Logistics and transportation sector is considered as backbone of the economy because it provides flow of goods efficiently on which success of other commercial sectors depend. Therefore, the logistics infrastructure has gained a lot of attention both from business industry as well as policy makers. India’s logistics and transport sector is fraught with several issues and challenges. It has largely developed in silos resulting in overly complex regulation and administrative procedures. In addition, there are missing modal links and the modal mix is inefficient. For instance, transport by rail and inland waterways is far more cost and time efficient than transport by roads and should account for high proportions of the freight flow. However, while road freight accounts for 54% and railways 33%, just 6% of freight transported in India is carried by coastal shipping and inland waterways.
Consequently, India needs to build a new and robust logistics network to allow inputs, components and finished goods to move across the country seamlessly. An effective multi-modal logistics and transport sector will make our economy more competitive due to the following reasons:

• Reduces cost: Efficient transportation and logistics reduce transport time and costs. Moreover, they reduce cost of production by minimizing the need for large inventories. This means less capital required for warehouses, insurance and the like.
• Creates markets for other goods: The conventional view of demand in the logistics sector states that it is derived demand. However, growth in transport and logistics enterprises can create markets for other goods.
• Enhances Inter-state trade: Reducing friction via improved logistics could boost inter-state trade flows in India that already stand at a healthy 54% of GDP.
• Keeps pace with demand for transport: The demand for transport has accelerated manifold since the 1990’s. It is important to keep pace with it. Otherwise, it could thwart the manufacturing push and attempts to boost farmer earnings to the benefits of urban agglomeration economies.
• Complements GST: A robust multi modal logistics network will allow companies to restructure their supply chains once the domestic market is truly integrated. This would complement GST implementation.
• Lastly, efficient logistics networks can reduce divergence in regional growth.

Various challenges of Logistic Sector

• Traditionally been manpower-driven and underleveraged by an unorganised and fragmented industry structure.
• Transport: Railway network is oversaturated with high freight tariff, low terminal quality and less flexibility in carrying different types of products.
  • On Road: High level of fragmentation of the trucking industry, multiple checkpoints (loss of time and administrative hurdles.
  • On Port: High turnaround times, due to inadequate depth at ports unable to attract very large vessels.
• Storage Infrastructures: inadequate size of warehouse, difficulty in getting land at desired location, and majority of warehouses are not leak proof.
• Technology: Huge transformation is needed in terms of technology like automated storage and retrieval system, online cargo solutions, GPS cargo track etc.
• Tax: A complicated tax regime places several challenges as payment of multiple state and Centre taxes results in considerable loss of time in transit and fragmentation of warehousing space.

Government Initiative

• Diesel de-regulation: logistics costs have become more accurate, with diesel prices moving in tandem with international fuel prices. This forces us to be competitive globally.
• Logistic enhance efficiency programme: was launched for management and development of logistic parks and reduce the cost of logistics.
• Technology initiative: Automated storage and retrieval systems (ASRS) in warehouse and transportation, radio frequency identification (RFID) in place of bar codes, and global positioning system (GPS) for real-time tracking.
• GST: intended to solve the complex tax structure for logistics which would lead to efficient decision making by logistic firms about of logistics - demand, supply, near-to-customer, sourcing, transportation costs and inventory costs.

Step that can be taken

• Coordination in infrastructure planning; will help to reduce the high transaction costs prevalent in the economy.
• Reforms in urban planning: catering to urban conglomerations in terms of road and peripheral infrastructure resulting in traffic restrictions.
• Engagement of all stakeholders: Blueprints and policy regulations are done by few stakeholders such as government and big industries. This makes policies prone to avoidable trial and error events.
• Investment in value addition: dust-proofing at a storage place still does not command the kind of premium in India that it should, and as a result, the logistics service provider does not invest in such provisions.