Seeking 'accuracy': Govt to come up with fresh logistics cost estimate soon

The Centre is in the process of reaching a more “accurate” estimate of the cost of logistics (as a percentage of gross domestic product) by revising the methodology through which the cost is calculated. And, the new estimate may be lower than the current 14-16 per cent, Business Standard has learnt.

“The task force constituted for this is likely to come up with a fresh estimate in around two months. Initial indications suggest that it is likely to be lower than the current estimate,” a senior planning official of the Centre said.

Since there is no globally accepted framework for logistics cost estimation, previous estimates were found to be rather broad-based, the official said.

“The current activity has localised these metrics for India, and the framework is more or less finalised,” he added.

Reducing the cost of logistics has been one of the focus areas for the government, as emphasised by Prime Minister Narendra Modi.

The current 14-16 per cent estimate is a sore point for the Centre, which wants to bring it at par with developed countries at around 8 per cent of GDP.

“We have listened to a number of global experts on the issue. The earlier estimate was based on assumptions through benchmarks used in other countries. The latest activity by the task force is focused on understanding which global metrics don’t work for India. Also, which new metrics can be added for a more accurate representation,” the senior official said.

The task force includes representatives from NITI Aayog, the ministry of statistics and programme implementation (MoSPI), the National Council of Applied Economic Research (NCAER), academic experts and other stakeholders, special secretary for logistics Sumita Dawra had said in April.

Questions raised
 

However, the revision exercise was undertaken after several experts and research organisations argued that this estimate may not be accurate, with the latest being former chief economic adviser and former Reserve Bank of India (RBI) deputy governor Rakesh Mohan.

“There’s no way that (it) can be true... what is the share of manufacturing in GDP... 17 per cent. So, are you telling me logistics value added or logistics cost is the same as total manufacturing value added in the country... these numbers, I just don’t understand,” Mohan, who is currently a member of the 

Economic Advisory Council to the Prime Minister (EAC-PM), reportedly said.

According to experts, India’s logistics estimates were reached through a general framework for developed countries by consulting firm Armstrong & 

Associates. This may not be best-suited for developing countries like India.

A study by the NCAER had suggested a much lower estimate.

“India’s logistics costs amounted to 8.87 per cent of the GVA (gross value added) at basic prices during 2017-18. This is equivalent to 8.10 per cent of GDP at market prices during the year 2017-18,” the think tank found.

The National Logistics Policy, launched by the government in November last year, underscores the need for a radical modal shift in national logistics. It is currently dominated by road transport, which is three times more expensive than rail, and around eight times more than waterways. However, achieving this shift has been a tough challenge.

“The use of multi-modal transportation with a mix of road/rail transport is the characteristic of only a few routes. One of the main reasons why railways is not used extensively for transporting cargo is the absence of scheduled cargo trains or prevalence of infrastructural bottlenecks along most rail routes,” the NCAER study had found.

It had pointed out that using railways brings down the logistics costs. However, this advantage is neutralised by the unpredictability of delivery times of consignments transported by train.

Seeking ‘accuracy’

Task force constituted to come up with a fresh estimate in two months
 

Includes representatives from NITI Aayog, MoSPI, National Council of Applied Economic Research, and others
 

Reducing the cost of logistics has been one of the focus areas for the Centre
 

It wants to bring the estimate on a par with developed countries at around 8% of the GDP