4 Things How Infrastructure Status Can Boost Logistics Sector In India

Food losses due to poor storage facilities were part and parcel of the Indian logistics sector till now. However, such criminal food waste can be a thing of the past after the Indian government recently decided to grant infrastructure status to the logistics sector.

The logistics sector is now included in the master list of infrastructure sub-sectors as 'Transport and Logistics'. This move is set to have a positive impact in the long run. They are:

Lower Food Waste

India loses agriculture goods worth Rs 92,651 crore annually due to fewer storage facilities and poor transportation network. But the government’s latest directive to set up Inland Container Depots (ICD), cold chain and warehousing facilities around the country will likely attract private investment. The capital infusion, as a result, would upgrade the logistics sector and thereby reduce the industrial-scale food waste.

Cost May Come Down

The logistics cost is very high in India compared to global standards. It is about 14% of the Gross Domestic Product (GDP) for India, while it is between 6-8% for the developed economies. This reduces the competitiveness of Indian goods domestically as well as globally.

The infrastructure status can lead to the development of large warehouses and bring down the logistics cost significantly. Reducing the expenses from 14% to 9% can help India save Rs 32,500 crore, according to a study by Assocham-Resurgent India. It can make Indian goods more competitive across different markets.

Credit At Better Rates

The infrastructure status can help the logistics sector get longer maturity loans along with the option to refinance loan with Infrastructure Development Finance Company (IDFC) and Indian Infrastructure Finance Company (IIFCL).

K Ravichandran, senior vice president of ICRA Limited, a rating agency, told a leading daily that this will help the sector get cheaper loans, another factor that can help bring down its costs.

Logistics companies can now also borrow longer maturity loans at an attractive interest rate from pension funds and insurers.

Improved Ranking/Trade

The World Bank has ranked India 35th out of 160 countries on their Index (LPI). The country has risen 19 spots since 2014. The latest push is expected to further accelerate India’s rise in the rankings.

One of the reasons is that the logistics sector would likely see an increase in foreign investment. This is because the government plans to build 34 mega logistics parks across the country. A Rs 1 lakh crore-corpus has already been set aside to build more inland container depots, cold chain and warehousing facilities.

The expansion of storage and warehousing facilities will also immensely benefit pharmaceutical, fast-moving consumer goods (FMCG), cement, textiles and e-commerce sector as they are heavily reliant on such facilities.

However, the decision to bring logistics under the infrastructure sector is not going to solve all the problems plaguing the sector. Although insiders have welcomed the change, they expect further steps from the government. They want the government to modify the validity period that comes with an e-way bill. This would ensure seamless movement of transport vehicles around the country.

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