India's logistics industry to be worth $215 bn by 2020-21: CARE Ratings

The country's logistics industry is projected to be worth $215 billion by 2020-21, recording a 10 per cent compounded annual growth rate (CAGR) over its approximate size of $160 billion in 2016-17.  

The industry's growth will be fuelled by the strides in manufacturing, retail, fast-moving consumer goods and e-commerce sectors. Development of logistics related infrastructure, like dedicated freight corridors, logistics parks, free trade warehousing zones and container freight stations, are expected to improve efficiency, a report by CARE Ratings observed. 

At present, the logistics sector is dominated by transportation, which has over 85 per cent share in value terms. Its share is set to remain high for the next few years. The remaining 15 per cent share is accounted for by storage. The sector is employment intensive, absorbing 22 million people.  

Logistics costs have a significant bearing on exports. It is estimated that slashing logistics costs by 10 per cent could widen exports by five to eight per cent. 

Steep logistics costs in India vis-a-vis other nations have been a vexing issue. Logistics costs as a percentage of the country's gross domestic product (GDP) is 13-14 per cent. The figure is higher compared to 10-11 per cent for BRIC countries and eight to nine per cent for developing nations. USA spends 9.5 per cent of the GDP on logistics, while Germany is even more competitive with a share of eight per cent. Higher logistics costs in India could be ascribed to the lack of efficient inter-modal and multi-modal traditional systems, the ratings agency said in its report. 

Going ahead, the logistics costs as a share of the GDP is expected to decline, led by initiatives like the implementation of goods and services tax (GST), investments in road infrastructure, development of inland waterways and coastal shipping, and the thrust on dedicated freight corridors.

At present, the Indian logistics industry is highly fragmented and unorganised. Owing to the presence of numerous unorganised players in the industry, it remains fragmented, with the organised players accounting for approximately 10 per cent of the total market share. With the consumer base of the sector encompassing a wide range of industries, including retail, automobile, telecom, pharmaceuticals and heavy industries, the logistics industry has been increasingly attracting investments in the last decade.

Further, the logistics industry faces challenges such as under-developed material handling infrastructure, fragmented warehousing, multiple regulatory and policy-making bodies, lack of seamless movement of goods across modes, and minimal integrated IT infrastructure. In order to develop this sector, focus on new technology, improved investment, skilling, removing bottlenecks, improving intermodal transportation, automation, a single-window system for giving clearances, and simplifying processes would be required.