP) aims to reduce logistics costs to 7.5% of GDP in the next five years, down from 13% now, to levels comparable to industrialised countries such as Singapore and the United States.
- Another major goal is to increase India’s ranking in logistics handling parameters from 44 to 25 by 2025.
- As the world’s fifth largest economy, India aspires to be among the top ten in the LPI (Logistics Performance Index) by 2030.
- Sector targets: The NLP aims to reduce transportation costs from 6% to 4%, warehousing costs from 3.5% to 2.5%, inventory costs from 2.5% to 1%, and order processing costs from 1% to 0.5%.
- Multimodal Transportation Integration: The new policy will emphasise simplification, technology, and a multimodal strategy that combines train, sea, and air travel.
- Transportation of critical commodities: The proposed programme focuses on the transportation of critical commodities such as coal, steel, iron ore, food grains, steel, cement, fruits, and vegetables.
- Creating national clusters: Currently, the logistics system is primarily limited to regional clusters.
- Determining the best logistics: The draught also suggests determining the best route of transportation for each of these goods in order to reduce losses during transportation.
- Key features: The National Logistics Policy (NLP) aims for a tech-enabled approach to logistics operations. To accomplish this, the Prime Minister is likely to announce the following four major steps:
- Digital System Integration (IDS) o Unified Logistics Interface Platform (ULIP) o Logistics Ease (ELOG) o System Improvement Group (SIG)
The Advantages of a National Logistics Policy
- Cost savings: A five percentage point savings in a $3 trillion economy equates to $150 billion in efficiency gains, which is the estimated value of India’s entire outsourcing industry.
- Increase exports: Exporters will benefit greatly from improved logistics because their goods will be more competitive and can be delivered to buyers in a more timely and predictable manner.
- Promote the MSME sector: This is because transportation costs are much higher for low-value goods than for precious consignments such as gems and jewellery, which can be profitable even when transported by air.
- Higher prices for farmers: Due to their perishable nature and longer transportation time, small farmers have traditionally sold fruits and vegetables at low prices.
- Some estimates claim that 16% of Indian agricultural produce is lost at various points along the supply chain.
- Better logistics allow these commodities to travel longer distances, faster, and to new markets.
- Lower consumer costs: Because logistics costs are an important component in the price of everything produced, manufactured, or constructed, NLP will result in lower consumer costs.
- Job Creation: According to the Economic Survey 2017-18, more than 22 million people in India rely on the logistics industry for a living, and NLP has the potential to increase employment.
Previous Logistics Sector Initiatives
- Goods and Services Tax (GST): GST has eliminated checkpoints and has accelerated the formalisation of informal logistical arrangements and freight movement across state lines.
- New Logistics Division: The Department of Commerce has established a new Logistics Division to manage integrated sector development through policy changes, improved current procedures, identifying bottlenecks and gaps, and implementing technology-based solutions.
- Integrated Logistic Portal: Its goal is to connect customers, logistics service providers, and government agencies such as customs, port community systems, port terminals, shipping lines, and railways.
- LEADS Index: The Ministry of Commerce also introduced a new Logistics Ease Across Different States Index, which ranks states based on how supportive they are of improving logistics infrastructure within their borders.
- Infrastructure Status: The logistics industry is now included on the Infrastructure Sub Sector Harmonized Master List, allowing access to more affordable, longer-term loans.
- The Multi Modal Logistic Park project involves the construction of cutting-edge large-scale warehousing facilities for various commodities transported via various modes such as rail, road, and inland waterways.
Bringing NLP and infrastructure development together
- Policy Linking: Because NLP will necessitate massive investments in supporting infrastructure, the PM Gati Shakti master plan will be critical.
- Importance: By coordinating logistics, multimodal investment, and energy supply, businesses can be more confident that their investments will be supported in the long run.
- Complement the GST regime: Because the GST reform package encouraged cross-state trade investments, the NLP could help transform the shipping landscape, boosting domestic supply chains and allowing Indian businesses to access global value chains.
Conclusion
Following the PM Gati Shakti National Master Plan, the National Logistics Policy would provide a comprehensive roadmap for the growth of the entire logistics ecosystem. It will help to lay the groundwork for decades of economic growth and will assist India in becoming “Atmanirbhar,” or self-sufficient.
