In the last few years, Indian government has been gradually & consciously advancing its capabilities to build and export more from India. Through schemes such as the Make in India or Production-Linked Incentives (PLI), the government is providing attractive incentives to domestic as well as global manufacturers to set-up or expand their base in India. As a result of these initiatives, manufacturing companies (both local and global) have been expanding their presence across various cities. A proxy for that (from commercial real estate perspective) is the demand for office spaces, where Engineering & Manufacturing (E&M) industry occupiers have taken a lead over last 2 years (largely coinciding with the PLI announcement). E&M sector has been amongst top-3 sectors that has contributed to robust demand for Grade-A office spaces in India. Another indicator from a commercial real estate standpoint is the strong growth of activity and investments in the industrial and warehousing space.
However, there are deep concerns amongst manufacturers & exporters in India about its poor logistics infrastructure. The latest available World Bank’s Logistics Performance Index (LPI), 2018, ranks India at 44 out of total 160 countries, putting it behind economies such as USA, Singapore, Korea, China, Thailand, and Vietnam. India’s logistics costs as a percentage of GDP stands at around 14%, which is incompetent when compared with the average of advanced & leading emerging countries (8-9%) such as USA, Euro Area and China. One of the reasons for this condition is the limited role of organised sector in India’s logistics space. As per industry reports, Indian logistics market is estimated at a market size of over US$200 billion, although only 10-15% of it is under the ambit of organized sector.
What NLP aims to achieve?
The NLP has three major targets: reduce logistics costs and make it comparable to global benchmarks by 2030, endeavour to be among the top 25 countries in LPI ranking by 2030 and establish a data-based decision support system. The new policy aims to improvise and formalize India’s logistics infrastructure by 2030 with the combination of supportive regulatory processes, digitalization, and human resource planning.
The NLP is modelled to complement the existing PM Gati Shakti – the National Master Plan for Multimodal Connectivity – a platform to ensure integrated planning by various ministries and coordinated implementation of multi-modal connectivity projects. In essence, both policies provide a comprehensive action plan for logistics and infrastructure development. Key policy action points include creation of an integrated digital logistics system, standardization of physical assets (applicable for warehousing assets), benchmarking of logistics service quality, human resources development.
An important policy focus area is the development of multi-modal logistics parks (MMLPs) and other hubs for intermediary activities such as inland container depots, cargo terminals, air freight stations etc. NLP is also expected to streamline and provide a roadmap for the efficient movement of cargo within the country, particularly through development of multi modal logistics systems. Currently, the road transport sector accounts for around 60% of cargo movement in India, whereas share of railways is low at ~30%. Quite often, it is the opposite in advanced Western & Asian economies. The policy objective is to transport ~50% of cargo through railways, with roads and inland waterways accounting for the remainder. This will help reduce burden on roads, help the overall cause of green transportation and curtail oil import bill, thereby enhancing overall efficiency in cargo movement.
The NLP also highlights the Unified Logistics Interface Platform (ULIP) as an integrated platform through which stakeholders can leverage technology to seamlessly exchange information on a real time basis confidentially. The ULIP seeks to digitally address issues surrounding manual activities and delayed processes in the logistics sector and promises to transform the industry through technology integration.
NLP’s positive implications on India’s fast-emerging warehousing sector
India’s warehousing sector is growing fast and the industry is on its way to become increasingly organised. Currently, close to 220 million sq. ft. of warehouses qualify to be of grade-A variety across the top-8 real estate markets in India, whereas bulk of the remainder market is fragmented and unorganised. Owing to large demand coming from e-commerce and 3PL operators, and also due to growth of manufacturing sector, there has been immense interest in Grade-A quality warehousing assets.
The need for ‘standardisation’ of warehousing assets has become essential to reduce logistics costs, improve efficiency and ensure compatibility with global standards. Currently, awareness about applicable warehousing design and operating standards is limited among industry stakeholders. An e-handbook on Warehousing Standards has been released alongside the NLP which includes standards issued by agencies such as the Bureau of Indian Standards (BIS) and the Warehousing Development and Regulatory Authority (WDRA). For this, efforts taken to collaborate with private sector to develop global standards and best practices is commendable. These efforts will go a long way in ensuring the adoption of right standards, development of best-in-class facilities and formalization of the industry.
As the government accelerates implementation of the NLP, huge benefits are likely to flow to the Indian real estate sector in the form of best-in-class warehousing, distribution and logistics facilities, both in large metros as well as tier II and III towns. The policy lays down the vision for a tech-enabled, cost-efficient, and integrated logistics industry that can be a game changer for India’s commerce.
Overall, NLP promises to help enhance cost competitiveness of domestic goods in the global market, thereby encouraging businesses to strengthen their exports from India and create new employment opportunities. It will inspire logistics operators to come together and collaborate to build logistics competitiveness, and also increase confidence of investors who are keen to invest in the sector.