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Indian logistics growth

Current economics of logistics industry in India

Logistics is essentially the backbone of any economy. The three major sectors, namely agriculture, manufacturing and service industry are all heavily dependent on transportation. Although it has an estimated worth of USD 160 billion, the Indian logistics industry is still in its inceptive stage.

In developing countries like India, the face of development in this industry is quite different from that of the developed countries. It had been unorganised and fragmented for a very long time, but the scenario has swiftly changed in the past decade. Currently, the logistics sector is attracting a lot of investment, given to its significant growth in the last couple of years. According to the Global Ranking of the World Bank's 2016 Logistics Performance Index, India jumped to 35th rank in 2016 from 54th rank in 2014 in terms of overall logistics performance. Moreover, the logistics sector currently provides employment to more than 22 million people India and is expected to be the largest job creator by the year 2020.

Key Influencers :

1. Government’s push for Logistics Infrastructure development :

The Commerce and Industry Ministry has decided to provide a one-time funding of Rs 8 million to this sector for building up the initial infrastructure and also a phase-wise support of Rs 33.9 million for four years. The government’s focus is to bring down the cost of logistics in the next four years to 10% of India’s GDP, which is currently at 14.4% of the GDP. Also, the implementation of GST has pushed the logistics industry into being more organized and has also improved the cost structure of the industry.

2. Integrating Technology with Logistics :

More than 75% of the trucking industry is unorganized and inefficient creating problems like lack of visibility of return load, multi-level intermediaries, and low-quality of information flow. With the introduction of app based bookings, sensors in trucks, cargo ships etc., GPS tracking and advanced payment methods, it has become quicker and more convenient to send shipments from one location to another. However, it is still a long way before the whole industry shifts to these technologically advanced methods

3. Growth in manufacturing sector :

With the current success of ‘Make in India’, India is expected to be the fifth largest manufacturing country in the world by 2020. Also, with the tremendous shift of market from physical buying to E-commerce, the logistics industry is seeing a big growth tide. Manufacturing of more and more goods locally also opens a wider market for the export of these goods, thus propelling the need for better logistics infrastructure.

4. Fluctuating fuel prices :

Price fluctuation in the market for fuel constantly affects the logistics industry. Where on one hand, rapid increases in the price of fuel can have a devastating effect on freight management companies which in turn would create inflation in product costs, on the other hand, a sudden fall could result in short-term boosts in profit and a surge of competition within the logistics market to provide the customers with the lowest prices. Though almost 65% of freight is carried by roadways in India, the product costs are likely to inflate in the coming years due to the increasing fuel prices.

The development of infrastructure in the Indian logistics sector, and the combined growth of the dependent sectors, besides directly boosting growth, is also expected to create a variety of employment opportunities for the youth of our country. These factors are leading the logistics sector to a brighter future, which will also strengthen the country’s economy in the coming years.

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