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Day 68 – Q 3. In your views, what type of investment model is best suited for the development of logistic hubs in the country? Discuss. 

  • IASbaba
  • August 27, 2020
  • 0
GS 3, Infrastructure, TLP-UPSC Mains Answer Writing
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3. In your views, what type of investment model is best suited for the development of logistic hubs in the country? Discuss. 

आपके विचार में, देश में लॉजिस्टिक हब के विकास के लिए किस प्रकार का निवेश मॉडल सबसे उपयुक्त है? चर्चा करें।

Demand of the question – You need to enumerate various investment models and then discuss the best suitable for the development of logistics hub in the country.

Introduction

Logistics cost in India accounts for 13-17% of the Gross Domestic Product (GDP) which is nearly double (6-9%) the logistics cost to GDP ratio in developed countries such as the US, Hong Kong and France which clearly demonstrates the need for logistic hubs where much of the higher cost could be attributed to absence of efficient intermodal and multimodal transport systems.

Body

  • Investment models are of various types wherein based on who invests in assets for increasing production, there are three major investment models:
    1. Public Investment Model: For a government to invest, it needs revenue (mainly tax revenue), but the present tax revenues of India are not sufficient enough to meet the budgetary expenditure of India. So this type of model can be counter-productive for development of logistics hub as it entails high investment.
    2. Private Investment Model: The private investment can come from India or abroad. If it’s from abroad – they can be as FDI or FPI. Also, for a country to grow and increase its income, the investment has to be increased. Infrastructure to support production – transport, energy and communication – should also be developed. Here, it can be seen that this model is suited for the development of a logistics hub.
    3. Public Private Partnership Model: PPP means combining the best benefit from both public and private investments. Some of the Project Finance Schemes are as below:
      1. BOT (build–operate–transfer).
      2. BOOT (build–own–operate–transfer).
      3. BOO (build–own–operate).
      4. BLT (build–lease–transfer).
  • In terms of investment in logistics hubs, there are two other investment models-
    1. Domestic Investment Model – It can be from Public, Private or PPP.
    2. Foreign Investment Model – It can be 100% FDI or Foreign-Domestic Mix.
  • And, depending on where the investment goes (or how investments are planned), there are various investment models. A few include:
    1. Sector Specific Investment Models (In SEZ or MIZ etc).
    2. Cluster Investment Model 
  • We can thus say that cluster investment model can be best suited for investment in logistics hub development in India where 100% foreign direct investment (FDI) in the storage and warehousing sector under the automatic route has been permitted since several years. 
  • In addition to this, the government has recently announced infrastructure status to the logistics industry.
  • Further, in order to facilitate private investments to create modern warehousing, especially on identified nodes, exclusive warehousing zones needs to be created to develop new and modern warehousing infrastructure. 
  • Also, Creation of logistics and warehousing policies separate from industrial promotion policies is needed.

Conclusion

Despite everything, technology has opened boundaries for the logistics industry. Digital freight marketplaces are increasingly turning up and these are not driven mainly by the big players in the industry but are being controlled by smaller start-ups too which showcases the employment generation capacity of the industry and need to focus on investment in this sector.

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