The fall and fall of the country’s logistics costs

A study by the National Council for Applied Economic Research (NCAER) commissioned by the ministry of commerce and industry has put India’s logistics cost at 7.8% to 8.9% of GDP. (Mint)
A study by the National Council for Applied Economic Research (NCAER) commissioned by the ministry of commerce and industry has put India’s logistics cost at 7.8% to 8.9% of GDP. (Mint)

Summary

  • Mint explains the reduction, where India stands globally when it comes to the cost of logistics, and what more needs to be done.

MUMBAI : A new and more scientific way of calculation has put India’s logistics cost much lower than before. How sharp is this drop? Mint explains the reduction, where India stands globally when it comes to the cost of logistics, and what more needs to be done.

What is India’s logistics cost today?

A study by the National Council for Applied Economic Research (NCAER) commissioned by the ministry of commerce and industry has put India’s logistics cost at 7.8% to 8.9% of GDP. This was arrived at with the help of National Accounts Statistics and included data on transport services, storage, and warehousing. The earlier estimate, which was more a ballpark figure, put the logistics cost at anywhere between 13% and 14% of GDP. Experts have said that the two numbers are not comparable, and that the sharp drop does not mean the logistics cost has declined by 500 basis points in the last decade.

 

Has there really been a reduction in the cost?

Yes. According to the NCAER study, it was 8.6% to 9.8% in 2013-14 and dropped to 7.8% to 8.9% in 2021-22, a nearly 100-basis point reduction. A basis point is a hundredth of a percentage point. This has been due to investments in roads, ports, and airports apart from Goods and Services Tax and digitization of export-import processes. Rating agency Crisil puts India’s infrastructure spending in the last seven years at 67 trillion. Experts point out that the NCAER calculation is not comprehensive and does not include the cost of logistics that is outsourced. The actual cost would be higher, if that is factored in.

What is the National Logistics Policy 2022?

While launching the policy in September 2022, Prime Minister Narendra Modi said its objective was to reduce the logistics cost from 14% of GDP to a single digit. Lowering the cost is critical for making India the manufacturing hub of the world. The policy also seeks to improve India’s ranking to the top 25 countries in the World Bank’s Logistics Performance Index by 2030.

Where does India stand now globally?

India gained six places and was ranked 38 among 139 countries in the Logistics Performance Index 2023. In 2014, it ranked 54. Singapore topped the ranking, followed by Finland. The US was ranked 17, while China, UK and South Africa came a joint 19th. The rankings benchmark countries across six parameters, including infrastructure, timeliness, and competence. It helps countries to identify challenges and opportunities in the performance of their trade logistics and what they can do to improve them.

What more can India do to cut costs?

It must invest a lot more on infrastructure. Crisil estimates that the government will be spending 143 trillion on infrastructure between 2023–24 and 2029–30. PM GatiShakti National Master Plan rightly seeks to integrate existing and proposed infrastructure initiatives and leverage tech to ensure seamless movement of people and goods. Improvement in the throughput of ports, airports, and railways is critical. Logistics efficiency needs to be improved by outsourcing to logistics service providers.

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