Logistics, key contributor to Indian economy - Mahesh A Mulani, KPFFPL

The Indian economy is today on the threshold of a new beginning, thanks to a burgeoning demand from its 1.2 billion people. The global economic downturn has had a minimal impact on the Indian economy, which is now expected to expand between 7-8%, a commendable statistic when its peers are experiencing severe problems in reviving their respective economies and get back to growth path. Logistics is the life line of any growing economy and today India has become the prime destination for logistics service providers all over the world. India is also experiencing a big retail boom with buying capacity increasing.

Poor infrastructure directly translates to lower turnover, higher operating costs and reduces efficiency. There are other problems such as complex regulatory compliance, limited implementation and utilisation of technology, which has resulted in increased paperwork and inability to communicate effectively with the customers. In spite of dismal infrastructural scenario, the hopes of the logistics sector are kept up by the various upcoming infrastructural projects such as logistics parks and hubs and other initiatives by public and private sector.

The future of the logistics sector depends not only on the continued development of infrastructure but also on the capability of the service providers in adapting themselves and making optimal utilisation of technology.

Growth drivers

The demand for FMCG and electronic products in the domestic market has been increasing at a rapid pace. Many multinational companies have shown growing interest in setting up world-class manufacturing units in India in a bid to cater to the domestic and the export market. The automotive industry is well on its way to being one of the world’s major automobile manufacturing hubs. Since the deregulation and opening up of the automotive industry, the industry has witnessed tremendous changes. As an outcome of the growth in the automotive industry, the automotive components industry has grown exponentially, with the country becoming home to many world-class auto component suppliers.

Many MNCs from the retail sector are also keen on setting up operations in India and large local retailers are planning to expand their operations. But it is seen that with the infrastructure largely under-developed and incapable of catering to a growing economy, logistics management in India has become too complex.

Future trends

Warehousing has become one of the major segments contributing to a rapidly growing Indian logistics industry. The growth in international trade and a rapid rise in containerisation levels have led to high demand for warehouses and a tremendous opportunity for the private sector. There has already been a significant benefit to the industry, in terms of market size, growth and infrastructural resources. Several investment options in the warehousing market have heightened the interest of players foraying into the market.

The demand for logistics services has been largely driven by the remarkable growth of the Indian economy. Logistics spend in India is estimated to be around 13% of the GDP, which is comparatively higher than other developed countries. The contribution of the marine transport sector has also been around 0.2% to the country’s GDP. The sector’s contribution to the GDP has been increasing because of the growing economic developments in the country.

The Indian logistics sector attracted huge investments, leaving behind some of the major sectors including aviation, metals and consumer durables. The growth in the retail and manufacturing industry, commodity markets and development of Special Economic Zones (SEZs) have been key factors in the growth of the Indian logistics industry.

The setting up of SEZs has led to increased logistics activities around them. Several logistics parks have come up at locations like Mumbai, Kolkata, Chennai and Hyderabad because of their excellent port, rail and road connectivity have witnessed significant investment in infrastructure. Most logistics players are in the process of setting up warehouses, container freight stations (CFS), logistics parks, distribution centres and other facilities to leverage the abundant opportunities and increase in foreign trade is touted to boost the demand for logistics services further.

The increased participation of both public and private sector is crucial for developing logistics and improving supply chain management. Not only do the logistics companies need to create efficient business to thrive in the logistics sector, they also need to explore ways for investing energy, cost and time to build a strong logistics system.