Indian Logistics Sector Poised to Reach $350 Billion by 2025, Yet Faces Persistent Challenges, Reveals GS1 Report

GS1 India, a standards organization under the aegis of the Ministry of Commerce & Industry, Government of India, in collaboration with apex trade bodies and key government agencies, has released a comprehensive concept paper shedding light on the critical challenges faced by the Indian logistics sector and the potential for improvement and growth.

LOGISTICS SECTOR IN INDIA

The sector's current state is of significant size and economic importance and is projected to further grow and reach $350bn by 2025. However, it still faces various obstacles.

WHAT ARE THE KEY AREAS WHERE THE INDIAN LOGISTICS SECTOR LAGS BEHIND GLOBAL BENCHMARKS?

1. Higher logistics costs: India spends 13-14% of its GDP on logistics costs, compared to the global average of around 8% of GDP.
2. Competitiveness gap: The higher logistics costs have created a competitiveness gap of $180 billion in 2020, projected to widen to $500 billion by 2030.
3. Logistics Performance Index (LPI) ranking: India ranked 42nd on the Logistics Performance Index for 2018, lagging behind countries like Germany, the UK, Japan, Austria, China, and the USA.
4. Tracking and tracing: Germany, Austria, and the USA showcased impressive scores in the tracking and tracing category, attributed to digitalization and functional integration. India scored lower in this category.
5. Timeliness: Germany, the UK, and Japan led the scoreboard in terms of timeliness, while India scored lower in this aspect.

CHALLENGES FACED BY THE INDIAN LOGISTICS SECTOR

1. High hidden costs: Logistics costs in India account for 14% of GDP, with 60% direct costs and 40% indirect costs, compared to an average of 10% indirect costs in developed countries.
2. Lack of visibility: Logistics firms face challenges due to a lack of visibility among trading partners and consumers, leading to supply disruptions and delays in the value chain.
3. Limited automation: India is in the early stages of process automation, lagging behind global practices that provide transparency and real-time data in supply chain activities.
4. Skewed multi-modal mix: Approximately 60% of cargo is transported via road in India, while rail and water transportation account for a smaller share. This leads to high logistics costs and reduces competitiveness in exports.
5. Inadequate physical infrastructure: Poor physical infrastructure, including modal and terminal transport, national highways, freight train speeds, and port facilities, hinders the growth of the logistics sector in India.
6. Fragmented logistics and retail sectors: The logistics sector in India is dominated by unorganized companies, leading to fragmentation, low margins, limited investments, and challenges in streamlining supply networks. The retail market is also largely unorganized, affecting the complexity of the supply chain.
7. Limited support for MSMEs: Micro, small, and medium enterprises (MSMEs) in India would benefit from government support in creating a skill-based supply base and implementing standardized vendor capability assessments.

GOVERNMENT'S FOCUS ON CAPITALIZING ON THE UNTAPPED POTENTIAL IN THE LOGISTICS SECTOR

The government of India has launched the National Logistics Policy to create a trusted, reliable, cost-effective, resilient, and technologically equipped logistics ecosystem in the country for rapid growth and bridging the competition gap with global competitors.

Targets of the NLP:

1. Reduced logistics costs: The policy aims to reduce logistics costs from 14-18% of GDP to 8% by 2030, aligning with global best practices.
2. Global leadership: India aims to rank in the top 25 countries in the Logistics Performance Index (LPI) by 2030.
3. Efficient ecosystem: The policy aims to create a data-driven decision-support mechanism for an efficient logistics ecosystem.

ROLE OF GLOBAL STANDARDS IN IMPROVING INDIA’S LOGISTIC SECTOR

1. Visibility: Standards, such as barcode scanning on transport labels, allow for capturing essential data, ensuring transparency and visibility throughout the transport process.
2. Interoperability: Standards enable seamless communication and collaboration among all stakeholders involved in logistics operations. Unique identification and automated data capture ensure interoperability and smooth information sharing.
3. Tracking: Standards facilitate tracking and identification of individual equipment or items across different locations. Unique identification keys help ensure that items are in the right place at the right time.
4. Warehouse Management: Standards contribute to precise and timely inventory information, leading to more efficient management of inbound and outbound flows. This improves inventory accuracy, reduces warehouse stock, and optimizes on-shelf stock availability.

GS1’S RECOMMENDATIONS TO BRINGING IMPROVEMENTS TO THE INDIAN LOGISTICS INDUSTRY

1. Eliminate data inaccuracies and inconsistencies: The GS1 system, which includes identification, automatic identification and data capture (AIDC), and information exchange standards, helps eliminate data inaccuracies and inconsistencies in logistics operations.
2. Reduce logistics costs: GS1 standards contribute to cost reduction by enabling interoperability, simplifying processes, providing unique identification, harmonizing information, reducing duplicity, and standardizing information exchange.
3. Implement National Logistics Policy: The GS1 system can support the Indian government in implementing various action areas outlined in the National Logistics Policy. This includes integrating digital systems, standardizing physical assets, benchmarking service quality standards, and implementing a service improvement framework.

Concept Paper Link — https://drive.google.com/file/d/1CVzgWQrbZiHObRI16OqqKh_tXqst4sqz/view?usp=share_link

About GS1 India:

GS1 India is a standards organization set up by the Ministry of Commerce & Industry, Government of India, in collaboration with leading trade bodies and government agencies. The organization focuses on spreading awareness and providing guidance on the adoption of global standards such as barcodes and RFID technology by the Indian industry and government.

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