Logistic parks: Subsidy on land for organised warehousing?

The warehousing sector has witnessed a remarkable shift from a concept of four-walled godowns to ultra modern logistic parks with state-of-the-art facilities. With the growth of organised warehousing, does government need to facilitate logistic parks in the country by giving subsidy on land for setting up of these parks? Some argue that the Government must ease the setting up of logistic parks by giving subsidy whereas others claims that it may not give positive result to the economy. Read on to find out which way the debate swings...

Manish Gupta Managing Director, RCPL Logistics

The Indian warehousing sector is progressively getting redefined from the traditional concept of ‘godowns’ to modern large logistic parks with state-of-the art facilities. But, more needs to be done, and the government must facilitate logistics parks by giving subsidy on land for setting up these parks .The total share of organised warehousing space is less than eight per cent of the total warehousing space in India.

‘Make in India’ campaign will lead to an increase in manufacturing which will create opportunity for the logistic parks for adequate storage capacity and strategic location will enable efficient functioning. The Government can further ensure speedy process in land acquisition, bank loan at low interest rate for construction of warehouses, simplification in funding process, Goods and Service Tax (GST) implementation, dedicated freight corridors, better rail network, modernisation of ports, utilisation of PPP model.

Aakanksha Bhargava CEO & President, PM Relocations

Considering the lack/absence of the appropriate scale, quality of warehousing infrastructure, low capital and operating efficiencies; the need to facilitate logistic parks in the country should be strongly addressed. Getting subsidised land from the government would also help in leveraging the current condition of warehousing industry. Apart from giving subsidy on land for setting up logistic parks the Government could also introduce the GST and National Policy on Handling, Storage and Transportation. Thus it offers a boost to the industry and helps it focus its resources on an organised warehousing sector.

The warehousing industry in India was valued in ` 745 billion at FY 2013 and has been constantly growing at 15 per cent for the last three years. Further, with changing business dynamics it is expected to grow at a rate of 18 per cent till 2017. However, still a larger segment of the warehousing industry is dominated by the unorganised nature of the industry, which was close to 90 per cent by the end of 2014.

Srinivas Sattiraju CEO, Delex

Warehousing in India is getting better with the technology, production and process innovation. In my opinion giving subsidy on land for setting up logistic parks in the country, at this juncture, is not required as warehousing requirements are governed by market demand and market concentration, prevailing tax structure, and a subsidy given for warehousing may not give any positive results to the economy. For example in a post GST scenario the distribution models will undergo a change and companies may not use the location where a subsidised warehousing park is set up. Instead it is better to offer such subsidies to individual warehouse infrastructure creators, who would be willing to create required warehousing infrastructure in a large industrial development corridor.

Instead of subsidy, it is better to promote clean warehousing and restrict excessive concentration of warehouses in a particular area. This causes severe traffic conditions on account of concentrated vehicular movement clogging the roads in a given area. It is better that the Government comes with broad guidelines for warehousing setup/business.

• Allot separate areas in all major towns and cities towards construction of warehouses and support with necessary infrastructure. More importantly, split the allocation to disperse the warehousing concentration in one area causing severe impact on the city’s population.

• The existing areas with high density of warehouses can be declared as Notified Logistics Zones (NLZ) and a special NLZ administration unit is needed to address all associated infrastructure and utility needs.

Amit Bajaj Director, Mituj Marketing

Logistic Parks will go a long way in development of warehousing infrastructure. With GST implementation large format warehouses will be needed according to the geographic distribution strategy of the company. At present warehouses are located as per the legal requirements of the Government. This change of strategy would need government support to develop new transportation hubs.

Thus, the industry would need subsidised land, parking facilities, driver facilities and wide roads with bypass and city connectivity. Connectivity to the smaller towns has to be improved as the cargo will be transported directly to the smaller towns or cities.

Rajiv Kochhar

Vice President, Worlds Window

I would like to raise two points related to logistic parks and warehouses: There are numerous barren land parcels near the highways and are not fit to use for agriculture now. If Government and local authorities will take interest, these lands can be used for development of warehouse and logistic parks. And, if these lands can be used for development of warehouse and logistic parks, it will not only help to utilise the unused land but also give employment opportunity to the community in nearby areas.

Government and local authorities should take the initiative to develop connecting roads to such land or plots and develop these lands for commercial purpose and contribute in economical growth. As this will be the utilisation of non-productive land, Government should ease the norms of acquisition of such land. The Government should consider the tax holiday for promotion of warehouse industry and logistic parks and provide capital at low interest rate.

Aditya Bafna

Executive Director, Shree Shubham Logistics

Warehousing infrastructure is in the developing stage in India. The private sector has put efforts in developing world class storage and other allied infrastructure along with assisting the Government in operating and managing its existing storage infrastructure via Public Private Partnership (PPP) route which has set new standards for the industry.

Land being a critical component for construction of warehouses is not readily available. Also, high land cost near the Agriculture Produce Market Committee (APMC) and market areas and high construction norms like usage of land are also a deterrent factor. The only solution to address the issues is to facilitate and need for quick disposal of the subsidy for setting up the logistic parks.

There are no two opinions on the importance and criticality of agricultural sector to Indian economy. There is a need to encourage and incentivise private sector for making investments in agricultural storage and marketing infrastructure. However, despite continuous and well-meaning efforts of the Government through its various channels, this sector needs support in addressing the issues like facilitating land acquisition, quick approvals, creating awareness, allowing private sector participation via PPP route to modernise its APMCs with the help of commodity exchanges and banks.

Vineet Kanaujia

Vice President - Marketing, Safexpress

Warehousing in India has been evolving rapidly from being traditional four-walled godowns into ultra-modern setups. Warehousing companies in India are rapidly increasing their capacity, expanding their network and adopting new concepts to match up with the international standards. Infrastructure is a very important piece of the entire supply chain. Some critical issues that the industry is facing are lack of land parcels, hassles to reach the destination and traffic speed. The Indian government should consider providing land at subsidised prices at strategic locations across the country.

The growth and development of warehousing industry in India requires combined efforts from the industry leaders and the Indian Government. The Government should provide a favourable environment by funding facilities, providing tax havens and accelerating the consolidation of the industry. The states too should simplify their licensing policy. The Public Private Partnership (PPP) model can also be developed for building dedicated training institutes for the supply chain and logistics industry. Moreover, increase in IT adoption and knowledge infrastructure can provide a boost to the growth and development of warehousing players in India.

With the introduction of GST the key advantage for logistics companies will be the consolidation of many small warehouses to one productive warehouse.

Vineet Agarwal

Managing Director, TCI

Now more than ever before, India’s warehousing sector has gained in significance. On one hand, companies across industries are waking-up to the strategic importance of warehousing functions to their business. On the other, a slew of government initiatives have been started to make the sector more competitive, efficient and cost-effective.

In fact, the very definition of the term ‘warehousing’ is undergoing transformation globally as customers demand increased flexibility, improved inventory control, manageable costs and a restructuring of the supply chain. The result is a gradual expansion in the portfolio of warehouses, and the average warehouse size has gone to over 60,000 sq ft. The Government has been playing the role of facilitator in the growth of this segment. It is changing the regulatory set-up, providing incentives, and commissioning infrastructure development projects besides increasing transparency and relaxing tax structures to encourage the participation of foreign and private players in the sector.

The result is the coming-up of dedicated logistic parks and Free Trade Warehousing Zones (FTWZ). These are fostering the growth of the logistics market in India. Policy reforms from the government including the establishment of logistics parks in the PPP model, the implementation of the Warehousing and Development Act 2007, and rolling out of the Goods and Services Tax (GST) are added reasons for the anticipation of expansion in the warehousing sector.

Despite the government’s support to the warehousing segment, several challenges are yet to be confronted. While the lack of sufficient physical infrastructure is one of the challenges, a time lag between devising and implementing strategies due to the lack of international warehousing standards is another. Procurement of land in a strategic location with clear title and proper approvals is on the sector wish list. This is despite the presence of government agencies to address the issue. The lack of existing clear land classifications in Indian cities and the reclassification of land are other major concerns as far as the development of warehouse zones are concerned.

Samik Chakraborty Zonal Business Head – East, Drive India Enterprise Solutions – A Tata Enterprise

With an average GDP growth of 9-10 per cent in India, it is expected that industries like IT, telecom, textiles, food & beverages, retail etc. would advance year-on-year as well. The survival of these industries lies on adopting a ‘customer centric approach’ - most of the industries have started shifting from stand alone to state-ofthe-art warehouses to achieve optimum operating efficiency, automation, errorless execution, timely stock replenishment and speedier supply to market.

Hence Government’s initiative to subsidise tax towards investment on infrastructure and incentives for setting up logistic parks, would definitely benefit all the industries to operate with a lower cost and stay competitive in market.

However the industry needs support from the Government on various fronts to make the concept of logistic parks in India truly successful. The supply chain map of many industries may change post GST implementation and consolidation of warehouse space and re-evaluating location will be the next step for them.

Logistic parks would be considered an ideal location by Logistics Service Providers (LSPs) to operate multi-client warehouses. But to offer speed to market, LSPs would require superior connectivity of road infrastructure. This is possible only with expansion of national highways, better quality state highways and district roads.