Indian Logistics Cost Reduction Path from 14% to 9% by 2027

By Abhijit Lotlikar, Director at Global Fillers & Consolidation Pvt. Ltd

The Indian logistics sector is on the brink of significant change following Union Minister Nitin Gadkari's announcement of India's logistics cost reduction target to 9% of GDP over the next two years. This development is promising to enhance competitiveness and efficiency in the country. The reduction from the current 14% to a projected 9% could transform India's trade and logistics, making it more comparable to advanced economies and potentially altering global trade patterns.

The reduction target represents more than just numbers. It marks a strategic initiative to align with advanced economies. India's current logistics expenditure significantly exceeds that of developed nations. The plan aims to bridge this gap through systematic improvements.

The Current State of Indian Logistics Cost Reduction

Recent statements from the Union Minister highlight infrastructure development as the primary driver for lowering logistics costs. According to NCAER data, logistics costs in India for fiscal 2021-22 were between 7.8% to 8.9% of GDP.

The Indian logistics cost reduction initiative to 9% involves:

• Infrastructure Expansion: Building multiple highways and expressways aims to reduce transit times and improve connectivity between industrial hubs and ports. The government has initiated several projects under schemes like Bharatmala Pariyojana, planning to construct over 65,000 km of highways. This includes developing economic corridors, expected to drastically cut down on transport times and costs.
• Technological Integration: Digital tools for logistics management, including GPS tracking, electronic waybills, and automated warehousing, will decrease costs. The implementation of the Goods and Services Tax (GST) has paved the way for digital transactions, reducing transit times and overhead.

Logistics operations are exploring the use of IoT and AI for real-time tracking, predictive maintenance, and route optimization. These technologies could further enhance efficiency in logistics operations. These improvements are about enhancing the speed and reliability of logistics services, crucial for India's e-commerce and manufacturing sectors. India's e-commerce market, growing over 25% annually, demands swift and reliable logistics solutions, making these advancements timely.

The logistics landscape continues to change and improve. Digital transformation accelerates this evolution. Companies adopting technology-driven solutions gain competitive advantages. They can deliver faster service at lower costs, creating new industry benchmarks.

Key Drivers Behind Indian Logistics Cost Reduction Initiatives

The anticipated India logistics cost reduction could have a profound impact on India's economy:

• Export Competitiveness: Lower logistics costs are expected to make Indian products more price-competitive in international markets, potentially boosting exports. According to the Export-Import Bank of India, a 1% reduction in logistics costs can lead to a 0.6% export volume increase.
• Inflation Control: By reducing the cost of goods movement, there's a potential decrease in the price of goods, aiding in controlling inflation. This could be particularly beneficial in maintaining consumer spending power amidst rising global commodity prices.
• Investment Attraction: Improved logistics infrastructure could attract more foreign direct investment, especially in manufacturing, where logistics efficiency is crucial. The World Bank's Logistics Performance Index shows India's improved ranking, encouraging investment in automotive, electronics, and pharmaceuticals sectors.

Future Prospects for Indian Logistics Cost Reduction

However, this must be balanced against volatile global commodity prices and fuel costs. The announced plan for Indian Logistics Cost Reduction to 9% of GDP by 2027 offers a significant opportunity. For logistics professionals, this means focusing on adaptability and leveraging new infrastructure to stay competitive and efficient. A more efficient logistics system could benefit India's economy and position it as a formidable global player. Achieving this goal requires vigilant monitoring of domestic and international factors that could expedite or impede progress. This includes watching international trade agreements, environmental regulations, and technological disruptions closely.

Preparing for a New Era in Indian Logistics

While the path to Indian Logistics Cost Reduction has challenges, strategic government initiatives and technological advancements promise growth. For logistics professionals, the changing landscape demands new approaches. Skills development must focus on technological competence. Understanding digital tools no longer remains optional. It has become essential for career advancement in the sector. These initiatives, combined with advancements in technology, manufacturing and other related sectors, set a promising stage for growth in India's logistics industry.

Businesses across sectors should reassess their logistics partnerships. Providers embracing technological solutions offer greater value. Their efficiency translates to cost savings. Forward-thinking companies will prioritize such partnerships over traditional arrangements. India's position in international supply chains will strengthen. The country will emerge as a more influential player in world markets. How these developments will unfold in the coming years will be important for everyone in the logistics industry. This will affect how goods move locally and how India trades with the rest of the world.

Freyt Consol Blog Contributor

Abhijit Lotlikar

Director, Global Fillers & Consolidation Pvt. Ltd, a member of the Freyt Consol Network

Freyt Consol is a global network for LCL consolidators and NVOCCs dedicated to excellence and long-term growth. We create an environment where members thrive by collaborating with trusted partners and accessing essential resources.