India, with competitive manufacturing within factory as compared to world standards loose that advantage, to compete with world standards, is choked with not just high interest rates on credit and that of power tariff, but equally by the high logistics cost that comes to around 14 to 18 per cent of the GDP as compared to just 8 per cent that is in developed countries. Thus, there is a direct disadvantage for India to participate in international trade.
India is trapped in being taxed at each step of value chain, there is cess on coal over and above the logistic cost, now if merged in GST will push GST up to 40 per cent bracket, the rail is not encouraging slurry pipe lines along its rail spread on spare land as that will expedite as no new land is to acquired and slurry pipe line will expedite the transport at much cheaper rate across the length and breadth of the country especially for iron ore and some other minerals. The gas pipelines are underused as the confirmed commitment of supply is not there due to spot buying to enable manufacturing to use gas as a fuel, again reducing the cost of the same.
The riverine transport is being focused and just 0.5 per cent of total goods are moved, whereas in Europe and China it is 7-8 per cent. Now is the time to accelerate to reach 5 per cent. Trade through ship, more so imports, makes it 95 per cent by volume and 70 per cent of value, which is welcome, but Sabarimala, for domestic transport, is something that India needs to optimise.
The developed economies and especially China, achieved this by just focusing on reducing their costs and each step, including logistics, whereas in India, we are burdening the cost, making our products less competitive. The need is to come out of that mindset. The reduction in logistic cost will enable control on domestic inflation and enable Indian goods to build on the advantage of lower cost of production in competitive export markets.
The logistics adds to costs and also delays due to high costs of transport, as the attitude is to kill the golden eggs laying goose at each step of the value chain. The approach needs to be to optimise using better solutions to lessen the burden and inefficiencies due to overburdened rail and road networks and poor water routes. The technology solutions of slurry pipe line if given right of way along the spare land along rail lines (India has excellent network of same), thus considerably reducing cost of logistics, inland water ways on riverine by coordination of the concerned ministry, the cost for same will be borne by the industrialists as it will be effective way for transport of their raw materials and finished goods.
Thus, what is needed to enable and facilitate to use of these effective models that are well tested by individual industrialists.
Another concern is the cost of logistics, constituting around 18 per cent, giving a straight disadvantage of 10 per cent while competing in the export market. The delays due to inefficiencies further add to this cost. This is driven by supply chain inefficiencies, high freight costs, delays, and infrastructure gaps. The more usage of slurry pipelines and gas supply lines will reduce the burden on roads and railways thus adding to their efficiencies.
A similar case is with congestion and delays on Indian ports, focusing on the same, looking at the target to become a 5 trillion-dollar economy, which will need very strong logistic support.
Road transport is more in the unorganised sector, with good highways and toll tax automation, some efficiency has been installed, but still, the rules of municipal bodies on timings of transport and loading and unloading must be in sync. This heavy reliance on roads can only be reduced by bringing in newer methods, as discussed above.
Another need is to make now the linked custom procedures online and considerably standardised need is to continue efforts for more efficiency by removing overlaps and faster movements.
Logistics is a USD 317 billion market expected CAGR being 8 per cent and its efficiency at reduced cost is the key for India to be a leader in an efficient manufacturing hub. The technology will enable optimising existing facilities and shift to alternatives like slurry pipelines, gas pipelines, and better port handling will add to accelerating the efforts to cut the cost of logistics. The policy needs to be holistic and with annual benchmarks.
India to be a manufacturing hub, needs to have efficient mechanisms making production more and more competitive and logistic availability and costs are an integral part of the same.
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the publication. |
