In the Covid era, the Indian logistics and supply chain sector has emerged as a significant backbone of the Indian economy and continues to be the important step to strengthening India’s position as a global economic power. A robust and cost-effective logistics and warehousing sector has become the crucial factor in global business and economic environment today and this has been one of the key focus areas for the Indian government, through its recently launched National Logistics Policy, which will be implemented on a massive scale in 2023. And while reducing the logistic cost through effective infrastructure development is also the primary objective, the goals cannot be achieved without a holistic approach towards development of the entire supply chain, including warehouses. And India’s warehousing and contract logistics is one such segment of the vital trade supply chain!
The Indian warehousing market was valued at INR 1,206.03 Bn in 2021 and is expected to grow to INR 2,872.10 Bn by 2027, expanding at a CAGR of 15.64% during the 2022-2027 period. In alignment with the supportive government policies, including ‘Make in India’ and the ‘Digital India’ policies for business, the warehousing sector is also looking to accelerate digital adoption, embrace greener practices that match international standards, and drive value added collaborations with the manufacturing sector. While disruption through geopolitical stressors, further threatened international trade, India’s logistics and warehousing sector has emerged stronger and holds a lot of promise.
As the Indian government enhances its focus on infrastructure development and bolstering Indian exports through various schemes, the sector has certain challenges that, if addressed during the upcoming union budget, will help in the long-term growth and holistic development of the sector. These are as listed below:
Reduction in prices of steel: Steel accounts for 30%-40% of the warehouse construction cost and since 2021, these prices have been skyrocketing, thanks to the global shortage and thus increase in procurement. While several factors during the pandemic have been at play, this rise in price has impacted the warehouse automation market, particularly for fixed infrastructure solutions, where steel can account for up to 83% of the overall cost. From increasing the price of digital adoption through automation to extending the lead time of construction, steep prices of steel are a major hindrance for the Indian warehousing sector. If the upcoming Union budget can consider the reduction in steel duty/ prices for industrial warehouse construction, it would be a huge accelerator in development of smart and digitally equipped warehouses.
Better road infrastructure: The ambitious Gati Shakti plan aims to create an ecosystem that links roads and railways from the hinterlands to the ports in coastal India, as part of the National Logistics Policy. The plan includes the development of around 2 lakh km of National Highways and nearly 6,000 km of 4-6 lane National Highways in the coastal regions, connecting the Northeast regions of India, which has so far been disconnected, by development of 2-4-lane National Highways that interlink various state capitals by 2025. This is of vital importance to the sector as currently 64% of Indian freight movement happens through roads. While the policy has proposed a Rs 100-lakh crore outlay for road projects, its effective and timely implementation would be a key factor for the growth of the sector. It is also important to note that in consolidation with the proposed initiatives of building dedicated logistic parks closer to the ports, an improved road network will also help decongest the existing warehousing hubs, reduce rentals, and unlock better value for land available for warehousing.
Capital subsidies and Public-Private Partnerships (PPP) for multi-modal logistic parks: Multi-modal logistic parks have been another key focus of the GoI’s National Logistics Policy and in 2021, the government also announced investment of USD 31.63 billion for the design and construction of the logistic parks, under a (PPP) model. In lines with this, additional capital subsidies for the construction of grade-A warehouses in smaller towns and support for Public-Private Partnerships for logistic parks with better connectivity to new expressways, would ultimately help achieve the goal of reducing freight cost across the country, which are currently very high at 13%-14%, compared to other developed global economies, which are 7%-8% of the GDP. A focus on easier access to investment for industrial warehousing, including simpler processes for FDI, would also be appealing in the 2023 budget.
Subsidising green warehousing: The transport and logistics sector has been one of the major contributors to environmental pollution and thus there is an urgent need for addressing this at public policy, business and individual levels. Government interventions in ensuring affordable pricing, incentivising/subsidising green efforts, and laying down regulations and enforcing them, has become imperative. Steps like reduction in solar panel import duties to help reduce capex investments and a re-look at the tax structure and subsidies for environmentally responsible practices, are some of the aspects, if considered during the upcoming Union Budget, will be beneficial for the logistic and warehousing sector to not only curb its carbon footprint but to also get aligned with international business standards and win bigger global mandates.
Subsidies for tech adoption: While technology adoption has been a buzz word during COVID and the rise of smart warehousing has become the need of the hour, digitisation continues to be a heavy investment. Easier and attractive loans/ access to funds for tech adoption and setting up smart warehouses, especially for the cold storage and speciality warehousing segment would go a long way in accelerating the adoption of the tech-enabled solutions on a wider scale, thereby enhancing the efficacy and operational seamlessness of the entire supply chain.
In alignment with the government’s vision of ‘Atmanirbhar Bharat’ and becoming a $5-trillion economy by 2025, the above inclusions, and the mission to reduce the overall logistic costs and improve efficiencies, the above-mentioned pre-budget expectations from the sector would go a long way, if considered, in creating a robust and reliable infrastructure for trade – both domestic and international.
