Logistics in India

Published on 24 Feb 2025

Logistics in India is a crucial sector that drives the country’s economic growth by facilitating the efficient movement of goods across its vast geography. The sector encompasses transportation, warehousing, inventory management, and supply chain operations. As of 2024, India's logistics market is valued at approximately $250 billion, reflecting its significant role in supporting trade and commerce.

Importance of logistics in economic development 

• Economic Growth: Efficient logistics significantly contribute to GDP. The logistics sector is valued at approximately $250 billion as of 2024, underscoring its role in driving economic growth and supporting trade.

• Cost Reduction: Enhanced logistics systems reduce costs. Improvements in transportation and warehousing have lowered logistics costs to about 13-14% of GDP, compared to 18-20% in the past, making goods more competitive.

• Employment Generation: The sector creates substantial employment opportunities. As of 2024, the logistics industry employs over 22 million people, highlighting its role in job creation.

• Infrastructure Development: Investment in logistics infrastructure boosts overall quality. For example, the Bharatmala Pariyojna aims to build 34,800 km of highways with an investment of ₹5.35 trillion ($65 billion), improving connectivity.

• Global Competitiveness: Efficient logistics enhance global trade. India’s logistics performance index improved to 44th place in the World Bank's 2023 Logistics Performance Index, reflecting better supply chain efficiency and attractiveness to foreign investment.

• Regional Development: Improved logistics support regional growth. The UDAN scheme, with a target of enhancing regional connectivity, has awarded over 400 routes, connecting 82 airports and promoting balanced economic development.

Challenges faced by Logistics in India

• Infrastructure Deficiencies: Inadequate infrastructure such as roads, ports, and warehouses hampers efficient logistics operations. India’s logistics infrastructure ranks 44th globally in the World Bank’s 2023 Logistics Performance Index, indicating significant gaps.

• High Logistics Costs: High logistics costs affect competitiveness, accounting for approximately 13-14% of GDP. This is notably higher compared to around 8-10% in developed countries, impacting price competitiveness.

• Regulatory Hurdles: Complex and fragmented regulations across states lead to delays and inefficiencies. Despite the implementation of the Goods and Services Tax (GST), regional disparities still pose challenges to seamless logistics operations.

• Inadequate Technology Adoption: Limited use of advanced technology and automation slows down operations. Only about 25% of Indian logistics companies use advanced technology solutions, compared to 60-70% in developed economies.

• Poor Road Quality: Poor road quality affects transportation efficiency and increases transit times. Approximately 30% of national highways are in poor condition, affecting overall logistics performance.

• Fragmented Supply Chain: The supply chain is often fragmented and lacks coordination. About 90% of logistics firms are small and medium-sized enterprises (SMEs), which struggle with integration and coordination.

• Skill Shortages: There is a shortage of skilled workforce in logistics and supply chain management. The sector faces a significant skill gap, impacting operational efficiency and service quality.

• Environmental Concerns: Logistics operations contribute to environmental pollution. The sector is responsible for around 7% of India’s carbon emissions, necessitating the adoption of greener practices and technologies.

National Logistics Policy 2022

The National Logistics Policy 2022 aims to enhance the efficiency and effectiveness of India’s logistics sector through several key measures:

• Integration of Services: The policy seeks to integrate logistics services across various modes of transport (road, rail, air, and water) to create a seamless and efficient logistics network.

• Infrastructure Development: It emphasizes the development and modernization of logistics infrastructure, including roads, ports, and warehousing facilities, to improve connectivity and reduce transit times.

• Technological Advancements: The policy promotes the adoption of advanced technologies and digital solutions to streamline logistics operations and enhance transparency.

• Cost Reduction: It targets reducing logistics costs, which currently account for 13-14% of GDP, by improving efficiency and optimizing supply chains.

• Regulatory Reforms: The policy aims to simplify and harmonize regulations across states to reduce bureaucratic hurdles and facilitate smoother logistics operations.

• Sustainability Initiatives: It includes measures to promote environmentally sustainable practices within the logistics sector, such as reducing carbon emissions and improving waste management.

• Skill Development: The policy focuses on developing a skilled workforce by providing training and education to meet the growing demands of the logistics industry.

• Implementation and Monitoring: A Logistics Division has been established within the Department for Promotion of Industry and Internal Trade (DPIIT) to oversee the implementation of the policy and monitor progress.

Tags:
Economy

Keywords:
Logistics Infrastructure National logistic policy Road Rail Aviation

Syllabus:
General Studies Paper 3

Topics:
Indian Economy