'Onus is on the government to restore vibrancy in logistics through budget'
The Indian logistics sector is at a crucial juncture. The sector has been emerging globally competitive and transforming fast into an organised framework, but there came a body blow in the form of demonetisation.
The Indian logistics sector is at a crucial juncture. The sector has been emerging globally competitive and transforming fast into an organised framework, but there came a body blow in the form of demonetisation. The delay in GST further aggravated the situation, leaving the sector in a spot. Now the onus is on the Government to bail it out and restore vibrancy, and budget is the best opportunity for it.
Indian logistic industry, with 80 per cent of players in the unorganized sector, has come a long way, slithering through challenges and be competitive with its global peers. We witnessed an increased interest by the firms in streamlining the internal operations by horning the skill-sets, adopting new technologies and assimilating the best global practices in the recent times. The e-commerce strides further fuelled this growth and aspirations for growth. And, the expectations of an imminent one-nation one-tax regime took the sector to an inflection point.But, then came the demonetisation strike that swept the sector off the track. What followed this was yet again postponing of the deadline for GST implementation, now expectedly from July next. Reports suggested that about 800,000 truck drivers were affected directly due to the cash paucity and around 400,000 trucks remained stranded at major highways across India in the initial weeks after the fatal November 8 decision. You cannot fathom the pain inflicted on the millions indirectly associated with logistics industry.
Analysts predicted minimum 10% savings on the logistic costs post-GST that promises to ease out the bottlenecks of multiple taxes and delays at the state borders. The anticipated gains of GST still remain a pipedream. And over and above it, there is a heavy loss to the sector. The extent of quantum impact on logistics is yet to be calculated in absolute terms, given its near-term and long term effects. Perhaps, GST gains in the next couple of years would be too little compared to the loss that we faced now. This sets the pitch for a strong and positive intervention by the government in its budget.The fact that logistics accounts for 13-14 per cent of India's GDP itself puts the onus on the Government to treat the sector in a very special way, unlike any of the other sectors. Being the backbone of the supply chain in the economy, up and downs of the sector have an invariable impact on the growth of the country. I wish, at least this time the Finance Minister acknowledges it and extends due share of recognition to the sector. It is time that we frame an integrated policy for logistics which is now manned by different departments. One of the tall claims of demonetisation was inevitable capital infusion into infrastructure sector, once banks are adequately capitalized. Expectations are high that there will be high decibel announcements for infra. Due to lack of connectivity, it is estimated that around 7 lakh vehicles are unable to function at optimum in the country. A truck in India covers an average annual distance of only 85,000 km as compared to 150,000 to 200,000 km in advanced countries. One of the main reasons for this plight is our substandard roads. So, any extra push for infrastructure in the budget is more than welcome. Better transportation system, warehousing, additional rail facilities, inland ports, facilities at cargo hubs, push for waterways etc. should be taken as priority under the infrastructure development.
There are many more pending demands from the industry. Further ease in regulatory mechanism, creation of industry clusters, logistic parks, and a pro-industry tax regime, are among the many in the wish-list.
Personally, I would suggest a couple of more things. I want to see the Government granting special industry status like that is accorded on the infrastructure. This infra status will pave way for more funding especially from the PEs and foreign investors, which is critical for the future of Indian logistics industry. There should be scheme to promote long-term debts for logistics players, especially in developing warehouses. This is quite possible with banks are reloaded with cash.Secondly, information technology in general and internet of things can go a long way in cutting down the logistics costs in the country. Any special incentive or scheme in the budget for encouraging the logistics industry to adopt IT would in fact fit into the game plan of digital drive that the current government is heavily banking on. Cost of inventory holding and transaction cost particularly be addressed with the help of IT if we want to be competitive globally.
The present government did take some crucial steps to energise the logistics sector and improve the infrastructure in the past. But the demonetisation and uncertainty on GST have not only eroded some of the benefits but also added pains to the sector. So, it is the onus of the Government to put the logistics sector back on the right track, by paying due attention in the forthcoming budget.
(Author is Vice-Chairman of Patel integrated Logistics ltd)