Myles Clarke, Managing Director at CBRE Ireland, said the new decade promises to offer challenges and opportunities in equal measure for the real estate

Finance and EconomicsIndian Logistics Sector – Under Transformation

The performance of logistics sector in the economic development of India has never been more compelling. In order to fulfill the quest for becoming ‘Manufacturing Giant’ ,we need presence of a robust logistics-related infrastructure and an effective logistics management system which facilitates seamless movement of goods from the point of origin to that of consumption. Logistics Sector holds an important value for Indian Economy; as such advancement would increase exports, generate employment and give the country a significant place in the global supply chain.

The Indian Logistics sector is on a big tide. With globalization, logistics is expected to play an increasing role in driving the Indian economy. The last couple of years have seen significant development for this industry which is reflected in the global rankings. According to the Global Ranking of the World Bank’s 2016 Logistics Performance Index, India jumped to 35th rank in 2016 from 54th rank in 2014 in terms of overall logistics performance. While this is reflective of improvement in the sector, multiple challenges of infrastructural deficiency, lack of integration amongst stakeholders, lack of skilled manpower and slow adoption of technology continue to weigh it down.The report also showed that India’s logistics sector has improved its performance on all the six parameters used in the ranking. (Six parameters – Customs, Infrastructure, Ease of arranging shipments, Quality of logistics services,Tracking and tracing, Timeliness

Industry is expected to stimulate the new job opportunities due to increased investments in industry. Currently, the sector provides employment to more than 22 million people in the country. The report also emphasises that improving the sector would result in a 10 per cent decrease in indirect cost, in turn leading to a growth of 5-8 per cent in exports.

The Indian government has announced that it is working at the policy in order to set up new logistics plan in the country. The intention is to devise the most cost-effective method to transport goods by the year 2035.The policy aims at preparing a proper integrated logistics plan. The new logistics division within the department of commerce is working on this national integrated plan, with the objective to identify and iron out any existing bottlenecks and gaps in the industry.

This is good news for the sector. It will also encourage tech-enabled startups in the logistics sector as they will be able to provide seamless movement of goods across the country.

Key Drivers

The growth of logistics is two sided – led by demand – supply.

  • The demand led growth is strengthened with the economic recovery and benefits from implementation of GST. According to the rating agency ICRA, post GST implementation the savings in terms of truck turnaround time has been approximately 18-20 per cent.Also, the outsourcing of non-core activities like warehousing and associated activities to integrated players is leading to strengthen the organised players, which in turn is good for the industry in long term. The picking of industrial consumption is another driver on the demand led growth of the logistics industry in India.
  • The supply led growth drivers include improvement in logistics infrastructure, integrated logistics and birth of numerous logistics start-ups, especially tech led start-ups.According to an industry expert, “Tech-enabled startups have a huge scope to grow as well drive the growth of the sector. Not only they are attracting heavy investments, they have the potential to make export procedures hassle-free by reducing unnecessary paperwork, in turn reducing delays in delivery.”

According to the real estate consultancy CBRE’s report titled ‘2018 Asia Pacific Real Estate Market Outlook’ Delhi-NCR, Mumbai and Bangalore dominated the warehousing space demand with 50 per cent share. Even, the smaller cities have been on growth spurt too with the share of Hyderabad, Chennai, Kolkata and Pune in overall transacted space went up to 49 per cent in 2017 as against 25 per cent in 2016.

Another key trend is the preference for large warehouses that allows better automation process. According to the CBRE report, the Indian market for warehouse automation is estimated to grow by 10-12 per cent to US$ 3.49 billion by the year 2020.

Warehousing emerging as an attractive investment is another dominant trend in the Indian logistics sector. Some of key investors include Ascendas-Singbridge, Morgan Stanley, and Warburg Pincus, beside others. The investment burst in the sector is leading to development of new and better warehousing facilities.

Further, the Survey estimates that the worth of Indian logistics market would be around US$ 215 billion in next two years compared to about US$ 160 billion currently. The boom in next couple of years is expected largely due to the implementation of Goods and Service Tax (GST).

Conclusion

According to CRISIL, the logistics industry of India which stood at Rs 6.4 trillion in FY17 will grow at a CAGR of 13 per cent over the next three years and will be at Rs 9.2 trillion by FY20.

In order to boost the sector growth, commerce and industry ministry has decided give a one-time funding of Rs 8 mn to the sector for building up initial infrastructure and a phase-wise support of Rs 33.9 mn for four years.

The government’s focus is to bring down the cost of logistics which is at 14.4 per cent of India’s GDP at present. The aim is to bring it down to 10 per cent level in the next four years. This is a very significant move and will boost the competitiveness of the sector and will be significant for its further growth.

Going forward, strategic investment and government initiatives to support the sector are going to be crucial for the logistics industry in India. If all goes well, the sector has the potential to create huge number of jobs and play a key role in driving the economy on a high wave.