Logistics Infrastructure in India: Opportunities and Challenges

Margesh Rai

30 Mar, 2024

India is one of the fastest-growing economies in the world. India’s Infrastructure and Logistics sector plays an important role in supporting its growth. The Infrastructure and Logistics sector in India is expected to grow significantly in the near future. It is driven by increasing demand for e-commerce, the growth of manufacturing industries, and the government’s focus on infrastructure development. This blog will discuss the opportunities and challenges in India’s Infrastructure and Logistics Sector.

Four-Step Strategy to empower India’s Infrastructure and Logistics sector

1. Advanced Technologies and New Business Models: With the advancement in technology and growth in technology-enabled solutions such as blockchain, big data, cloud computing, and digital twins, the government has also adopted several solutions to reduce inefficiencies, improve transparency, and make goods move faster. Some of the digital solutions adopted by the government are ICEGATE¹ and E-Logs.
2. Fast-tracking infrastructural development: The Government of India has introduced several programs aimed at building new infrastructure such as roads, railways, and ports. Such government programs are GatiShakti, Bharatmala, and Sagarmala. In furtherance of these programs, measures have been taken to attract private capital and implement administrative reforms. These measures will complement these initiatives and streamline the planning and execution of infrastructure investments.
3. Attracting investments and investor interest: Indian government has always been the chief proponent and financier of infrastructure development; however, new policies are being adopted by the government to attract private and foreign investments to promote infrastructural development. One such lever is the National Infrastructure Pipeline which is expected to raise INR 50 lakh crore investment. Even though 100% FDI is allowed in most transport infrastructure development initiatives but, considerable effort will be needed to bring about the desired impact.
4. Sustainable Logistics: India’s shipping and logistics sector is taking steps to align with the domestic and global regulations on sustainable practices. It is taking steps to conform to the leading global benchmarks in the Energy Efficiency Existing Ship Index, Carbon Intensity Rating and Emissions Trading System.

Opportunities in India’s Infrastructure and Logistics Sector

1. Growing E-commerce sector: In India, the e-commerce sector has been growing rapidly and is expected to continue growing in the coming years. The growth of the e-commerce sector presents significant opportunities for the infrastructure and logistics sector as e-commerce companies rely mostly on the infrastructure and logistics sector for order fulfilment and delivery.
2. Manufacturing Growth: With the “Make in India” initiative, the Indian government has been focusing on developing its manufacturing sector. The growth in the manufacturing sector will increase the demand for the infrastructure and logistics sector. It will drive demand for transportation, warehousing, and distribution activities.
3. Infrastructural Development: The Indian government is making heavy investments in Infrastructural development such as highways, ports and airports. These investments are expected to improve connectivity, reduce transportation costs, and make transporting goods across the country easier for the logistics sector.
4. GST Implementation: The implementation of Goods and Service Tax has simplified the tax system. It has also reduced logistics costs. The GST has succumbed to multiple state and central taxes, reduced paperwork, and made it easier for logistics companies to move goods across state borders.

Challenges Faced by India’s Infrastructure and Logistics Sector

India’s Infrastructure and Logistics sector comprises several sub-sectors, such as transportation, warehousing, courier, freight forwarding, and express delivery services. The sector has grown rapidly, but there are some challenges which it has to overcome.

1. Poor Infrastructure: India still faces inadequate infrastructural facilities, which pose a serious challenge to the infrastructure and logistics sector in India. Poor infrastructure leads to longer transit times, delays in transportation and increased transportation costs.
2. Fragmented and Unorganized Logistics Sector: India’s infrastructure and logistics sector is highly fragmented and unorganized. Many small players are also operating in the industry. Fragmentation results in inefficiencies, lower economies of scale and reduced bargaining power with customers and suppliers.
3. Regulatory Challenges: In India, it is difficult for logistics companies to operate efficiently and cost-effectively, and the regulatory environment is complex and bureaucratic. Complicated custom procedures and diversity in state-level taxes add to the cost and time of logistics companies and reduce their competitiveness.
4. Inefficient Supply Chain: With inadequate warehousing facilities, poor inventory management, and lack of proper transportation planning, the supply chain could have been more efficient. The inefficiencies in the supply chain lead to delays and, ultimately, higher logistics costs.
5. Low Adoption of Technology: The Infrastructure and Logistics industry in India has to be faster in adopting technology. This will remove the inefficiencies in the operation and higher costs. Technology helps in better transportation planning, real-time tracking and monitoring of goods and better inventory management.

Government Initiatives in India’s Infrastructure and Logistics Sector

Some of the key initiatives taken by the Indian Government to address the logistics sector’s challenges and improve its efficiency and competitiveness are:

1. Goods and Services Tax (GST): The introduction of goods and services tax has simplified the tax regimes by replacing multiple state-level taxes with a single tax. This, in turn, has reduced the compliance cost and time for logistics companies and improved supply chain efficiency. 
2. National Logistics Policy: The National Logistics Policy was launched in 2019 by the government of India. The policy aims at infrastructural development, technology adoption, and skill development. It also aims to reduce logistics costs from the current 14% of the GDP to less than 10% by 2022 and generate employment opportunities.
3. Sagarmala Project: The Sagarmala project was launched in 2015. It aims to promote port-led development in India. It focuses on modernizing ports, improving connectivity, promote coastal shipping and inland waterways. It is expected to reduce logistics costs by 2-3% and enhance connectivity and transportation time.
4. Dedicated Freight Corridor (DFC) Project: The DFC project aims to develop two corridors exclusively for freight transportation. It will reduce transit time, increase freight capacity and improve connectivity.
5. Unified Logistics Interface Platform (ULIP): ULIP will provide direct and indirect benefits such as monitoring cargo movement, consignment tracking and inventory management. It will help in structured planning for the stakeholders.

Conclusion

India’s Infrastructure and Logistics sector presents significant growth opportunities. The e-commerce market, manufacturing, infrastructure development, and implementation of GST drive it. On the flip side, this sector also faces various challenges. The government has taken various initiatives to minimize the challenges and position Infrastructure and Logistics sector as one of the rapidly growing sectors.

FAQs

Read Our Article: Startup Finance: Overcoming Challenges with Virtual CFO Solutions

1. https://www.icegate.gov.in/