Bridging the gap in logistics infrastructure

The Indian logistics infrastructure has been growing in an organized manner for a long time. Interestingly it is a business which is under a the scope of work of all organisations to serve the ever-increasing demand of the modern business. It is known as the country’s sunshine industry making its way into the global market. Alongside logistics, supply chain management is also transforming with the help of evolving technology at a fast pace as the overall economic demand is moving in parallel with this demand. 

As per the Logistics Performance Index issued by the World Bank, India ranked 44 amongst other countries. With the tremendous growth in the e-commerce sector and a striking rise in consumer demands, there are many growth drivers that are putting the spotlight on domestic logistics. Accessibility of cheaper internet data and increasing penetration of low cost smartphones, the e-commerce industry in India is witnessing a phenomenal growth momentum over the past few years. The remarkable growth rate is also being supported by major drivers like the availability of high quality products, ease of placing orders over the internet , convenience of doorstep delivery and payment of flexible payment modes. 

Considering the surge in demand in the nation, the Indian E-commerce market is expected to grow to US$ 188 billion by 2025 from US$ 46.2 billion as of 2020. The large scale logistics infrastructure is coming up across the length and breadth of the country which are serving as crucial growth levers for the e-commerce industry and also as key differentiators in terms of driving customer experience and satisfaction levels. 

As the government of India opened doors for 100 percent Foreign Direct Investment (FDI) in e- retailing, many experts predict that this development will tremendously bolster the demand for commercial spaces which will eventually uplift the real estate sector in the country. The decision to permit 100 percent Foreign Direct Investment is of immense significance as increased investments in the e-retailing segment can propel the demand for logistics and warehousing real estate spaces in metro cities where land is still available at reasonable prices. This is a huge positive signal for the overall realty sector in India. 

The Indian logistics service provider has excellent reach in metro cities but lacks proper infrastructure facilities in Tier 2 and Tier 3 cities which are also potential for e-commerce markets. The e-commerce market in the country’s Tier 2 and Tier 3 cities is fuelling the need for more customer centric retailing that integrates metro city facilities like timely delivery of products and easy returns expedited through improved customer service. Traditional logistic players and new entrants are increasingly focusing on these Tier 2 and 3 cities markets by setting up high tech warehousing infrastructures.

The Government of India has been quite aware of the need to bridge the infrastructure gap and fast track growth of logistics related infrastructure of the nation. While articulating the need to lower logistics costs in India, the Finance Minister allocated approximately 5 trillion towards capital expenditure. Mission Gati-Shakti has been launched as a national master plan for multi-modal connectivity which will bring 16 different ministries and departments of the government together to promote coordinated planning and execution of projects. This will help in the development of advanced logistics and transport policy. Furthermore, the commissioning of the Eastern and Western Dedicated Freight Corridors can be a game changer for boosting railway freight share as it will not only decongest the existing rail network but would allow for longer rakes to carry higher loads at an average speed of nearly 70 km/hr. This is in addition to the Bharatmala Pariyojana under which 34,000 km of road infrastructure works would be undertaken, of which 11,000 km have been targeted to be completed by 2022. The National Air Cargo Policy has also been formed to support air transport shipment in many airports by 2025.  

Private sector participation has been hitting the charts for a few years now with the help of governmental support. Third party logistics services such as warehouse building and management and last mile transport provisioning would help bridge critical gaps in the logistics sector. With the Government also providing viability gap funding , the warehousing sector provides opportunities for the private sector investments. Lastly, it is estimated that India would require 1.4 trillion dollars in infrastructure in 2020-2025 in order to become a 5 trillion dollars economy. This necessitates the need for cheap and long term finance options. 

The granting of infrastructure status to the Indian logistics sector and the combined growth momentum of real estate and retail, besides directly boosting growth, are also expected to create a variety of job opportunities for young India. The industry will also a see a shift towards green logistics and EV-led logistics companies in the near future. These initiatives are promoting the sector to a brighter future and help strengthen the country’s economy in the future.  

The article has been written by Kannan Marimuthu, Co-Founder and COO , Howdyy