In another major reform measure, the government of India on Monday approved granting long-contemplated “infrastructure status” to the logistics sector as part of a larger program to lower supply chain costs and make Indian-made goods more competitive globally.
The practical effect of that classification change is there will be cheaper funding opportunities for logistics service providers, especially in the maritime segment, as authorities work toward a “hub-and-spoke system” for domestic cargo distribution through private participation.
“The logistics sector is a core industry that deeply influences all economic activities. We believe that the infrastructure status will reduce the cost of capital in transportation and warehousing, thereby reducing the cost of logistics,” Pirojshaw Sarkari, CEO of Mahindra Logistics, told JOC.com.
To qualify for benefits under the logistics infrastructure scheme, companies need to meet the following minimum criteria: a multimodal logistics site housing an inland container depot with a Rs. 50 crore ($7.7 million) investment and a 10 acre space; a cold chain center with a Rs. 15 crore investment and a 20,000 square foot space; and a warehousing facility with a Rs. 25 crore investment and a space of 100,000 square feet, according to the statement.
The government said such logistics players will have access to market and other institutional borrowings on "easier terms with enhanced limits."
Sarkari said logistics costs in India are currently much higher than those of advanced nations — estimated at 13 percent of GDP versus 9 percent in the United States and 8 percent in Germany — and that the status upgrade combined with the Goods and Services Tax should drive up freight efficiency. “This would mean new investments,” he said.
That change builds on a spate of supply chain improvements and reforms the Narendra Modi government has rolled out in the past couple of years under its mammoth Sagar Mala program encompassing port modernization, port connectivity improvement, port-led industrial development, and coastal community development.
Plans call for the construction of 50 economic corridors, inter-corridor and feeder routes, 35 multimodal logistics parks, and 10 intermodal terminals to more efficiently handle freight movements throughout the country to bring down logistics costs significantly.
To that end, authorities concluded 34 contracts with investments worth Rs. 200,000 crore at a recent trade summit in New Delhi.
In addition to large-scale investments in transportation infrastructure, technology-based logistics processes are gaining rapid pace in India. As a result, cargo clearance at all major gateways has become much faster, with the largest container handler, Jawaharlal Nehru Port Trust, leading the dwell-time reduction chart.
Those efforts are reflected in a 30-spot jump India had in the World Bank’s latest ease-of-doing-business global index.