Restructuring to drive growth in Indian logistics says CRISIL
September 23, 2009
The proposed implementation of the Goods and Services tax (GST) and development of logistics parks, coupled with strong economic growth are expected to restructure the industry, bringing in greater efficiency and drive growth for the logistics business, said ratings agency CRISIL.
"The Indian logistics industry, valued at Rs3.6 trillion, is poised for strong growth in the next five years with a compounded annual growth rate (CAGR) of around 11%. A well-developed and networked logistics industry is imperative for the success and overall growth of the economy. Strong growth in economic fundamentals, favourable regulatory environment and greater thrust on logistics infrastructure development would be the key factors driving logistics growth," said Manoj Mohta, Head, CRISIL Research.
According to a report, CRISIL Research estimates total logistics spend covering both primary and secondary movement to be around 10.7% of the GDP in 2008-09, significantly higher than the 5% to 7% across developed nations. The higher spend is largely due to inefficient logistics operations, multiple tax structures, inadequate logistics infrastructure and unorganised nature of the industry, the report said.
CRISIL said the proposed implementation of GST and development of logistics parks and free trade warehousing zones (FTWZs) will accelerate formation of regional hub-based infrastructure and an environment conducive for rationalising the logistics network and this would help reduce intermediaries and streamline supply chain operations.
The government's investment-linked tax incentives for setting up cold storages and agriculture warehousing facilities too will provide an impetus to the logistics sector, it added.
The Indian unit of S&P said with strong growth in organised retailing and food processing sector, there is a dire need to upgrade infrastructure in the country to ensure optimal distribution and storage of perishables.
It said it believes that agriculture wastages can be reduced to around 25% from current levels of 30%-40% through an efficient supply chain mechanism as lower wastages would ensure lower prices to end consumers and higher income for farmers.
"Efficiency in logistics operations can be achieved by outsourcing it to a third party logistics (3PL) service provider. 3PL players can integrate operations by providing multimodal transport services and create better logistics infrastructure. The supply chain management needs to transform from an activity-based function to a service-oriented function," Mr Mohta added.
CRISIL Research said it expects revenues of the 3PL segment to grow strongly at around 27% CAGR over the next 5 years, to around Rs162 billion in 2013-14 from an estimated Rs48 billion in 2008-09. - Yogesh Sapkale with Amritha Pillay[email protected]