The move assumes significance, as there has been no official estimate of logistics costs in India, and one of the key objectives of the new policy is to bring down such costs, which have long been blamed for eroding the country’s export competitiveness.

As it works out a national logistics policy, the commerce & industry ministry is weighing a proposal to roll out an index to gauge the country’s logistics costs. The move assumes significance, as there has been no official estimate of logistics costs in India, and one of the key objectives of the new policy is to bring down such costs, which have long been blamed for eroding the country’s export competitiveness.

“We are actively considering working out a framework for the assessment of logistics costs and also the possibility of having an index, which can help us in the determination of and/or monitoring of logistics costs at any point of time,” a senior official told FE.Some private agencies have pegged India’s logistics costs at 13-14% of its gross domestic product (GDP).But some experts have raised questions over the methodology used by the private parties to arrive at such costs, given the fragmented nature and the complex dynamics of the logistics sector, and opaque pricing models adopted by relevant players. However, for these very reasons, estimating the actual logistics costs will warrant an elaborate exercise.

The new policy will likely set an ambitious target of reducing the costs by up to five percentage points over the next five years. Encouraged by the Centre and acknowledging the growing importance of keeping logistics costs at reasonable levels, eight states have adopted their own logistics policies.These states are Gujarat, Uttar Pradesh, Haryana, Assam, Telangana, Kerala, Bihar and Chhattisgarh, official sources said. More states are following suit.

An earlier draft of the national logistics policy, firmed up in 2019, had aimed to reduce such costs to 9-10% of GDP but the ministry had then flagged the absence of an official logistics indicator. The logistics sector in India remains very complex, with the involvement of more than 20 government agencies under various ministries, 40 partnering government agencies and 37 export promotion councils. They deal with 500 certifications covering 10,000 commodities.

The renewed thrust on reducing logistics costs came after the government created the new logistics division in the commerce department to develop and coordinate the implementation of an action plan for the integrated development of the logistics sector, by way of policy changes, improvement in existing procedures, identification of bottlenecks and gaps and introduction of technology in this sector.

According to a 2016 HSBC report, domestic bottlenecks, including high logistics costs, accounted for a half of the slowdown in the country’s exports. The Economic Survey for 2017-18 had estimated that a 10% reduction in indirect logistics cost could lead to an export growth of 5-8%.

India improved its ranking in the World Bank’s Logistics Performance Index (LPI) from 54 in 2014 to 44 in 2018. However, it trailed countries like Singapore (rank 7), South Korea (25), China (26), Taiwan (27), Thailand (32) and South Africa (33). Also, while it has done relatively well on “tracking and tracing” and “timeliness”, its scores on “customs”, “infrastructure” and “logistics competence” parametres of the LPI were lower than its headline LPI score in 2018.

A customs officials said several initiatives have since been taken to improve the performance, which would reflect in future ranking.The country’s road logistics market alone is estimated to grow at a compounded annual growth rate of 8% to reach $330 billion by 2025, driven by factors, including a rapidly growing e-commerce sector and a growing retail sales market, according to a study by an arm of consulting firm RedSeer.

Source: Financial Express