Gati Shakti will help develop a transportation system that optimizes cost and fuel efficiency through seamless multimodal motion transportation

By Amitabh Kant & Vasuki Nandan

The logistics sector plays an important role in the economy and ensures the efficient movement of goods and services throughout the country. It thus acts as a crucial ‘link’ by connecting the producers and consumers. An efficient logistics sector is therefore a prerequisite for sustainable economic growth.

Initially, inefficient logistics not only leads to higher prices for domestic goods, but also reduces the competitiveness of exports. Furthermore, these inefficiencies result in more transport and lead time. This results in higher inventory costs as producers are forced to hold large inventories to meet fluctuations in demand. It is estimated that logistics costs in India are about 13-14% of GDP, while in advanced economies it is about 7-9% of GDP. This means that India incurs an additional cost of approximately $150 billion (~5% of GDP) in logistics than it ideally should. However, this is only a fraction of the actual costs, as there are many indirect costs associated with inefficient logistics.

One such effect is reduced investment, both at home and abroad, as a result of reduced corporate profitability, resulting in lower GDP and employment. Furthermore, it is also a factor responsible for a lower share of production in India as entrepreneurs/companies prefer to invest in the service sector, which is not so constrained by logistical bottlenecks.

There are many reasons for such high logistics costs in India. Firstly, freight traffic is strongly focused on road transport (~65% of all freight), despite being expensive. According to the World Bank, it costs Rs 2.2 per tonne-per-km for road freight in India (Rs 1.4 and Rs 0.7 for rail and waterways, respectively). One reason for this is the lack of multimodal connectivity, which makes seamless connectivity between different modes of transport impossible. As a result, it is easier to transport goods by road, which has greater last-mile connectivity despite higher costs.

Second, investments in storage, cargo fleet and technological upgrades have been limited. This is because small companies that dominate India’s logistics industry are unable to make the major investments needed to achieve the necessary economies of scale. As a result, not only the unit cost of logistics is high, but also the lead time for the transportation of goods (Economic Survey 2019-20). This is further accentuated by the multitude of compliance requirements, from various bodies such as MoRTH, GSTN, CBIC, etc.

Any effort to improve the logistics industry in India should invariably address these factors. It is in this regard that the government has made the Prime Minister’s Gati Shakti scheme a central part of the FY23 budget. PM Gati Shakti or the National Master Plan for Multimodal Connectivity aims to develop an organic and efficient infrastructure system to better transport goods and people across the country.

Through Gati Shakti, all pre-existing infrastructure projects like Sagarmala, Bharatmala, etc. have been brought together on a single platform to ensure synchronized and integrated planning. This breaks with the traditional approach in which each ministry plans and executes its project in silos. Furthermore, through domestically developed spatial planning tools, Gati Shakti integrates more than 200 layers of GIS data. The importance of this data is enormous as projects from individual ministries can be examined and approved within the contours of the master plan. This would not only increase complementarity between projects from different ministries (e.g. connecting railway lines to ports), but also avoid geographically contradictory infrastructure (e.g. planning a road across a proposed reservoir due to poor coordination).

Using these tools, Gati Shakti would help develop a transportation system that optimizes costs and fuel efficiency by enabling seamless movement of goods between different modes of transport. For example, rail and waterways can be used to transport goods over great distances, while roads can be used to provide last-mile connectivity. It could therefore also shift the reliance on freight traffic from roads to more efficient modes of transport such as rail and waterways.

The platform would also enable ministries and departments to visualize, assess and monitor projects, thus helping to identify specific bottlenecks at ground level. For example, it could show whether the delay is caused by land acquisition or pending eviction, etc. This would not only ensure projects are completed within the proposed timeline, but also reduce the prevalence of cost overruns.

The heart of Gati Shakti is the Multi-Modal Logistics Parks (MMLPs), which would act as the central point to connect different modes of transport. MMLPs would also enable large scale warehousing and container movements and provide scope for value addition such as sorting, sorting, etc. These would provide the necessary upgrade and automation of the warehouses, reducing lead time and costs incurred.

In addition to these efforts, the government is also developing the Unified Logistics Interface Platform (ULIP) as the digital backbone of the sector. ULIP would securely and decentralized data from various government agencies such as GSTN, Vaahan, Customs, etc. .

ULIP would also make it possible to track shipments by all stakeholders. Such oversight would enable manufacturers and logistics players not only to better identify supply and delivery delays, but also to better understand demand trends. This would reduce the need to hold large inventories by enabling ‘just-in-time’ inventory management. Finally, ULIP would make supply chain resilience more resilient by identifying industry vulnerabilities, as done with the Logistics Data Bank for container tracking.

Such benefits of digitization are currently limited to selected major players and are not shared by the entire logistics industry. Due to its universal nature, ULIP could also offset the disadvantages of the smaller logistics companies, greatly benefiting the SMEs operating in the sector. Thus, ULIP has the potential not only to reduce logistics costs and improve supply chain resilience, but also to promote equity.

Finally, with investments exceeding Rs 100 trillion, Gati Shakti would create large-scale employment opportunities while fueling private sector investment. This is the same phenomenon that contributed to the rise of Asian tigers in the 1970s-80s and more recently in China.

The authors are CEO and young professional NITI Aayog respectively.

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