Mumbai: India’s logistics industry, valued at Rs3.6 trillion, is poised to grow 11% annually on strong economic fundamentals but high spends are a concern, Crisil Research said on Wednesday.
Government measures such as development of logistics parks and investment-linked tax deduction will help the industry become more organized and accelerate its growth.
“A strong growth is expected on the back of favorable regulatory environment, greater thrust on logistics infrastructure spending and the changes which we expect from organized players gaining a larger market presence in the industry,” said Manoj Mohta, head, Crisil Research.
A thrust on road development will also help the logistics business as companies increasingly depend on them for transport, he added.
“A large part of the growth will be happening because of the growth in the road transport segment and also from warehousing,” he said.
But firms will have to offer a wider range of logistics services in addition to basic ones like transport and warehousing, he said, adding only a handful of players provide pan India services at present.
Currently, unorganized logistic players with small and fragmented operations make up around 80 to 85% of India’s logistics industry, Mohta said.
However, the higher spend on logistics is a worry, he added.
The firm estimates total logistic spend covering both primary and secondary movement to be around 10.7% of India’s gross domestic product (GDP) in 2008-09, significantly higher than the 5 to 7% across developed nations.
“The primary reason for this higher spend is largely due to inefficient logistics operations, multiple tax structure, inadequate logistics infrastructure and the unorganized nature of this industry,” Mohta said.
A well-developed logistics business, especially in the food processing and agri-warehousing sector, will reduce agricultural wastages to 25% from 30-40% at present, he added.