How can Budget help plug holes in logistics network?

Dr Sunil Kumar Sinha, Director, India Ratings & Research, says “India has been aiming to become a major manufacturing hub. Several initiatives have been taken over the years to do so. But one of the constraints that has been somewhere impacting India’s assimilation into either the global supply chain or even for that matter, whatever goods and services that are delivered within the country, they were coming at a cost which was way above the global benchmarks.”

What are the biggest challenges that you have identified in your research when it comes to the logistics universe in India right now?

Dr Sunil Kumar Sinha: Well, first of all, the word logistics may sound very simple, but it is a fairly complex phenomenon in the sense that right from the place from where the goods are sourced and by the time the goods are delivered at the customers’ end, it is a fairly long and a very difficult set of issues involved.

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Now, what has been lagging in the Indian context is that India has been aiming to become a major manufacturing hub. Several initiatives have been taken over the years to do so. But one of the constraints that has been somewhere impacting India’s assimilation into either the global supply chain or even for that matter, whatever goods and services that are delivered within the country, they were coming at a cost which was way above the global benchmarks.

So the recent efforts by the government by announcing the national logistics policy along with the PM Gati Shakti what they are attempting is to actually bring the larger pieces of the logistics into place. Now, whether that is port, whether that is road, whether that is airports, all of that, and also along with that, the whole system of dedicated freight corridor, then creating the multimodal logistics parts. These are all part and parcel of this larger plan to ensure that the logistics costs, firstly the logistics costs come down, and secondly, the logistics becomes more of a seamless exercise rather than a much cumbersome exercise at the moment.

While we believe that NLP, as well as the PM Gati Shakti, are doing a good job in terms of improving the logistics infrastructure in the country, we saw that the challenge at the moment, I mean, this is still a work in progress and it will take much longer time really to attain whatever has been the objective. But the challenge that we believe remains somewhat unaddressed by the larger national logistics policy, or for that matter, PM Gati Shakti, is the last mile connectivity or so-called the first mile connectivity.

These challenges emerge largely because if one is talking about the urban areas, then urban areas give you a different kind of a challenge in terms of congestion, in terms of various kinds of restriction, and also the fact that warehouses are not located within the urban areas, and in many cases, loading, unloading becomes a very-very cumbersome exercise. Now, if you talk to rural areas, the rural areas’ road infrastructure or accessing the goods which you want to transport, maybe from the agricultural field to the final consumer that connectivity is not there.

So, how are the policies that have been framed already? How are they addressing the last mile connectivity? Do we need another policy push to be able to get that piece in place?

Dr Sunil Kumar Sinha: If you look at the national logistics policy or for that matter, the PM Gati Shakti, the key aim is to bring different government departments whether it is railways, roadways, ports, airports, on one platform so that they can plan and design the logistics infrastructure in a way that the movement of logistics becomes a seamless activity.

So far, that is good, but the main fact is the last mile connectivity. In last year’s budget, the finance minister said they have identified 100 spots which can be converted into something which can facilitate the last first or last mile activity. But the point that we are making is that even if you have a dedicated freight corridor, they can handle the large consignments. But the small consignments, which essentially comes to existing railway platforms, will still not be able to meet the similar treatment as the larger consignment be.

About the freight corridor, I am wondering about the split between the railways and roadways, 65% railways to 26% roadways. Is that a good mix according to you? Do we need to boost air freight at this stage? And is that likely to happen soon?

Dr Sunil Kumar Sinha: Certainly, the aim is to increase the share of railways into the overall freight to 45% which is currently at 26%. The national rail policy is aiming towards that. And the dedicated freight corridor is also going to address that to a large extent. But in spite of that, the challenge would remain that most of our railway platforms or railway stations have been constructed or designed in a way that they simply cannot facilitate the road rail-road movement very easily.

Now, to some extent, the freight corridors are designed that way. One can load a truck onto the dedicated freight corridor and the truck can unload itself after reaching the destination. So there will be seamless connectivity. But such kind of things can happen only for large consignment. For small consignments, we will have to redesign and also look at the smaller stations which are available in far-flung areas from where one can source either the raw material or any other goods and then seamlessly transport it to the destination.

But you mentioned two important problems and one is cost. The other is that it is still very cumbersome to be able to address these problems and to bring it at par with international benchmarks. What is the requirement at this stage? We are going into the presentation of an interim budget. What do you expect now to happen to be able to plug the holes?

Dr Sunil Kumar Sinha: It is an interim budget. So I am not expecting any major announcements. It will be more of a budget which will allow the government to continue its expenditure till the time the next budget or the full budget is presented in the month of July. But in the interim, the other thing that I expect from this budget is that, as I said earlier, that FM had announced in the fiscal year 2024 budget that 100 locations have been identified which can actually reduce the first or last mile connectivity-related issues.

So what has been the progress, whether the allocation which was done for that? And at the same time, I also believe that the identification of those 100 points is not a one-year agenda. It is a pretty long-term agenda. So sustained movement with respect to those announcements and how much progress has happened etc. should find some reflection in the budget.

When it comes to certain businesses, because you are talking about first and last mile connectivity, it is very crucial to get that piece in place. Which are the sectors that you have identified that are suffering the most because we have not addressed this problem effectively?

Dr Sunil Kumar Sinha: It is not any specific sector. We all the time talk about making agriculture more commercially viable and one of the biggest challenges, at least may not be so far as food grains are concerned, but certainly for fruits and vegetables is seamless connectivity with the final destination so that these perishable commodities can have a good wear out.

When I am talking about logistics, it is not just the transportation. It is also the warehouse where the goods can be stored and from where it can be transported. So all of that is part of the overall logistics scheme. So agriculture is one.

Similarly, if we have to look at the connectivity for some of the goods like coal, iron ore etc. that is being transported across, and there also we feel that the last mile connectivity, particularly between the rail and the port, is still a work in progress so all of that needs to be looked into. Similarly, for the small businessmen who import some of these things, the government, rather than going through the usual process, can directly take their consignment from the port without going through the customs clearance. But that has not really taken off because most of these small players do not have the warehouse or wherewithal to really take the container directly out of the port and then transport it to their destination.

So one of the things that really needs to be addressed are the large multi-modal players which do not have a very significant presence in India. They need to be promoted and brought in so that they can provide the last mile connectivity which small businesses on their own cannot.

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