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Reduction of logistics cost is a big macro turnaround for India

January 12, 2024
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New Delhi - India’s logistic costs declined by almost 1 per cent last decade. Costs ranged between 7.8 per cent and 8.9 per cent during 2021-22, down from 8.7 per cent and 9.9 per cent during 2011-12, according to a report by think tank National Council of Applied Economic Research (NCAER) and the Department for Promotion of Industry and Internal Trade (DPIIT). This 1 per cent decline may look insignificant, but in pure macroeconomic terms it is worth a thumbs up. Logistics cost has serious implications on the country’s manufacturing sector, export competitiveness and global positioning.

The country has seen serious efforts by all stakeholders in the public and private domains to understand the significance of this cost and to reduce the same. The essential components of logistics cost estimation – (i) transportation cost, (ii) warehousing and storage cost, auxiliary support services cost, (iii) Packaging cost, insurance cost, and (iv) other administrative/ operations cost – were identified.

Initiatives of Indian Railways to increase freight carrying capacity, improved speed of freight trains, reduce freight costs, creation of dedicated freight corridors, last-mile connectivity between railheads, roads and ports, PM Gati Shakti, industry status for logistics, multimodal connectivity, digital initiatives in logistics, City Logistics Plans, Multimodal Logistics Parks, and creation of storage infrastructure are further expected to reduce logistics costs.

The larger goal of policy-making requires a thorough understanding of trends in disaggregated data in the logistics sector, in terms of trade flows, product groups, EXIM and domestic cargo movement. Calculation of all these costs is a complex exercise. In order to set clear framework and benchmarks for understanding logistic costs in India, the centre got report prepared by the NCAER with the guidance of the Asian Development Bank (ADB) and task force members. The report would form the basis of (a) a baseline aggregated logistics cost estimate and (b) a framework for long-term logistics cost calculation. It was reviewed by external experts from the World Bank Group. Developing of frame work for calculating logistics costs is a wonderful step and shows the intent of all stakeholders to reduce costs.

Commerce Minister Piyush Goyal recently reiterated the government’s commitment to bring down the logistics costs to 5-6 per cent. It bodes well for the economy as well as exporters competing at the global level now. Logistics will be a cornerstone in the endeavour to make India a $35 trillion economy by 2047.

The logistics sector is vast in its scope and impact. There is not a single person in the country who is not directly impacted by the sector. States, union territories (UTs) and other stakeholders have to improve their processes and contribute to better future. Haryana, Punjab, Telangana, Uttar Pradesh, Andhra Pradesh, Gujarat, Karnataka and Tamil Nadu have made better progress in reducing logistics costs . Goa, Odisha, West Bengal, Bihar, Chhattisgarh, Himachal Pradesh, Jharkhand, Manipur, Meghalaya, Mizoram need to catch up. States/UTs need to emphasise skill development, capacity building, and the formalization of logistics policies, implementation of monitoring frameworks, and the promotion of green logistics.

Reducing the share of logistics costs in the final price of goods by 14 per cent increased the demand for those goods by 8-18 per cent in South America, according to a research quoted in a report submitted to Niti Aayog recently. It increased employment in the region’s logistics sector. This is an extraordinary correlation and has huge ramifications for India. India, where underemployment is huge, would gain a lot by reducing logistic cost from the perspective of generating jobs. This would be beneficial for spurring national consumption and demand. We all have read and understood about the multiplier and accelerator potential of the investment and growth infrastructures sector. It is time the nation seriously talks about the multiplier and accelerator impact investment in the logistics sector.

In developed countries, the supply chain is so well established that losses in the value of perishable goods, especially agriculture, are negligible. In India such losses are huge. Investments and efforts in India to improve storage, railway freight, roads and ports and reducing the times taken at various tolls is gradually reducing transportation cost of not only agricultural products but also other goods as well. Reducing transportation time and minimising wastage are expected to result in goods becoming cheaper and competitive. The government’s push in the form of Gati Shakti and Multi Modal Connectivity is going to raise the bar for all of us thinking about the importance of further reduction in logistics costs.

This turnaround in logistics cost is a massive vindication of the efforts of policymakers and planners in the last 10 years. Goods of all kinds would not only become more competitive but would also result in more income for all stakeholders.

By Former Chairman, Railway Board – Shri VK Yadav

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