Region/Countries: Asia, India Industry: Other Date: July 2018

Why this is important to Wisconsin businesses: The Indian government is focusing on developing logistics and transportation and is seeking increased international investment.

The logistics industry comprises freight transportation via road, rail, air and water, as well as warehousing and cold storage. The Indian logistics sector employs 22 million people and is growing rapidly. The sector is currently worth $160 billion and is likely to reach $215 billion within two years.

In 2016, India improved its score for all six components of the World Bank’s Logistics Performance Index. India is now ranked No. 35, compared to the No. 54 spot it occupied in the 2014 report.

The government of India has been working on ways to attract more investments into transportation and logistics in order to bolster infrastructure development in the country. The November 2017 decision to grant infrastructure status to the logistics sector, covering cold chain, inland container depots and warehousing facilities, is a landmark move that will aid in facilitating credit flow into the sector with longer tenures and reasonable interest rates and will simplify the process of approval for construction of multimodal logistics facilities (parks) that include both storage and transportation infrastructure. Infrastructure status for cold chains and warehousing facilities will provide a big boost to attracting private investment into this sector. Logistics cost is also expected to reduce substantially, leading to large-scale job creation in the sector.

Currently, the logistics sector in India is disorganized and fragmented, facing challenges such as the high cost of logistics impacting competitiveness in domestic and global markets, underdeveloped material handling infrastructure, fragmented warehousing and lack of seamless movement of goods across modes. These challenges call for integrated development of this sector, including a focus on new technology, improved investment, increasing skills, removing bottlenecks, improving inter-modal transportation, automation, single-window systems for giving clearances, and simplifying processes. Some of these challenges are expected to be addressed by the new logistics division created in the Department of Commerce to coordinate integrated development of the industry. The introduction of the goods and services tax (GST) is expected to reduce logistics costs in the years ahead. At present, logistics costs equal almost 14 percent of the country’s GDP, whereas in developed countries that amount is typically between 6 and 8 percent.

The potential of the logistics market in India is so great that foreign companies are getting involved. In 2016, the French logistics company FM Logistics took over Spear Logistics, a Pune-based firm, to enter the Indian logistics market. In 2017, India received a significant boost to its industrial and logistics sector with the launch of IndoSpace Core, a joint venture between the country’s biggest developer of modern logistics park, IndoSpace, and Canada Pension Plan Investment Board (CPPIB).

While the logistics sector was once seen as underdeveloped and having limited investment opportunities, it is now being recognized as an institutionally attractive asset class, set to benefit from the growth of progressive government policies and continued foreign direct investment in India.