Economics
Syllabus
- GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
- GS-3: Inclusive growth and issues arising from it.
Context: Recently, the Government has launched a National Logistics Policy (NLP) 2022, aiming to achieve ‘quick last-mile delivery’, end transport-related challenges.
What is Logistics and what is the importance of it?
- Logistics refers to the overall process of managing how resources are acquired, stored, and transported to their final destination.
- Logistics management involves identifying prospective distributors and suppliers and determining their effectiveness and accessibility.
- The goal of logistics management is to have the right amount of a resource or input at the right time, getting it to the appropriate location in proper condition, and delivering it to the correct internal or external customer.
- For example, in the natural gas industry, logistics involves managing the pipelines, trucks, storage facilities, and distribution centres that handle oil as it is transformed along the supply chain.
- An efficient supply chain and effective logistical procedures are essential to reduce costs and to maintain and increase efficiency.
- Logistics efficiency is a function of infrastructure, services (digital systems / processes / regulatory framework) and human resource
- Poor logistics lead to untimely deliveries, failure to meet the needs of clientele, and ultimately cause the business to suffer.
- Suppliers, manufacturers, distributors and retailers have had to improve their logistics processes to meet the demand for quicker, more convenient delivery of a wider variety of goods.
- One reason large online retailers like Amazon have come to dominate the retail landscape is the overall innovation and efficiency of their logistics along every link of the supply chain.
- Logistics management is an important component of supply chain management (SCM). While the terms are sometimes used interchangeably, logistics focuses on moving products and materials as efficiently as possible.
- In contrast, SCM encompasses a much broader range of supply chain planning (SCP) activities, such as demand planning and sales and operations planning (S&OP), and supply chain execution (SCE), including strategic sourcing and transportation management.
How competitive is India when it comes to logistics?
- In 2018, India was ranked 44th in the World Bank Logistics Performance Index, a measure through which the Bank ranks countries based on their logistics performance.
- India currently records relatively higher logistics costs at 13-14 per cent of the GDP while it is 8-10 per cent for most of the mature economies.
- Also, the sector is highly fragmented and unorganised.
- The regulatory environment is complex due to multiple regulations governed by various stakeholders.
- For example, there are over 20 government agencies; 37 export promotion councils; 500 certifications; 200 shipping agencies; 36 logistics services; 129 Inland Container Depots and 168 Container Freight Stations.
- The logistics sector is also heavily dependent on road transport.
- There is also a low level of technology adoption among various stakeholders.
- The high indirect costs due to unpredictable supply chains and poor first and last mile connectivity add to the logistics cost.
- Due to high logistical cost, the competitiveness of India’s exports is greatly reduced.
- The survey conducted by Ministry of Commerce and Industry suggested that states should focus on areas such as developing sector-specific skilling infrastructure and streamlining logistics-related approval and clearance processes.
- Also, Infrastructure creation in India had suffered from lack of coordination between different Departments, for example, once a road was constructed, other agencies dug up the constructed road again for activities like laying of underground cables, gas pipelines etc. This not only caused great inconvenience but was also a wasteful expenditure.
What has been the Government’s strategy to reduce logistics costs?
- Since 2014, when the Modi government came to power, there has been much emphasis on improving logistics, through initiatives like
- Sagarmala for shipping
- Bharatmala for road
- UDAN for aviation.
- FASTag for electronic toll tax collection
- faceless assessment for customs
- Launched in October 2021 PM Gati Shakti – National Master Plan for Multi-modal Connectivity, is essentially a digital platform to bring 16 Ministries including Railways and Roadways together for integrated planning and coordinated implementation of infrastructure connectivity projects.
- PM GatiShakti will provide the public and business community information regarding the upcoming connectivity projects, other business hubs, industrial areas and surrounding environment. This will enable the investors to plan their businesses at suitable locations leading to enhanced synergies.
- Economic Zones like textile clusters, pharmaceutical clusters, defence corridors, electronic parks, industrial corridors, fishing clusters, agri zones will be covered to improve connectivity & make Indian businesses more competitive.
What is the objective of the National Logistics Policy?
- The PM Gati Shakti scheme envisages efficiency in services like processes, digital systems and regulatory framework.
- The National Logistics Policy, launched on September 17, is the logical next step to provide a comprehensive agenda to develop the entire logistics ecosystem with two major visions. Therefore, National Logistics Policy and GatiShakti will work as double engines for logistics
- The vision of the National Logistics policy is to develop a technologically enabled, integrated, cost-efficient, resilient, sustainable and trusted logistics ecosystem in the country for accelerated and inclusive growth.
- The first objective of National Logistics Policy is to reduce logistics cost in India by 5 per cent of GDP over the next five years.
- The second is to improve India’s ranking in the Logistics Performance Index. It endeavours to be among top 25 countries by 2030 in the Index ranking
- It aims to create data driven decision support mechanism for an efficient logistics ecosystem.
- It also aims to enhance logistics sector competitiveness through a unified policy environment and an integrated institutional mechanism.
- The policy’s target is to ensure that logistical issues are minimised, exports grow manifold, and small industries and the people working in them benefit significantly.
- The policy seeks to pave the way for India to become a logistics hub by providing seamlessly integrated multiple modes of transportation by leveraging technology, processes and skilled manpower.
What are the key building blocks of National Logistics Policy?
- Integration of Digital System (IDS): 30 different systems of seven departments are integrated – including data from the road transport, railways, customs, aviation and commerce departments.
- Unified Logistics Interface Platform (ULIP): This will bring all the digital services related to the transportation sector into a single portal
- Ease of Logistics Services (ELOG): It is a new digital platform started for industry associations to resolve issues by reaching out to the government.
- System Improvement Group (SIG): It will advise the government on changes to be made in existing laws and processes in order to improve cargo movement in the country. SIG will also submit reports and recommendations suggesting areas of intervention to concerned line ministries.
- Comprehensive Logistics Action Plan: The Policy will be implemented through a Comprehensive Logistics Action Plan (CLAP). The interventions proposed under the CLAP are divided into eight key action areas:
- (i) Integrated Digital Logistics Systems
- (ii) Standardisation of physical assets and benchmarking service quality standards
- (iii) Logistics Human Resources Development and Capacity Building
- (iv) State Engagement
- (v) EXIM (Export-Import) Logistics
- (vi) Service Improvement framework
- (vii) Sectoral Plan for Efficient Logistics
- (viii) Facilitation of Development of Logistics Parks.
What are the implications of having such a policy?
- The response has been positive from stakeholders. For the first time, the $200 billion logistics sector has been given the attention it deserves.
- The policy is an example of inter-ministerial collaboration and will help in integrating the supply chain.
- The Unified Logistics Interface Platform will enhance visibility for customers and enable logistics companies to adopt digitisation on a much larger scale.
- More importantly, the policy will spur investment across the logistics sector.
What is the way forward?
- Cooperative Federalism: The stakeholders feel there has to be alignment of the policy across all States to be effective.
- Impetus to Water Transport: For decades the country has talked about eco-friendly and cost-effective inland waterways freight movement, but nothing has happened. Along with improving inland riverine transport, there is also the need to increase the size of our ports manifold. There is valuable learning available from China, who puts key emphasis on Port Infrastructure and is home to 10 of the world’s top 20 ports.
- Consolidating Road Sector: Road logistics is a totally fragmented sector, where a large chunk of truck owners have a very small fleet. There is a clear case for the aggregation of small operators with government-supported aggregation apps. Similarly, there is a need for large players in the sector to drag costs down.
- Revamping Railway Sector: The average speed of a freight train has stagnated at 25 kmph for decades— it has to be urgently doubled to 50 kmph at least. The railways need to have a time-table based goods operation. It has to become an aggregator at the source of freight, and disaggregator at the destination, to capture the high-value small-load business.
- Boosting Air Transport: It is time to give wings to air logistics and drastically improve the transport of high-value and perishable items. This not only necessitated increasing the number of airports & providing incentives for private players but also requires steps to be taken to create a robust MRO (Maintenance, repair and overhaul) sector airlines.
Main Practice Question: Logistics is the lifeline of National economy. In this context, analyse the steps taken by the government to improve logistics in the country.
Note: Write answer his question in the comment section.
