By Devika Panse
The recent notification by the government of India about granting infrastructure status to the logistics sector has come as a relief for those in the warehousing, exports, and shipping businesses. The word logistics in this context covers cold chain and warehousing facilities, energy, water, sanitation, communication, social and commercial infrastructure. This move will enable those operating cold chains, industrial parks and warehousing facilities to raise long-term credit from banks and other financial institutions at low rates, thus attracting foreign investments.
What this move means for the logistics sector
The government has defined logistics infrastructure to include a multimodal logistics park, comprising an Inland Container Depot (ICD) with a minimum investment of Rs 50 crore and a minimum area of 10 acres, a cold chain facility with a minimum investment of Rs 15 crore and a minimum area of 20,000 sq. ft, and a warehousing facility with a minimum investment of Rs 25 crore and a minimum area of 100,000 sq ft.
Development of logistics will give a boost to both domestic and export markets, the finance ministry said in a statement. The need for integrated logistics sector development has been felt for quite some time, in view of the fact that the logistics cost in India is very high compared to developed countries. High logistics cost reduces the competitiveness of Indian goods both in domestic as well as export market, the statement said.
The decision will enable the logistics sector to access infrastructure lending at easier terms. It would allow for enhanced limits, larger amounts of funds as external commercial borrowings (ECB), longer tenor funds from insurance companies, along with pension funds. It would also make it eligible to borrow from the India Infrastructure Financing Co. Ltd (IIFCL)
Logistics in India
The cost and quality of logistics and transportation have been a major problem for the import-export industry, which has time and again dragged down the efficiency of this sector. According to a report, about 14 percent of the total value of goods goes into the logistics cost. On the other hand, in other major economies, this is just 6-8 percent.
The road ministry plans to develop around 35 multimodal logistics parks in India that would cater to 50 percent of the freight movement. It would also enable a 10 percent reduction in transportation costs and a 12 percent reduction in carbon dioxide emissions. Of these, pre-feasibility studies for six locations have already been initiated.
Multimodal logistics parks are huge areas, that are usually constructed close to ports in order to enable efficient and timely transportation of goods, for internal and international trade. These parks provide facilities like warehousing, storage, cold chains, ICDs, which makes it a one-stop destination for traders and exporters to manage their transactions.
In 2017, Indias logistics performance improved from 54 to 35 under World Bank Logistics Performance Index (LPI). The government expects the Indian logistics sector to grow further to $360 billion by 2032 from the current $115 billion, owing to such a change in policy.
The road ahead
Roads, bridges, ports, shipyards, inland waterways, airport, railway track, tunnels, viaducts, terminal infrastructure including stations and adjoining commercial infrastructure are all part of the transport and logistics classification. Urban public transport and logistics infrastructure are also part of it. The incentive for private investment and easy access to funds are a few of the major highlights from such a move, in the near future.
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