Logistics infrastructure: Catalyst for growth
Shisham Priyadarshini, Partner and Amish Shroff, Associate Partner, Rajani Associates, talk about the benefits that infra-status logistics companies and related business can explore and how this new status may impact operations in associated sectors.
The logistics sector in India has made considerable progress in recent times due to implementation of GST, relaxed FDI norms and good amount of investments in infrastructure sector in roads, railways and airports. In an attempt to provide impetus to the logistics sector, the government recently granted the status of infrastructure to the logistics sector and the notification to this effect has been issued by the Department of Economic Affairs (DEA). According to the Government Notification, infrastructure sector category will cover ‘transport and logistics’ and will include Multimodal Logistics Parks (comprising Inland Container Depot (ICD) with minimum `50 investment of crore and minimum area of 10 acre), cold chain facilities (having an investment of at least `15 crore and minimum area of 20,000 sq ft), and warehousing facilities (with investment of a minimum `25 crore and over 100,000 sq ft area).
Besides transport and logistics, the harmonised master list of infrastructures comprises categories to cover energy, water and sanitation, communication, social and commercial infrastructure. Roads and bridges, ports, shipyards, inland waterways, airport, railway track, tunnels, via ducts, terminal infrastructure (including stations and adjoining commercial infrastructure), urban public transport (except rolling stock in case of urban road transport) and logistics infrastructures are all part of the transport and logistics classification.
Reasons why the logistics sector has obtained the Infrastructure Status
The industry body ASSOCHAM has in one of its reports indicated that the logistics cost of exports is high in India. In fact, almost 14 per cent of the total value of goods goes into logistics cost, while in other countries, it is below 10 per cent of total value of goods. The high cost of logistics, renders the Indian goods less competitive not only in the international market but also within the domestic market.
Benefits of Infra-status logistics companies and related business
The inclusion will make it easier for logistics companies to:
Access larger amounts of funds as External Commercial Borrowings (ECB),
Access longer-tenure funds from insurance companies and pension funds
Be eligible to borrow from India Infrastructure Financing Company Limited (IIFCL).
Considering that the minimum investment and area requirements to get the infrastructure sector for each category has been clearly defined, it is expected to make it easier for companies operating within these segments to raise long-term credit from banks, insurance companies, pension funds and other financial institutions at lower rates, compared to typical manufacturing sector. This will also put the development firms with larger land parcels in an advantageous position, since these firms can utilise their excess land parcels to develop more infrastructure facilities, thereby boosting the supply of warehousing facilities.
Status impact on operations in the sector
Logistics is critical for agriculture and allied segments. With the infrastructure status, it will help this sector to be more competitive and bring in a lot more players with integrated approach. Not only more logistics hub would come up but this would in turn improve infrastructure, increase the demand for affordable housing in the vicinity. All these put together will lead to a boost in job creation. In order to improve the logistic sector, it is critical to resolve the issues of inadequate road network and losses that occur during transportation. The government's plan to implement the Bharatmala (road network) and Sagarmala (waterways network) is expected to address these issues. Bringing logistics at par with railways, roads and airports in term of its status, the government has provided a major push to developing an integrated logistics framework.
(The views expressed are solely of the author. The publication may or may not subscribe to the same.)
Amish Shroff Associate Partner Rajani Associates
Shisham Priyadarshini Partner Rajani Associates