India's infrastructure and logistics transformation is for real
By Malavika Mysore and Gopal Nadadur,
Nikkei Asia, June 15, 2023
By understanding policy environment, companies can capitalize on opportunities
Malavika Mysore is a Mumbai-based senior associate for South Asia at The Asia Group, a strategic advisory firm headquartered in Washington. Gopal Nadadur is the company's New Delhi-based vice president for South Asia.
The government of India is leading an aggressive push to modernize and expand the country's infrastructure and logistics networks. Policymakers see these areas as critical engines for investment, entrepreneurship and job creation.
Indeed, the quality of India's infrastructure and logistics ecosystem will be key for the country to become a $5 trillion economy by the mid-2020s, attract needed investment and expand its presence in global value chains.
The government's major policy reforms, which capitalize on India's robust economic development and rapid technological advancement, can put the logistics industry on track to grow from a $250 billion business as of 2021 to $3.5 trillion by 2047.
Excitement about this growth trajectory is evidenced by the recent, aggressive uptick in investments in India by multinational transport and logistics companies such as DP World and Maersk, as well as new commitments by Indian companies, the Japanese government and multilateral agencies like the Asian Development Bank.
The government's signature programs include the PM Gati Shakti -- National Master Plan for Multi-modal Connectivity and the National Logistics Policy (NLP).
Together, these initiatives aim to reduce logistics costs in India to less than 10% of gross domestic product by 2027 from a current rate of 14%, among the highest of peer countries. The government also has its eye on the World Bank's Logistics Performance Index, with a goal of moving India up into the ranks of the top 25 by 2027 from 38th as of April.
Gati Shakti involves fast-tracking $1.5 trillion in national infrastructure and connectivity projects by streamlining planning, approval and implementation through vastly improved coordination and efficiencies across 16 ministries. Some 156 critical infrastructure gaps had been identified for attention as of March.
The initiative has gotten off to a quick start, with around 1,300 project implementation issues resolved within eight months of its launch in October 2021, a substantial improvement compared with the previous rate of around 500 resolutions a year.
Alongside Gati Shakti, the NLP provides policy direction in the logistics sector by focusing on essential elements, including building higher quality multimodal logistics parks, establishing updated and harmonized standards and developing relevant human resources.
India is looking to leverage its dramatic progress in digital infrastructure to drive greater efficiencies in physical infrastructure and logistics.
The Unified Logistics Interface Platform is a case in point. A single-window platform to streamline logistics processes and provide end-to-end visibility on cargo movements across all modes of transportation, the platform is intended to provide complete supply chain visibility, slash logistics costs and streamline inventory management, shipping and tracking, and documentation.
This infrastructure and logistics drive extends beyond India and into the Bay of Bengal region.
Better connectivity with Bangladesh, for instance, will be essential to improving links between India's long neglected and underdeveloped northeastern states and the rest of the country. Improved regional transport connections will also greatly benefit Bangladesh's economy.
In recognition of these factors, India has ramped up investments in the region, in close coordination with Bangladesh and with technical and financial support from Japan.
Indeed, since 2014, Tokyo has been pursuing its vision of the Bay of Bengal Industrial Growth Belt and has worked with both the national and different state governments in India, partly through the Japan International Cooperation Agency and the Japan Bank for International Cooperation.
While these initiatives present a plethora of commercial opportunities, companies must exercise caution and dive deeper into the nuances of India's policy environment when making investments.
For instance, an in-depth understanding of policies will help logistics companies to identify lucrative opportunities in supply chains that are likely to experience rapid growth over the coming years. The national government and many state governments have rolled out incentive programs and other measures to catalyze growth in high-priority industrial sectors.
In the electronics sector, for example, these measures have helped to attract the value chains of some of the world's most renowned manufacturers, including Apple, Ericsson, Foxconn, Google, LG, Oppo, Nokia, Samsung Electronics and Vivo. So tracking and sometimes even anticipating relevant policy developments can help companies plan investments around the likely growth of manufacturing hubs and supporting supply chains.
An understanding of the policy environment will also help infrastructure and logistics companies to prioritize investment locations within India.
The speed and scale of implementation -- critical variables in determining returns on investment -- can vary across and even within states. This variation depends on individual state governments, which have substantial regulatory mandates in infrastructure and logistics, and on the relationship between specific state governments and the national government.
India's long-awaited reforms are transforming infrastructure and logistics ecosystems of the country and its broader region. Companies need to act swiftly and astutely to take part in this opportunity.
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