The Importance and Impact Of The Indian Logistics Ecosystem

By Prof. Prateek Shrivastava (Asst. Professor - Thakur Global Business School): Despite its critical importance, India's logistics industry consists primarily of unorganized firms and has not yet undergone a technological revolution. However, this is about to change because we cannot overlook the role that logistics plays in achieving our ambitious growth targets. The Indian logistics ecosystem is anticipated to change as a result of, among other things,  technological development, the emergence of e-commerce, and urgently required governmental reforms.

A significant development in India's history of economic policy occurred in 2014 with the election of the NDA government. By formally launching the 'Make in India' campaign, the government achieved its long-held goal of turning India into a manufacturing powerhouse for the first time. India is the only nation that has a chance of being a viable alternative to manufacturing for the rest of the world, even though China is the hub of global production and has the greatest global logistics infrastructure.

This emphasized the need for a strong logistics ecosystem that could facilitate seamless internal and international trade, boost global competitiveness, and increase earnings for the nearly 22 million people employed in the sector, among other things.

In order to coordinate the growth and development of the sector, the government prepared to establish a dedicated team within the Logistics Division of the Department of Commerce. This team would be responsible for enhancing current practices, implementing policy changes, identifying bottlenecks and inefficiencies, and introducing tech-based interventions and solutions. The advent of e-commerce in the nation firmly established the value of logistics there.

An unorganized industry made it more important than ever to organize thoughtfully and according to established procedures. This was mostly due to the unusual rate at which e-commerce enterprises entered India's Tier-II and Tier-III cities, which were normally excluded from the logistics ecosystem. What makes this tendency even more satisfying, if you will, is that it has just begun to encompass rural India as well.

Because e-commerce made it possible for goods to travel to every region of the country, logistics are now more important than ever. The extremely fragmented, $215 billion logistics market is dominated by unorganized firms. For a market this size, just 10-15% of the industry is occupied by organized companies;  this low percentage is likely the main reason why technology adoption was not as rapid and widespread as in most other industries. The advantage of technology is that it has the potential to be contagious in a positive way.

It only makes sense to assume that sooner rather than later we will see technology affect the future of this sector and its players given the way that many industries with close ties to logistics, like retail, are being washed away by digital technology. The World Economic Forum (2016) estimates that by 2025, the digital transformation of the logistics industry will have a value of $1.5 trillion for its participants and an extra $2.4 trillion in societal benefits. Ofcourse, this is on a worldwide scale, but it illustrates the range of technology in the logistics industry. The foundation of any nation's supply chain is its logistics ecosystem. 

Ignoring the significance of this sector would lead to a persistent demand-supply mismatch in the nation, which would prevent consumers—where the demand originates from—from buying anything from producers—where the supply arrives—because of operational inefficiencies. This would imply that the nation isn't operating at its maximum potential, and such a situation would slow the nation's growth and limit its potential for future expansion.

Additionally, a leading indicator of the state of the economy is the logistics sector. This indicates that producers begin exporting items in anticipation of increased demand at the beginning of an economic upswing. This suggests that as demand for logistic services increases, the logistics industry will be running at a high capacity. On the other hand, when a recession starts, producers reduce their output and ship fewer items, which hurts the logistics industry.

Therefore, hypothetically, a decent place to start would be to look at the logistics sector if you wanted to evaluate or estimate roughly how the economy will be in the coming few months. That is how significant this industry is.