InvestorQ : What are the major challenges that India faces in the area of logistics and why it is a priority for the government?
sara Kunju made post

What are the major challenges that India faces in the area of logistics and why it is a priority for the government?

2 years ago

There are a variety of challenges for the logistics sector in India. While some are addressable, some are a lot more structural in nature. Let us look at some of the key challenges faced by the logistics segment.

Logistics costs are just too steep

This is the first big challenge for the logistics space in India. Freight costs in India are as high as 7.2 cents/km compared to just 2 cents in Canada and 3.6 cents in Japan. The overall cost of logistics is also fairly high in India. In most developed countries, the logistics cost is just about 6-8% of the overall cost. In China, the logistics cost is 10% but in case of India, the logistics are as high as 14%. This high cost of providing logistics stems from a variety of factors but the point is that it makes Indian products largely uncompetitive in the global arena. This is also because over 70% of the logistics sector is in the unorganized segment.

Existing regulations are not too favourable

Logistics companies in India are hurt by a plethora of state level taxes and regulations. There are checkpoints at each state border as well as when you enter and exit each municipality. They add up to costs and create substantial delays. Then, there is the issue of multiple levels of taxes. We have municipal taxes and state taxes which vary from one state to another. Of course, it is hoped that with the passage of the GST Bill in the Upper House, this problem should be largely resolved. However, the bureaucratic red tape needs to be drastically cut down.

Too much congestion despite the implementation of GST across India

In India infrastructure in terms of roads, rails and ports is grossly inadequate. Most roads, highways and shipping ports are grossly congested leading to inordinate time and cost over-runs. This impacts efficiency. The same ship that can be fully unloaded in China and Korea in 1 day takes a full 6 days to unload in India. This increases the turnaround time and the idling costs for resources.

Burden on road transport is just too high

Indian transportation is largely paradoxical. A large chunk of goods get transported by the road networks, although transportation by railways and inland waterways is much cheaper. This is because the government has not focused on the railways and the inland waterways. The redeeming feature is that the Modi government seems to be taking up both these challenges on a war footing which gives substantial room for hope and optimism.

We have 19th century infrastructure and 21st century dreams

India has a total road network of 3.32 million kilometres but state highways constitute just 4% and national highways a paltry 2%. Ironically these highways are the backbone for almost 80% of the goods moved around in India. Major ports in India are already operating at over 92% capacity utilization and hence the room for further tweaking is very limited. National highways carry nearly 40% of the total freight, which underscores the infrastructure problem. Airways and railways are also part of infrastructure but their flexibility and connectivity is quite poor.

Absence of innovative use of technology

Logistics sector across the world uses technology extensively to make the logistics process smooth and effective. For example, real time information sharing, real time tracking of freight movement, automated alerts on movement, use of Internet of Things (IOT) to track specific products to the lowest denominator are yet to take off in a big way in India. Globally, freight companies make extensive use of the cloud for storing and disseminating critical inputs. This is an area where the Interjas group has made steady progress. has created an agnostic platform for users and lenders of trucking space to come together, make intelligent choices and collaborate on the web. The Logilinc platform provides a cloud based solution for logistics companies to handle all their operations on the cloud. This is a small step in the effective use of technology in logistics.

Skilled and talented logistics personnel are in short supply

This is a very big challenge for the logistics sector in India. Till about a few years ago, logistics was not even recognized as a distinct discipline to be studied and analysed. It was always an adjunct to industry. Only recently, the real value of logistics in the supply chain has been appreciated. That means India has lost out on the advantage of creating ready human resources to take up the logistics challenge. There is very limited training faculty, training manuals or training expertise in the logistics space. All these make idea sharing and germination fairly difficult.

It all boils down to storage and warehousing

It is estimated that a big reason for food inflation in India is poor warehousing. While a handful of large companies have invested heavily in warehousing, large sections of corporate India do not have access to top-of the line warehousing facilities. That means wastage adds to total cost of logistics during the storage process. Poor warehousing also means that quality of the product cannot be maintained at the original levels and that becomes a big challenge for perishable products.

Logistics remains a big challenge in India due to a variety of reasons cited above. A big focus on logistics is a must to give a big thrust to the GDP growth in India. It will not really happen unless there is a real push coming from the logistics space. The function of logistics is to facilitate and catalyze growth. That is where we need to put our focus on.