Getting It Right, in Five Ways

Why in News?

• India recently unveiled its National Logistics Policy (NLP) with an aim to streamline shipping, reduce logistics costs, achieve ‘quick last-mile delivery', end transport-related challenges.
• It was first announced in Budget 2020 to ensure last mile connectivity at faster pace.

 

About Logistics

• Description: Logistics Industry includes all activities of the supply chain such as transportation, customer service, inventory management, the flow of information, and order processing.
  • Other activities of the supply chain are warehousing, material handling, purchasing, packaging and maintenance among others.
• Components : Logistics is about 5 ‘R’s as follows:
  • Getting the right product;
  • In the right condition;
  • At the right place;
  • At the right time; and
  • To the right customer

 

Need for Logistics policy

• Global standing: For decades, India has been held back by logistics costs that far exceed its competitors in East and Southeast Asia.
  • For instance, World Bank’s Logistics Performance Index, 2018 pegs India at 44th globally, behind other Asian competitors such as China (26), Vietnam, and Thailand.
  • Importantly, India’s performance was dragged down in two measures that are critical to growing and attracting export industries, i.e. logistics infrastructure, and the timeliness of clearance process.
• Prevent future risks: The measures laid out in the NLP will greatly improve the reliability of Indian logistics, which the global pandemic has shown to be of utmost importance in global supply chains.
• Ensuing opportunities: In financial year 2021, the size of the Indian logistics market was around 250 billion U.S. dollar.
  • It was estimated that this market would grow to 380 billion dollars in 2025, at a compound annual growth rate (CAGR) between 10 to 12 percent.
• Addressing hurdles: Till now, exporters had to compile shipping bill numbers, railway consignment numbers, e-way bill numbers etc to track and trace goods and also face multiple authorities. But technology as backbone of NLP aims to streamline this process in hassle-free manner.

 

About National Logistics Policy (NLP)

• Aim: NLP aims to reduce logistics costs to 7.5% of GDP in the next five years from 13% now, with levels as in industrialised countries like Singapore and US.
  • Another major target is to take the ranking of India is logistics handling parameters to 25 by 2025 from the current rank of 44.
  • Being the 5th largest economy in the world, India aims to be among the top 10 in the LPI (Logistics Performance Index) by 2030.
• Sector-wise targets: The NLP aims to reduce transportation costs to 4% from 6% now, warehousing costs to 2.5% from 3.5% now, inventory costs from 2.5% to 1% now and order processing cost to 0.5% from 1% now.
• Integration of Multimodal Transportation: The new policy will focus on simplification, technology, and a multimodal strategy that combines train, sea, and air
• Transport of crucial commodities: The suggested programme is to concentrate on the transportation of essential goods such coal, steel, iron ore, food grains, steel, cement, fruits, and vegetables.
• Establishing national clusters: Currently, logistical system is largely limited to regional clusters.
• Identification of the best logistics: The draft also suggests determining the best route of transportation for each of these goods to reduce losses during transport.
• Major aspects: National Logistics Policy (NLP) targets tech-enabled approach to logistics operations. To achieve this, the PM is likely to announce four major steps as follows:
  • Integration of Digital System (IDS)
  • Unified Logistics interface Platform (ULIP)
  • Ease of Logistics (ELOG); and
  • System Improvement Group (SIG)

 

Benefits of National Logistics Policy

• Reduced costs: A five percentage point saving in a $3 trillion economy amounts to efficiency gains of $150 billion, which is equal to the estimated value of India’s entire outsourcing industry.
• Boost exports: Exporters have a lot of gain from better logistics as their goods will become more competitive and can be delivered to buyers in a faster and predictable manner.
• Encourage MSME sector: This is because transportation cost is a much heavier burden on low-value goods compared to precious consignments like gems and jewellery, which can be profitable even if transported by air.
• Better price for farmers: Traditionally, small farmers have been selling fruits and vegetables at low prices owing to their perishable nature and longer transportation time.
  • According to some estimates, 16% of Indian agricultural produce is lost at various points throughout the supply chain.
  • With better logistics, these commodities can travel longer, faster,and to new markets.
• Reduced costs for consumer: The buyer will get cheaper stuff owing to NLP because logistics cost is an important component in the price of everything that is produced, manufactured or constructed.
• Employment Generation: More than 22 million people in India depend on the logistics industry for their livelihood and NLP has potential to increase employment, according to the Economic Survey 2017–18.

 

Earlier initiatives for Logistics sector

• Goods and Services Tax (GST): GST has eliminated checkpoints and hastened the formalisation of informal logistical arrangements and the movement of freight over state lines.
• New Logistics Division: The Department of Commerce has established a new Logistics Division to manage integrated sector development via policy modifications, enhanced current procedures, detection of bottlenecks and gaps, and application of technology-based solutions.
• Integrated Logistic Portal: It aims link customers, logistics service providers, and governmental organisations like customs, port community systems, port terminals, shipping lines, and railways.
• LEADS Index: A new Logistics Ease Across Different States Index, which assesses states according to how supportive they are of enhancing the logistics infrastructure within their borders, was also  introduced by the Ministry of Commerce.
• Infrastructure Status: The Infrastructure Sub Sector Harmonized Master List now includes the logistics industry hence providing access to more affordable, longer-term loans.
• Multi Modal Logistic Park project: It is the development of state-of-the-art large scale warehousing facilities for different types of commodities transported different modes like Rail, road and Inland waterways.

 

Synchronising NLP and infrastructure development 

• Linking policies: As NLP will require massive investments in supporting infrastructure; hence the PM Gati Shakti master plan will play an important role.
• Significance: With logistics, multi-modal investment, and energy supply being co-ordinated, businesses have greater assurance that their investments will be supported in the long term.
• Complement GST regime: As the GST reform package encouraged investments in cross-state trade, the NLP could help transform the shipping landscape hence boosting domestic supply chains, and enabling Indian businesses to access global value chains.

 

Conclusion

The National Logistics Policy is the obvious next step after the PM Gati Shakti National Master Plan and would offer a comprehensive roadmap for the growth of the whole logistics ecosystem. It will help lay the groundwork for decades of economic expansion and help India become “Atmanirbhar” or self-sufficient.

 

---

Source: Getting It Right, in Five Ways