India currently ranks 44th in the World Logistics Performance Index, a yardstick through which countries are measured on their logistics performance. High logistics costs and multiple regulatory bodies governed by various stakeholders have plagued this sector, making it highly fragmented and unorganized. This high logistics cost can be attributed to low usage of technology among the stakeholders, high indirect costs, and unpredictability in the supply chain which often leads to poor first and last-mile connectivity.
For India to transition into Atmanirbhar Bharat which is self-reliant and an export surplus economy, we will need a multi-mode logistics network in which each mode has seamless connectivity to the other with little or no lag. To make this happen the country will need both hardware (infrastructure) and software (open data architecture platform) which will have to work simultaneously to bring across a point-to-point efficient and transparent delivery network. The Federation of Indian Export Organizations (FIEO) estimates that India can reduce its logistics cost by 10% and increase its export valuation by 5%-8%.
Enter the National Logistics Policy (NLP), which aims to reduce the logistic cost from the current level of 13%-14% down to a single digit (8%-10%) and promote the use of technology to bring in better control and visibility, ultimately providing the end-users with a seamless usage experience.
The groundwork for such an ambitious plan was already laid down with the announcement of schemes like Sagarmala, Bharatmala, and Dedicated Freight Corridors. These schemes have reduced the average turnaround time of container vessels from 44 hours to 26 hours and built 40 air cargo terminals in 30 airports with a dedicated cold storage facility. To top this up, construction of 35 multimodal transport hubs is being planned with expedited construction of 25,000 KMs of National Highway under the PM-Gati Shakti program in FY ’22.
With these infrastructural commitments in place, there is a need for an encompassing tech platform to make these systems work in cohesion and communicate with each other. A platform to identify, measure, rectify and deploy solutions at a mass scale and bind together the individual infrastructural units into one combined functioning system. This is where the Comprehensive Logistics Action Plan (CLAP) will come into play.
Under CLAP, Unified Logistics Interface Platform (ULIP) will digitize the transportation and link multiple regulatory databases acting as the front-end interface to all users to dissipate necessary information. E-logs (ease of logistics services) under the same policy will act as a feedback mechanism to register and process grievances against any regulatory bottlenecks.
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LEADS (Logistics Ease Across Different States) will assess the viability and ease of logistics movement across states. Under LEADS, the Ministry of Commerce & Industry has undertaken an annual survey across all States/UTs which will collect data on key parameters such as Infrastructure, Service, and Operating & Regulatory Environment with indicators such as freight rates, timeliness, safety & security, internet connectivity, etc., for comparative analysis.
To train the government officials on usage of the platform and its connected interfaces, the IGoT (Integrated Government Online Training), will carry out mandatory certificate courses hence providing them with the requisite operational knowledge in order to navigate and work on the platform.
Now with these structural implementing processes in place, the government is looking forward to expediting the adoption of NLP among the stakeholders. At the same time, the government is making serious financial commitments toward building the brick-and-mortar foundation of NLP.
In PM Gati-Shakti alone the government aims at spending Rs. 7.5 lakh crore as capital expenditure in FY’ 22-23 in areas like roads, railways, and other infrastructure. Out of this amount, Rs. 20,000 cr. has been earmarked for building highways, Rs. 15,000 cr. as CAPEX on Infra Project at State Level, and Rs. 50,000 cr. for building 35 multi-modal logistics park. 400 new Vande-Bharat trains at the cost of Rs. 41,000 cr. will also be a part of this plan.
With such large sums being involved, it would be interesting to see how much of these funding would be directed through sovereign green bonds, which was the key agenda in the FY 23 budget memorandum, and how would green project and sustainability fit into these key projects.
The epic proportion in terms of the project size and the number of stakeholders involved, it will require a complex and efficient fund management system coupled with intuitive MIS for informed decision-making. Axis Bank has had the opportunity to successfully host and execute such a large-scale fund management system for government clients in the past.
The scale at which this project will operate, it will facilitate a lot of transactions between the related parties in terms of collection and payment. Integrating the government’s own BBPS will not only help the stakeholders by reducing the cost associated with handling physical transactions but will also promote digital transactions. Axis Bank with its proprietary APIs have seamlessly integrated the BBPS platform with various government portals making transactions digital and secure.
Bank’s specially curated GeM (Government e-Marketplace) product offering can provide end-to-end procurement solutions for government agencies. The expertise in PFMS integration can help the government in various DBT & Non-DBT related bulk payments.
Quality financial advice and service will be a key factor to both government and private entities in the PPP model. Be it raising capital, financial due diligence, managing investor relations, etc., a robust accredited financial institution will certainly come in handy.
Given the possibilities and potential of NLP, there are two key challenges that might dampen the overall initiative.
The policy is heavily dependent upon state participation, which means that an equal impetus will be needed from the state governments to make this project a success. The central government will provide the states with necessary financial aid through borrowing linked to interest-free bonds, but they too come with their own set of conditions. With the deteriorating financial health of certain states because of the pandemic, the states might not have adequate capital or backing to take up infrastructure projects of this scale.
Also with the credit off-take growing at a faster pace than the deposit rate, the financing cost for such massive infra projects might come at a higher cost not to discount the looming impediment of global slowdown and inflation. At such a high cost of borrowing the private players (under PPP model) might find it difficult to borrow funds at a premium rate, therefore, reducing private participation.
The National Logistic Plan has the potential to transform the country’s logistics sector and bring improvement in the life of the common man. This will be a true point-to-point solution making it one of the cornerstones of Atma Nirbhar Bharat.
Views expressed by Dk Das, Executive Vice President and Head of Government Business, Axis Bank.