Jan 18, 2018

Need for Integrated National Logistics Policy in India

As per this CII report, Logistics in India’s rapidly growing economy is supported by the world’s 2nd largest road network, 4th largest rail network, 14,500 km of navigable waterways, 200+ maritime ports and 125 airports. However, India ranks 35 in World Bank’s Logistics Performance Index (LPI) due to poor modal share - 60% of India’s domestic freight moves on roads, despite other modes being 50-60% cheaper and 50-90% less polluting. This unfavorable modal mix is due to lack of seamless intermodal connectivity in the country. This highlights the need for development of multimodal infrastructure in the country through close coordination between different agencies involved in planning and developing transport infrastructure.

Logistics need in India

Development of an efficient logistic system is an essential prerequisite for a transitioning economy to grow into a developed economy. Of late, Government has acknowledged the importance of an efficient logistic system for the country’s economy by granting it the status of ‘infrastructure’, thus helping this sector to gain easier access to finance for development. A well-developed and efficient logistics system acts as a lubricant for smooth movement of goods from factory and farms to consumers and ports, thus ensuring that the economy doesn’t waste time and energy in overcoming unnecessary barriers in movement of goods. 

Lest the view become parochial, let me state here that logistics is not just transport, but includes all aspects of production process planning of goods. It includes storage, warehouses, clearance procedures at factory gates and border, regulatory compliances and all aspects of supply chain management that move the goods. 


Logistics Performance


Image of logistics in India
LPI performance comparison : Source: https://lpi.worldbank.org/international/global/2016

Image of LPI ranking of India
LPI performance comparison: Source: https://lpi.worldbank.org/international/global/2016



I had shared the story of Gujarat's state of logistics in the previous post where I discussed some of the challenge being faced by the export sector. If one looks closely at the issues, one may observe that many of the issues arise due to compartmentalisation of the ministries involved in the overall logistics. The Rail ministry has hardly any interaction with the surface and road transport ministry or with shipping, aviation and so on. While it might be so by design and legacy reasons, there is a need to look at the entire logistics matter holistically. There has been thinking in this direction, but it has not gone beyond the drawing board. 

Also, if one looks at the rankings in the worldbank database, one may observe that India has made good progress in this area. While we may not be at the top as of now, we certainly are doing good progress and need to persevere. The roads and ports are doing good today. Railways and waterways need to buck up. These are individual efforts by good departments and ministries which have created the synergistic effect of improving logistics over years. 


National Logistics Policy

However, there is still a policy uncertainty when it comes to formulation of a National level logistics body and associated Integrated National logistics policy that looks beyond just a specific mode of transport or goes beyond the narrow sense of transport logistics. However there are green shoots in this direction. There is an yearly conference on India integrated transport and logistics summit that makes all the right noises about creating an integrated policy. In the 2017 conference which was held during May at New Delhi, the road minister talked about thinking about integrated transport policy. While his ministry has done commendable work in the area of roads, other aspects of logistics are lagging and beyond his control. There is also a move in the commerce ministry to create an effective logistics division to look after trade logistics, and which by extension should cover all logistics because I cannot imagine an isolated trade logistics without industrial logistics. However, I doubt the effectiveness of this body to have overarching impact unless it derives power from the PMO or becomes a part of PMO in the current scheme of things. There was a talk about creating an integrated ministry to look after all areas of transport, but I am not aware of anything moving in that direction. States enjoy wider powers after the increased financial delegation under last finance commission. Some of the states have done a lot to improve ease of doing business, including in the area of logistics and movement of goods, but a lot is left desired by many states.

Given all this, and given the importance of logistics for economic development in future, we need an apex body that works in the direction of Integrated National Logistics Policy.