The government on Thursday released the first official estimates of logistics costs in the country, stating that this ranges between 7.8% to 8.9% of the total economic output.
The much-awaited estimates were released as part of the report “Logistics Costs in India: Assessment and Long-term Framework” which has been prepared by National Council of Applied Economic Research with the guidance of Asian Development Bank experts. The framework uses 2021-22 for first estimates.
In March this year, Union home minister Amit Shah said that the logistics cost to GDP in India will be brought down from 13% to 7.5% in five years, and stressed that this is vital to boost the country’s global competitiveness. The NCAER report reveals the cost to be already lower than assumed earlier.
Prior to the official numbers arrived at after thorough study and analysis, the experts in the government and others were using estimates by some studies that pegged the logistics costs in the country anywhere between 8-14%. Based on these unofficial estimates the policy makers had set the aim to bring this number down to single digits.
To make logistics more efficient the government had come out with the logistics policy in September last with the aim to reduce cost of logistics in India to be comparable to global benchmarks by 2030, improve the World Bank’s Logistics Performance Index )LPI) ranking and be among top 25 countries by 2030 and create data driven decision support mechanism for an efficient logistics ecosystem.
The World Bank has ranked India 38 out of 139 countries in its LPI rankings table for 2023, an improvement of six places from the ranking of 2018.
“The kind of investment that India is making in both physical and digital infrastructure….all that is creating an enabling environment where we will start getting good and credible data, on the basis of which, we can do data-based planning and ultimately data based policy making as well,” Secretary in the Department for Promotion of Industry and Internal Trade (DPIIT) said while releasing the framework.
Through the report, a framework is being developed which will be used to calculate credible logistics cost estimates, he added.
NCAER Professor Poonam Munjal said that these are quick estimates and going forward, by use of more granular data, these numbers will be refined further. “These are ballpark numbers… and we prefer to keep them in ranges,” she said.
Globally, there are different methodologies to calculate logistics costs at a macroeconomy level.
Capturing origin-destination (O-D) pair-wise, commodity-wise, geography-wise data is critical for accurate estimations. However, the currently available non-official estimates of logistics costs (8 %t to 13 %t of the GDP) lack a conclusive and scientific calculation framework.
Reducing logistics costs is one of the top three policy priorities that can transform India into a manufacturing hub and the report supports this initiative, President of Confederation of Indian Industry R Dinesh said.
To align India’s logistics costs with global benchmarks by 2030, a need was felt to develop a scientific logistics cost calculation framework, which is inclusive and stands the test of various statistical and data-based methods and then collect the data (primary and secondary) for analysis, a government statement said.
This report presents a baseline aggregated logistics cost estimate and a framework for long-term logistics cost calculation. It uses available secondary data from the Supply Use Tables and National Account Statistics of Ministry of Statistics and Programme Implementation (MoSPI) and the NCAER’s 2019 study, “Analysis of India’s Logistics Costs”. It was also reviewed by external experts from the World Bank Group.
The report recommends a hybrid approach using primary covering all trade flows, product types, industry trends and secondary survey data, as well as real-time Big Data to provide an estimate of logistics cost.
by Mukesh Jagota
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