Ashika Monthly Insight Flip July 2016

FDI - WINDOW OF OPPORTUNITY
Logistic - Reforms on cards
India under the leadership of Mr. Narendra Modi has
made some notable developments which lacked in
previous government’s regime. NDA government recently
completed two years in the power and during the period
they have announced and implemented lot of key reforms
in important sectors in order to revive the country’s
economic growth. However, in some cases government
missed the expectation for not implementing the reforms
by passing the important legislative bills in parliament.
Key bills like GST, Land bill, Mining and Labour bill are
pending for the parliamentary approval for which
government needs support in Rajaya Sabha. Though, the
expectation is high that most notable GST bill will be
passed in monsoon session and government would be
able to implement the bill from April 2017. GST
implementation is important for all sectors as it would
simplify country’s complex indirect tax structure and
would provide uniform tax rate across the country, thus
would reduce paper works & save time and would
contribute to India’s GDP. Since, NDA government came
into power, they are committed to develop country’s
ailing infrastructure which in turn would propel GDP
growth. In infrastructure, government’s focus is on
developing road & highways, logistic, construction, power,
etc. Logistic and warehousing is an important
infrastructure which India needs to develop in order to
boost economic growth. Still India is at initial stage of
development in logistic sector and has long way to catch
up with most of the advanced economies. Logistic is the
mainstay of the economy, given an efficient, cost
effective flow of goods on which other commercial and
manufacturing sectors depend. Due to inadequate
infrastructure, India’s logistic cost is comparatively higher
than other developed countries. Logistics cost in India is
estimated at ~13-14% of the GDP. This compares to ~8%
of the GDP for US and 18% of the GDP for China.
Logistic sector constitutes a mix of transport, warehousing
and other related services and freight is transported
mainly through roadways, railways, coastal and pipelines.
Freight also constitutes of domestic and EXIM (export &
import) trade, where costal is considered to be cheapest
means of transport (25-30 paise per km/per tonne),
compared to Rs 2.50 for road and Rs 1.5 for rail transport.
As per Assocham, Indian freight transport market is
expected to grow at a CAGR of 13.35% to reach at USD
307 billion by 2020 driven by the growth in the
manufacturing, retail, FMCG and e-commerce sectors. Over
the past 2-3 years, logistic sector has been in limelight
due to emergence of long term themes and expectations
of the pickup in volume growth from revival in domestic
macros and other government initiatives like Make in India,
construction of Dedicated Freight Corridor (DFC), port
development and investment in road infrastructure, rollout
of GST and exponential growth in the e-commerce
segment.
Logistic infrastructure needs to develop in India to
catch up global standard
Logistic sector in India is still at a nascent stage as
compared to global standard. The sector is highly
fragmented and dominated by unorganized players
especially the road logistic segment. Inadequate
infrastructure had made logistic cost high in India which is
estimated at ~13-14% of GDP. This compares to ~8% of
the GDP for US and 18% of the GDP for China. The
logistic industry suffers from systemic inefficiencies and a
number of challenges to growth including lack of good
infrastructure, high handling costs, procedural delays and
pilferages, thus resulting in higher-than normal logistics
costs for the domestic logistic companies. Further, there
have been long standing reforms pending like abolition of
state wise taxes, creation of modern warehousing facilities
and streamlining of customs formalities. Indian logistic
sector is highly fragmented and unorganized, hence the
issues like limited capital to scale up the business, low
credibility and non-standard process persists in the sector.
Infrastructure issues loom on every logistic segment like
none of India’s major port can routinely handle ships
above 6000 TEUs (twenty equivalent units) and as a result
27