The logistics industry in India contributes 14.4% to the nation’s GDP and will reach $380 billion in the next two years. Yet, the logistics cost stands at 16% of the GDP, a far cry from the global average of 8%. The industry employs over 22 million people, while over 90% of the industry is still unorganised. Despite the growth, the industry has hit speed bumps in the form of regulatory challenges. At the outset, companies in the industry are burdened with large number of compliance obligations fragmented across different levels (Union, State, and Municipal) and categories such as finance & taxation, secretarial, labour, commercial, industry-specific, environment, health & safety (EHS). The multiplicity of registrations, approvals, licences, permissions, consent orders, and certifications, among others, involves complex and overlapping documentation. The lack of a central integrated portal that serves a single point of information and compliance also adds to the complexity of the regulatory ecosystem.
Enterprises have to comply with several hundred acts and rules, depending on the size and geographical footprint of the business. These include the Carriage by Road Act, 2007 & Carriage by Road Rules, 2011 and the Warehousing (Development and Regulation) Act, 2007 & Warehousing (Development and Regulation) Registration of Warehouses Rules, 2017. Furthermore, these laws and regulations are implemented variably at the union, state and municipal levels. For some types of Logistics companies, there is also an added pressure to keep up with the additional compliances contained in the Foreign Trade (Development & Regulation) Act, 1992 and Foreign Trade (Regulation) Rules, 1993.
An MSME with a single corporate office and a single warehouse with operations in a single state must obtain at least 84 one-time registrations and permissions and deal with 648 compliances annually. Among them, 226 (or 34.8%) compliances contain imprisonment clauses. Approximately 54% of these clauses are contained in state laws, while the rest are within Union laws. Labour laws account for as high as 58% (133).
Keeping the importance of the industry in mind, the National Logistics Policy (NLP) was announced in 2022 to bring down the cost of logistics from 16% of GDP to the global average. Under NLP, the government will undertake four major steps, namely, Integration of Digital Systems (IDS), Unified Logistics Interface Platform (ULIP), Ease of Logistics (ELOG), and Service Improvement Group. Under ULIP, a technology-driven framework will enable information transmission in a safe, private, and real-time or nearly real-time manner. It will bridge the gap between producers, governing bodies, customs, shippers, and service providers. It can quite possibly be the game changer in the logistics industry as it will improve the visibility of logistics exponentially and reduce delays that add up to transportation costs. In addition, we can expect more and more startups in the industry to promote the standardisation of service and introduce automation to improve reliability.
Digitisation will further play a crucial role in the simplification of logistical processes. More and more companies are using cloud-based systems to regulate and manage their logistics and supply chain operations. It will enable these businesses to improve visibility and aid in data-driven business strategies. By taking this transformation a step forward with the integration of blockchain technology, companies will be able to improve the efficiency and efficacy of their inventory management and business operations.
Consequently, the PM Gati Shakti National Master Plan focuses on developing an integrated infrastructure and network planning for efficiency in services (processes, digital systems, regulatory framework) and human resources. Today, over 60% of all freight in the country is transported via roads, while the global average is around 25%. At present, there is a critical need to automate the logistics industry. Furthermore, the underlying infrastructure for logistics and transportation services requires significant investment. With the help of new-age logistics marketplaces, truckers will improve their total efficiency and price competitiveness. Technological advances in digitisation, such as RFID, GPS, and warehouse management systems, among others, are another instance of transformation through digitisation.
The demand curve for better warehousing services, reliable cold storage infrastructure, and enhanced last-mile connectivity is also experiencing a steep rise. Enlisting the aid of digital technology, the industry will be able to reduce wastage, improve supply chain management, and reduce transportation time between ports, states, cities, and towns. This increase in efficiency will inevitably bring down the cost of logistics as more and more companies will move towards dark stores to lower delivery time and costs.
At the union level, the Ministry of Commerce has created a logistics division to coordinate the development of the industry by improving existing systems and introducing technology-based solutions. GST has successfully made life easier with faster movement at interstate borders and has contributed greatly to formalising informal businesses. A digital transformation is the need of the hour to allow the sector to push past the technological and compliance barriers that are holding back innovation and ease of doing business. The target of breaching the $10 trillion GDP mark by the end of the decade will require an efficient, effective, and technologically enhanced logistics system that will work as the underlying plumbing that enables the entire economy.