How Budget 2017 Will Impact The Logistics Industry?

The demonetisation announcement made by our Hon’ble Prime Minister Narendra Modi on 8th November 2016 had derailed the fragmented logistics industry. The move impeded the growth of Indian economy that was then contributing to the GDP at about 7.3%. No wonder, the Indian Ministry of Finance has estimated a growth of 6.6% instead of the previously predicted 7.6% for the FY2017.

As other industries, demonetisation had adversely affected the logistics and transportation ecosystem of India. It had not only reversed the progress that the logistics industry was making owing to some innovative government initiatives but pushed it backwards further by several steps. The immense cash crunch lead to widespread business disruption because a whopping 80 – 90% of the logistics ecosystem is fragmented. Truck aggregators that offer online truck hiring services, which form a part of the organised sector, suffered marginally as they were well equipped with the available infrastructure and Information Technology that helped them to tide over the cash crunch. The key concerns in the current logistics sector include the need to boost the IT penetration and improve the infrastructure to achieve operational efficiencies. By digitising the logistics industry, not only will the market players benefit but also the end-users will enjoy the convenience and benefits of technology.

Apart from demonetisation, the delay in implementation of GST (Goods and Services Tax) further intensified the challenges to the logistics industry. GST directly affects the rapidity of users and service providers of the logistics sector. Implementation of GST will also significantly decrease the overall logistics costs. According to Financial Express, the Indian logistics industry is expected to grow at a CAGR of 15 -20% during 2015-2020. What’s more, the contribution of this sector to the GDP is approximately 13 – 14% as opposed to 8.5% in the US. Despite poor utilisation of trucks for loading because of lack of infrastructure and technology, the logistics industry remains the backbone of the Indian economy.

Considering the on-going economic conditions of the nation, speculations were rife regarding the extent to which Budget 2017 will focus on the logistics industry, especially after the massive blow that the unorganised sector had faced post-demonetisation. The progressive Railway and Union Budget 2017 was welcomed with great fervour by the logistics industry. It offers what the industry needs for not only recovering from the heavy losses but also set the pace for an aggressive and sustained path of growth for load boarding and transportation.

The Indian Minister of Finance, Mr. Arun Jaitley, reposed the faith of the logistics industry regarding GST by assuring its implementation by the end of this fiscal. The Budget 2017 has proposed an array of reforms as a kick-start for the logistics industry. The fact that the Finance Minister had mentioned the word ‘warehouse’ innumerable times while presenting the budget indicates the realisation about the development of warehouse infrastructure is closely related to boosting the logistics industry. The Budget has brought road transport, warehousing and shipping, all under one umbrella, to accelerate decision-making regarding trucks for loading freight.

Lack of infrastructure and slow adoption of technology, the major challenges facing the logistics ecosystem in India, have been exhaustively addressed through Budget 2017. Successful implementation of the proposed infrastructural facilities and deployment of technology will provide the right push that the fragmented logistics industry requires for it to become organised. The Budget makes it amply clear about the integration of PPP and PPPP models to privatise the infrastructure sector.

Transportation is one of the major infrastructures required for the growth of the logistics industry. The under-development of the leading channels of transportation like roads, railways, airways and waterways in India poses a serious challenge for the logistics industry. The allocation of INR 37,800 crore for NHAI (National Highways Authority of India) and State roads for the new fiscal year is a step towards the right direction for ensuring better utilisation of trucks for loading freight. The budget also proposes to increase its investment towards the development of selected expressways by 12%, compared to the previous budget, raising the budgetary estimate to INR 64,900 crore. Budget 2017 has also allocated INR 19,000 crore under the PMGSY (Pradhan Matri Gram Sadak Yojna) scheme.

To accelerate the transportation of perishable goods like fruits and vegetables, the Budget has proposed special containers to be transported through special commodity railway shipments. Smooth connectivity and proposed startups to manage the end-to-end solutions will ensure that the logistics industry becomes organised. A startup will ship perishable goods from the farm onto the perishable containers from the closest railway station. These goods, to be shipped to its destination at INR 3/km, will be collected by the same startup and shipped to the warehouses at the same cost. From these warehouses, the perishable goods will be sent to its designated retailers and kirana shops. The load board operations will be managed through smartphones, an intelligent strategy to integrate technology to power the currently fragmented logistics industry. Furthermore, the government plans to initiate the installation of Bharat Net along the railway tracks to enable the clients of these startups to track their products from the pick-up point till their destination. Similarly, truck aggregators are leveraging technology to streamline the process of truck hiring for freight transportation through mobile applications.

The shipping sector has also been provided a boost with INR 11,635 crore allocation for the development of SEZs in Kandla and Jawaharlal Nehru Port in Navi Mumbai, the first phase of outer harbour projects in Tuticorin. Additionally, the ramping up of the inland navigation under the Jal Marg Vikas Project on the Ganges between Haldia and Allahabad will also offer the much-needed impetus for seamless load board services. The proposed construction of new airports for better connectivity with Tier 2 and Tier 3 cities will further enhance effective cost utilisation and business efficiency.

References:
NWCC India
Financial Express
Engrreview
KPMG
Business Today
India Today
Your Story
Business Stardard

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