Why is it in the News?

Logistics has been talked about for a long time and India has also focused on improving performance. We are now getting some precise data on measurement and quantification.

Context:

• The logistics sector plays a vital role in shaping a nation's economic dynamics, and its intricacies are of paramount importance.
• India's steady progress in the Logistics Performance Index (LPI) rankings reflects positive advancements in its logistics sector, showcasing a dedicated effort to boost global competitiveness and streamline trade logistics efficiency.
• Consequently, a comprehensive examination of India's logistics landscape, involving the analysis of key indicators, methodologies, and recent reports, becomes essential for a nuanced comprehension of its achievements and hurdles.

The Logistics Performance Index (LPI):

• Developed by the World Bank, the Logistics Performance Index (LPI) stands as a crucial tool for evaluating a country's trade logistics efficiency and effectiveness.
• Comprising six key dimensions—customs, infrastructure, international shipments, logistics competence, tracking and tracing, and timeliness—the LPI offers a comprehensive insight into a nation's logistical capabilities.

India's Position in the LPI:

• Despite inherent methodological considerations in survey-based indices, the 2023 LPI places India at the 38th position out of 139 countries, showcasing an improvement from its 2014 rank of 54.
• This positive trajectory aligns with India's 2022 vision to reduce logistics costs, enhance LPI rankings, and establish a data-driven decision support mechanism.
• Furthermore, the introduction of PM Gati Shakti in 2021, though its impact is not immediately reflected in the LPI 2023 due to understandable time lags.

Assessing Logistics Costs in India:

• Economic Survey 2022-23: The Economic Survey 2022-23 reveals a consistent range of logistics costs in India, hovering between 14-18% of the Gross Domestic Product (GDP).
• This starkly contrasts with the global benchmark of 8%, highlighting the challenges in achieving optimal efficiency in India's logistics operations.
• The survey emphasizes the need for strategic interventions to address the significant gap between India's logistics costs and international standards.
• Dun and Bradstreet (D&B) 2018 Report: An in-depth examination of seaport business costs by a Dun and Bradstreet (D&B) 2018 report indicates that the cost is approximately 15-16% of the consignment value.
• Notably, there is considerable variation across ports, emphasizing the necessity of a nuanced approach in evaluating logistics costs within specific segments of the supply chain.
• NCAER Report (December 2023): The National Council of Applied Economic Research (NCAER) introduces a fresh perspective in its report on logistics costs in India.
• Acknowledging the absence of official estimates, the report references various private sector and academic institutions' estimates.
• Employing meticulous methodology, including supply and use tables, the report provides a nuanced and precise estimation.
• According to this report, logistics costs in 2021-22 ranged between 7.8% and 8.9% of GDP, showcasing a decline over time with a transient increase in 2017-18 and 2018-19.
• CII-Arthur D Little Report (2020): Delving into logistics costs throughout the supply chain, the CII-Arthur D Little Report (2020) estimates them to be around USD 400 billion, equivalent to 14% of India's GDP.
• Comparative assessments with global peers, including the United States, Europe, and China, expose a competitiveness gap of USD 180 billion.
• The report underscores the urgency of addressing these high logistics costs to bolster India's economic competitiveness globally.

Logistics Cost Performance Across States:

• As per the Commerce Ministry's LEADS (Logistics Ease Across Different States) report for 2023:
• States are categorized into four groups - coastal, landlocked, north-east, and Union Territories.
• States exhibiting strong performance are termed achievers.
• States with moderate performance are referred to as fast movers.
• States with below-average performance are labelled as aspirers.
• Performance of Coastal States:
• Approximately 75% of export cargo is traced back to coastal states.
• Among coastal states, Andhra Pradesh, Gujarat, Karnataka, and Tamil Nadu are notably successful.
• However, lagging behind in performance are Goa, Odisha, and West Bengal.
• While most states, including Goa and Odisha, have implemented a state-level logistics policy, West Bengal, ranking lowest in the coastal category, lacks one.

Difficulties and Variations for Policymakers in Developing a Successful Plan for India's Logistics Sector:

• Methodological Variations: A key challenge in deciphering logistics cost reports stems from the diverse methodologies employed across different studies.
• These reports adopt varied approaches, ranging from consignment value percentages to supply and use tables, to estimate logistics costs.
• The resulting disparities in methodologies contribute to variations in reported figures, necessitating careful consideration when drawing conclusions.
• India's Global Competitiveness: The consistent comparison with global benchmarks, particularly the 8% GDP threshold for logistics costs, prompts questions about India's competitiveness on the international stage.
• Reports consistently highlight a competitiveness gap, with logistics costs surpassing global averages.
• This has implications for India's capacity to attract investment, participate in global trade, and position itself advantageously in the interconnected world economy.

Shifting Perspectives on India’s Logistics Costs:

• Reassessing Established Views: The evolving discourse on logistics costs in India challenges conventional perceptions regarding the country's logistics expenses.
• As methodologies advance and newer reports offer more accurate estimations, the narrative may transition from a broad acknowledgement of high costs to a more nuanced comprehension of the sector's intricacies.
• This evolving narrative carries implications for businesses, investors, and policymakers, prompting them to stay informed of the latest data and adjust strategies accordingly.
• Encouraging Trends Amid Challenges: While challenges persist, positive trends also emerge from the data.
• The improvement in India's Logistics Performance Index (LPI) rankings over time and the downward trend in logistics costs, as highlighted by the NCAER report, present a more optimistic outlook.
• These positive signals indicate that endeavors to enhance logistics efficiency and reduce costs may be gaining momentum, pointing towards a positive trajectory for India's logistics landscape.

Conclusion

The logistics landscape in India is intricate, featuring indices like LPI, varied cost assessments, and state-level nuances that collectively contribute to a holistic understanding.

The recent NCAER report establishes a crucial methodological groundwork for future deliberations, challenging existing perceptions and emphasizing the importance of accurate measurement in assessing India's logistics capabilities.

In the pursuit of elevating its global position in logistics, India must adopt a nuanced approach that considers both macro and micro perspectives. This approach is vital for fostering sustainable growth and driving efficiency improvements throughout the nation.