A lot has been said about the new logistics policy which will be coupled with a warehousing policy. It has been in the works. It has been listed previously as part of the business for parliament as well. How crucial is all of this going to be because even in the absence of the policy, the logistic sector is thriving?
I think it is extremely critical because the country’s competitiveness is dictated by the logistics cost in a large way. Various studies have shown that logistics cost till about two years back was around 14% of GDP vis-à-vis 8% to 10% for most of the mature economies.
This is an integral part of attracting private investments into the economy whether it is from domestic investors or from international investors. It is extremely critical because unless the private sector is competitive, investment flow is not going to speed up.
You at Deloitte speak to some of the largest investors around the world. Give us a sense when investments can pick up. How big can this sector be, what kind of investments are you folks projecting?
What I was driving at is that investment in the logistics sector is one issue but if one looks at investments across sectors, logistics plays a very critical role because whether it is electronics, white goods or food processing, all of us know that whether it is getting raw materials into the factories or shipping out finished goods, logistics and connectivity play a very important role and it is a very important component of overall costs.
That is where the importance of this sector comes in and all of us have seen multiple initiatives being taken over the last two-three years. Gati Shakti is one which focuses on infrastructure. There are various initiatives like the national single window mechanism for speeding up approvals and the logistics policy which is awaited is the final link in the entire chain and there are significant expectations out of that policy because we have seen that over 15-20 states have come up with their state level logistics policies.
Now we are looking at the national policy as something to weave it altogether.
How does the logistics cost in India compare with the rest of the world because it is almost 14% of GDP back home, but globally, what are the trends that have panned out? Does it mean there will be a shift from road transport to seaways and other ways of transport going forward?
In terms of overall costs vis-à-vis 14% in India, most mature economies have it between 8% and 10% of GDP. So there is a significant scope for improvement there. One of the reasons which you have rightly pointed out is the mix in different modes of transport.
In India we are predominantly dependent on roads which account for about 60% of the total transport. Railways is maybe another 30% and the area where there is maximum scope for improvement is waterways which is hardly 5-6% today and one of the goals which we expect to see in the logistics policy is the change in this multimodal mix where we do hope to see the share of the road sector coming down to around 30%, maybe 50-55% will be the target for railways and the remaining will essentially be the waterways.
If you look at the fine print, what that implies is that there is also a positive climate impact because we are shifting from roads, which are naturally fuel intensive, not an eco friendly fuel as of now. From that mode of transport, we are shifting to waterways and railways. Anyway we have committed to move to solar and renewable power by 2030. So, whatever gets powered electrically, naturally becomes more environment friendly. We are talking about a shift in mode of transport which will not only help reduce costs but will also be more environment friendly.