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.

Cargo Talk - - Guest Column -

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

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