Recently, India jumped 14 places to secure the 63rd position on the World’s Bank ease of doing business index. Though it stands as a matter of great pride that the path we chose to tread after the coming out of the debacle which culminated in the opening of the Indian economy is bearing fruits, what is even more pivotal to consider is the lacunae that we have inadvertently developed over the time.
Business compounded with the power of globalization has the capacity to write a rag to riches story for any country. The world has observed how some countries especially China have ingeniously redeemed themselves out of oblivious to come at the helm of the world affairs. However, albeit so much discussion about business creeps into our daily conversation, one gravely neglected issue that betrays the common understanding of business and remains the victim of floccinaucinihilipilification is logistics.
Sun Tzu, author of the demotic “The Art of War”, once wrote, “The line between disorder and order lies in logistics.” Indeed, it can be said that logistics have the clairvoyance to foretell the consequences of any operation. However, unfortunately, logistics has been hitherto in toto snubbed off in terms of policy discussion and thus continues to be an Achilles heel to the Indian business setting.
In 2016, India jumped 19 places from 54 to 35 on World Bank’s Logistics Performance Index but soon the short-lived happiness faded away and only two years later fell down to 44th rank. Though this rise and fall story gives a good snapshot of our extant conditions, yet it would take some efforts to exhume the veracious reasons behind the problems that continue to engirdle our prospects of ameliorating the current condition.
The paramount problem that we need to encounter first is the cost of logistics that businessmen have to bear in India. Logistics, here, consume as much as 14% of our GDP (Gross Domestic Product) whereas in the USA the figure is 10% (also consider the fact that the USA has a higher GDP than India) and only 8% in China. The exorbitant cost figures are just one of the grim facts of reality that businesses of the country have to face every day.
Diving a bit deeper, one can also see that our inefficacious freight railway system and our untapped potential of waterways (which at various points are also being made to face geographical problems of low ground clearance and low water availability to enable trade) too form indispensable roots of the problem. Currently, roads bear the 60% burden of handling the logistics. Railways hold about half of road’s business (31%) and waterway lag way behind with a meagre 9% share. This reality in conjugation with the fact that even after 72 years of independence, we have not been able to develop a successful freight corridor (it was only in the year 2006 that Dedicated Freight Corridor Corporation of India (DFCCIL) was founded). Moreover, one more pernicious problem ensues as a result of over-dependence on roads. Because of high congestion, the first mile and last mile costs remain high and the market remains segregated among a galore of middlemen. This leads to a slower transition of money from one hand to another, thus accentuating the liquidity crunch in a set-up which is 80% unorganized. Usually, all the transporters get their money two to three months after their delivery, leading to cash crunch forcing these transporters to hire from the market. This further makes sure that the interest of around 6-7% that the transporter incur is charged from the pockets of the companies (by charging them more), ultimately leading to a vicious cycle of freight price escalations.
The woes don’t end here. Corruption and red-tapeism too add fuel to the fire. Because of corruption rife on roads, the transporters quote an even higher price in order to obviate the possibility of any contingent loss that they will be made to bear.
Though all these problems have been deeply ingrained into the system and will take a long time to be cured, yet the pragmatic steps enshrined into the draft National Logistics Policy and Multimodal Transportation Bill 2019 are commendable. The National logistics policy aims to develop a national logistics plan which will use a multi-pronged approach to make our logistics come back on track. The first step would be to devise a national framework to reduce the overdependence on road transportation. Till now companies have been chary to use alternate modes of transportation like railway and waterway. Also, despite the Sagarmala project, firms continue to fear that the last mile cost of taking consignments from ports to their destination will be abnormally high. The National Logistics Policy aims to quell these fears by working in conjugation with the Multimodal Transportation Bill 2019 and by putting a sharper focus on expediting the building of various crucial corridors like Eastern Freight Corridor from Ludhiana in Punjab to Dankuni in West Bengal and Western Dedicated Freight Corridor from Dadri in Uttar Pradesh to Jawahar Lal Nehru Port in Mumbai.
Going down at the state level, the policy will also work towards bolstering actions like LEADS. A month ago, the Ministry of Commerce and Industry came up with the second edition of Logistics Ease Across Different States (LEADS) ranking. This stratification of states and further scrutiny filliped by the draft policy will undoubtedly be a crucial step in helping us find the sources of various problems that continue to be an impediment in our progress. Also, the proposal of a national logistics e-marketplace by the draft policy is too worth commending for, if implemented carefully, it can go a long way ahead to give this sector the required nudge towards technology.
The Multimodal Transportation Bill as well as the draft nation policy offer feasible solutions to kickstart the revamping of these sectors but like all other policies out there, the key lies in their application. Proper maintenance, marketing and management of freight corridors, optimum attention to the untapped potential of 14,500 km of potentially navigable waterways and technological upgradation in the logistics sector will command dedication and ingenuity on part of the executive. If executed in a condign manner, these measures can really pave the way for a “revolution” in the logistics sector, otherwise, this policy too would rust among the dusty files of failed plans, of which we have no dearth of.
Jai Hind, Jai Bharat
Jai Ma Bharti
