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India’s Logistics Sector

Context: The Centre has asked the states to formulate logistics policy on the lines of National Logistics Policy (NLP) 2022 to help promote ease of doing business.

  • So far, 22 states have notified their logistics policies.

What is Logistics?

  • Logistics is an element of the overall supply chain, but specifically refers to the set of processes involved in moving raw materials and finished goods from one point to another.
  • Logistics includes transportation and warehousing processes like receiving, inventory management, demand planning, picking, packing and shipping, transportation management, and order fulfillment.
  • Forward logistics refers to the movement of the goods from the manufacturer to customers, whereas Reverse logistics refer to moving products and materials back into the supply chain post-delivery.

World Bank’s Logistic Performance Index (LPI) 2023

India has improved its ranking on the World Bank’s Logistic Performance Index 2023 by six spots, now ranking at 38th out of 139 countries.

About the World Bank’s Logistic Performance Index (LPI) 2023

  • LPI is an interactive benchmarking tool for countries to identify challenges and opportunities in their trade logistics performance.
  • It comes out every two years (from 2010 to 2018); however, after the COVID-19 break, the report has been released now in 2023.
  • It measures the ease of establishing reliable supply chain connections and structural factors that make it possible, such as the quality of logistics services, trade and transport-related infrastructure, as well as border controls.

The LPI 2023 allows for comparisons across 139 countries. The 2023 LPI for the first time measures the speed of trade with indicators derived from big datasets tracking shipments.

Major highlights of the Logistic Performance Index (LPI) 2023

Significance of Logistics Sector in India

  • Economic contribution: According to the Logistics Skill Council, the Indian logistics sector is valued at $150 billion, contributing 14.4% of the country’s GDP.
  • Employment generation: The Indian logistics industry provides employment to more than 22 million people.
  • High growth potential: According to ICRA, the sector has grown at a CAGR of 7.8% during the last five years and is expected to grow at 10.5% until 2025.
  • Export promotion: Improving the logistics sector in India would facilitate a 10% decrease in indirect logistics cost leading to a growth of 5-8% in exports.
  • Multiplier effect: Leading industries such as automotive components, pharmaceuticals, cement, textiles, FMCG and e-commerce depend hugely on warehousing and logistics.
  • Supply chain resiliency: A good logistics ecosystem leads to effective movement of goods and optimizes the efficiency of supply chains.
  • To minimize agricultural wastage: India loses almost 16% of its agricultural output due to improper logistics and supply chain limitations.

Challenges of Logistics Sector in India

  • Overdependence on road transportation: Nearly 60% cargo moved by road and 32% by rail due to over-saturated rail networks and high rail tariffs.
  • Inadequate infrastructure: Poor material handling infrastructure and fragmented warehousing, which results in inventory piling up, and increased distribution and transportation costs.
  • High turnaround time for ships: The average turnaround time for ships across major ports in India is around 2.2 days, whereas the world average is 0.97 days, as per the UNCTAD.
  • High logistics cost: Logistics costs in the country are as high as 14% of GDP while it is 8.14% of GDP in US. High logistics costs impact the profitability and competitiveness of the sector and will put the country’s manufacturers at a disadvantage.
  • Multiple regulatory compliances: Different rules and regulations at different stages are enforced by national, regional and local authorities. It causes time overruns and disruption in supply chains.
  • For example, different land-use policies by different states, and multiple zonal permit laws.
  • Complicated tax regime: Multiple state and central tax compliances lead to considerable loss of time in transit on roads due to which freight movement often gets delayed.
  • Lack of formalization in the sector: The logistics industry in India is highly fragmented with a large number of unorganized players. Only 10-15% of the sector is owned by organized players.
  • Absence of skilled labour: Lack of adequate training institutions has led to a shortfall in skilled management and client service personnel.
  • Insufficient integration: Lack of integration in transport networks and poor integration with modern information technology leading to inefficient use of resources, high cargo transit times and fleet management.

Government initiatives for India’s logistics sector

  • National Logistics Policy 2022: Government has unveiled National Logistics Policy (NLP) with the aim of promoting the seamless movement of goods and enhancing the competitiveness of the industry.
    • Three targets under NLP 2022:
      • First, to reduce cost of logistics in India to be comparable to global benchmarks by 2030.
      • Second, improve the Logistics Performance Index ranking, to be among top 25 countries by 2030.
      • Third, create data driven decision support mechanism for an efficient logistics ecosystem.
    • Key features of NLP 2022:
      • Multi-modal integration: NLP will facilitate a modal shift in logistics from the current over dependence on roads to railways and waterways by attempting a synergy between flagship projects such as Sagarmala, Bharatmala and PM GatiShakti National Master Plan.
      • Use of technology and digitization: Such as Integration of Digital System (IDS) to 30 different systems of seven different departments related to logistics sector, and Unified Logistics Interface Platform (ULIP) to ensure continuous monitoring of cargo movement.
      • Ease of doing business: Creation of Ease of Logistics (ELOG) Dashboard to simplify procedures and achieve ease of doing business and establishment of an empowered group of secretaries (EGoS) to monitor and review the implementation of the NLP.
  • Multi Modal Logistics Park (MMLP):
    • Freight aggregation and distribution hubs to bring down overall freight transportation costs.
    • Road, air, railways, and waterways connectivity to facilitate smooth transition of freight across transportation modes and reduce lead times.
    • Services like customs clearance and warehouse management systems to reduce inventory holding costs.
    • Modern mechanized warehousing space.
  • PM GatiShakti National Master Plan:
    • It aims to create roads linked to railway lines that will further feed into major and minor ports, leading to the efficient movement of goods, especially from the frontiers.
    • It will provide real-time visibility to fill the gap in the movement of goods, reduce costs and enhance the ease of doing business.
  • Industrial corridors: To promote manufacturing clusters by connecting them to ports and consumption hubs via roads, railways and inland waterways.
  • Sagarmala Project: Doubling the share of seaways in the transport mix over the next decade.
  • National Logistics Efficiency and Advancement Predictability and Safety Act (NLEAPS):
    • To modernize and formalize the logistics services and promote digitization in the sector.
    • To reduce the logistics cost from the present 14% of GDP to less than 10% of GDP.
  • Logistics division in the Department of Commerce: To improve existing procedures, identify the bottlenecks and introduce technology-based interventions.
  • Logistics Data Bank (LDB) Project: Tracks movement of containers through rail or road till the container depot and using RFID tags.
  • 100% FDI through automatic route: in the storage and warehousing sector.

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