Ashika Monthly Insight Flip July 2016

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JULY <strong>2016</strong> SECTOR OUTLOOK Load capacity for various modes of transport (per 1 4000 Horse power) (in kg) 500 150 Inland water Rail Road Efficiency per litre of fuel consumption (Ton-Km/ltr) 105 85 24 Inland water Rail Road Cost per ton per km for various modes (Rs.) 2.5 1.5 0.25 Inland water Rail Road Source: Industry Report Uptick in e-commerce business to drive growth The surge in e-commerce volumes has been the major growth driver for express distribution industry over the past few years. The rapid rise in preference for digital shopping, increased uses of mobile devices and accessibility to technology/internet augur well for the growth in the e-commerce industry in India. The availability of options like Cash on Delivery and newer payment options such as mobile payment wallets, has led to substantial jump in deliveries across many markets. Rising demand from Tier II, III and smaller towns present a major growth prospect for the industry participants. The Government’s “Digital India” initiative which aims to bring the internet and broadband to remote corners of the country would provide the connectivity for e-commerce. Government’s recent notification of 100% foreign investment in marketplace e-commerce companies, including services like warehousing and inventory would also provide a fillip to the logistic sector. The e-commerce players need to deliver products quickly to their customers and one of the most important clientele segments for them are in the tier II and tier III cities. Thus, there will be significant demand for warehousing and logistic space in India. To tap the market, a number of startup companies have been able to expand into the smaller centers backed by funding from investors. As per Bank of America Merrill Lynch, Indian e-commerce sector will surge to USD 220 billion in value of goods by 2025 from current USD 11 billion, leaving lot of opportunities for domestic logistic companies to tap the market. Outlook India, lags in logistic infrastructure in the world with logistic cost accounts ~14% of annual GDP which is higher than other developed nations. Structural reforms are needed in Indian logistic sector if it wants to compete with other developed and developing nations. Logistic infrastructure is directly linked with the overall economic development and hence it is imperative to develop and enhance the logistic infrastructure. As Indian economy is based on consumption, inflation is always a matter of concern for the government. Thus proper logistic infrastructure to reduce transportation cost would support government to contain inflation and boost real GDP growth. Government is aware of poor logistic infrastructure in the country and has been taking initiatives to address the issue. Fast track implementation of DFC project, construction of multi modal logistic park, roll back of Port Congestion Surcharge on railway freight and incentivizing the shipping transport are the notable reforms that government has announced towards the development of the sector. Further, rollout of GST would be a game changer for the sector as it would bring down the transit time and logistics costs. Government has allowed 100% FDI in market place e-commerce companies, resulting in higher demand for warehouses and logistic space. Thus the sector provides huge scope of growth for domestic logistic firms, given the importance of the sector towards country’s economic development. 32
FDI - WINDOW OF OPPORTUNITY Monsoon, the mega event of the year has left half of the country unsatiated so far with all sects of people still looking to quench their thirst. After the initial above average forecasts by the forecasting agencies – IMD and Skymet, the monsoon has so far clocked deficit of 17% as of 23rd June, <strong>2016</strong> albeit lower than 23% deficit previous week. The percentage points are calculated by comparing the expected centimeters of rainfall with the Long Period Average (LPA) of past 50 years. While the LPA is 89 cms, IMD expects a total of 94 cm of rainfall this monsoon. The monsoon however arrived in Kerala a week later than its normal onset date of 1st June, but is believed to have rapidly advanced over peninsular Indian states. As of 23rd June, north-west India has received 6% excess monsoon rainfall, central India has recorded a 38% deficit, the peninsula has recorded 15% excess rainfall, and east and north-east India have recorded a deficit of 24%. To sum up, so far, 24% of the country has received excess rainfall, 31% has received normal rainfall, and 45% deficient and scanty rainfall. Clearly, when the first Source: IMD 33
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