National Logistics Policy: Just In Time To Speed Up India’s Freight Movement?

The National Logistics Policy, unveiled by Prime Minister Narendra Modi on Saturday, is being hailed by industry experts as a watershed moment in India’s logistics sector and a shot in the arm for the country’s economy.

The aim of the policy is to cut high logistic costs and thereby enable domestic companies to compete in the global market and make India a $5 trillion economy—a goal that was earlier set for 2025 but has now been pushed further given the impact of the Covid-19 pandemic.

"We have to bring 13-14% logistic costs down to single digits to become globally competitive," Modi said at the policy's launch. "It is a low-hanging fruit."

The policy might have come just in time to speed up India’s freight movement, as the country plans to compete on the global stage.

"The world is going the China Plus One route when it comes to production and sourcing strategies," RS Subramanian, senior vice president of South Asia at DHL Express, said.

"Our research shows that India stands to benefit, as its share of global trade will double by 2026. The timing of the National Logistics Policy is therefore fantastic," he said.

The policy was first mooted in Finance Minister Nirmala Sitharaman’s Union Budget speech in 2020, and has been launched after years of consultations and meetings.

The timing of the launch is a well-thought-out step as the government first laid the ground for it through several infrastructure projects, executed under Bharatmala and Sagarmala along with digitisation of many government services, the Prime Minister said.

Over the past five fiscals, the government has invested close to Rs 15 lakh crore in augmenting hard infrastructure such as roads, rail, ports and airports, said Jagannarayan Padmanabhan, director and practice leader-transport and logistics at Crisil.

Along with the PM Gati Shakti National Master Plan, the policy is expected to encourage greater collaboration among ministries and departments.

The policy on logistics aims to encourage multimodal transport including roads, railways and water routes. It envisages greater efficiency by ensuring 25-30% freight movement by roads, 50-55% by railways and 20-25% via water routes.

Currently, more than 60% of the freight movement is through roads, while railways account for 25-28%, with the rest of it contributed by shipping and waterways.

A lot will depend on how quickly the shift happens.

In a recent interaction, Vineet Agarwal, managing director of Transport Corp. of India Ltd. and immediate past president of Assocham, told BQ Prime that in the next two to three years, the market share gain of roads could stop.

“And it will possibly remain at the same level, and then we'll see market share gains of rail starting. So, perhaps in the next three to five years, the gains will be higher for railways than for roads,” Agarwal said.

Such a shift in a relatively smaller period of time may put pressure on capacities of railways. But experts feel the national transporter will be ready for it.

Over the past few years, the railways have upgraded infrastructure by turning to uni-gauge policy, electric tracks and locomotives along with higher addition of routes every year and better signaling systems, which means increased load capacity and lower detentions, said Lalit Chandra Trivedi, a former general manager with the Indian Railways.

With the addition of Gati Shakti terminals, dedicated freight corridors and huge tenders for wagons, the transporter will further remove roadblocks, he said.

The logistics policy relies heavily on technology as two of its key pillars are the Unified Logistics Interface Platform—a single-window platform for all transportation services—and ELogS or Ease of Logistics platform for quick resolution of issues raised by industry associations.

Since the ULIP platform brings shippers and transporters on a single platform, the trucks which earlier used to return empty due to poor visibility of orders have started finding loads for the back trip as well, Gautam Kumar, chief operating officer and co-founder of the logistics platform FarEye, told BQ Prime.

Kumar, who also worked closely with the team that shaped the platform, said the shift to organised players doesn't necessarily mean that smaller players will be pushed out.

On the contrary, the platform gives lakhs of small fleet operators access to data and technology, in which they wouldn't have invested due to financial constraints, he said.

Other steps such as FASTag and plans to remove toll booths from roads will also help.

An average truck in India travels 300 km—much lower than 700 km for trucks in Europe—and with the government's increased focus on removing barriers to boost freight movement, the gap will be bridged gradually, Kumar said.