DPIIT releases Report on “Logistics Costs in India: Assessment and Long-Term Framework”

Report to contribute towards achieving target of reducing Logistics Costs in India

India’s National Logistics Policy, which was launched on 17th September 2022, aims to reduce logistics costs in India. To achieve this objective, the Logistics Division, Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry (MoCI) launched a report titled "Logistics Cost in India: Assessment and Long-Term Framework'' today in New Delhi. The Report has been prepared by the National Council of Applied Economic Research (NCAER), in a consultative manner, with guidance of the Asian Development Bank (ADB) experts and task force members.

Secretary, DPIIT, Sh. Rajesh Kumar Singh along with Special Secretary, Logistics Division, DPIIT, Ms. Sumita Dawra and other dignitaries including Deputy Country Director, ADB, Mr Hoe Yun Jeong officially unveiled this report today.

This report presents (a) a baseline aggregated logistics cost estimate and (b) 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.

This report recommends a hybrid approach using primary (covering all trade flows, product types, industry trends, OD pairs, etc.) and secondary survey data, as well as real-time Big Data to provide an estimate of logistics cost.

To ensure evidence-based decision making for improving logistics efficiency, logistics costs should be estimated on a regular basis (preferably annually). This requires institutionalising the process of data collection in a systematic and periodic manner, for which an MoU with NCAER is planned.

Secretary, DPIIT emphasized that this report offers reliable estimates to instil confidence in investors regarding the efficient movement of goods and services and is poised to play a pivotal role in optimizing logistics efficiency and enhancing India's global competitiveness.

Special Secretary, DPIIT highlighted that logistics cost has serious implications on the country’s manufacturing sector, export competitiveness, global positioning, etc. She pointed out that due to lack of data in the public domain for the critical components of logistics cost, the non-official / floating estimates of India’s logistics cost lack credibility. Hence, a need was felt to develop a scientific logistics cost calculation framework, that is inclusive and stands the test of statistical and data-based methods.

With this objective, the Government formed a Task Force in March 2023, subsequent to a workshop held in partnership with ADB. This Task Force composed of sectoral experts, line Ministries and representatives from NITI Aayog and ADB held a series of meetings, and drew credible conclusions. Key learnings that emerged during this exercise were as follows:

• Given the fragmented nature of the sector and various variables such as storage, terminal infra, O-D pair wise commodity flows, affecting the ecosystem, the complexity in estimating logistics cost, was demystified.

• The essential components of logistics cost estimation, including (i) Transportation cost, (ii) Warehousing and storage cost, auxiliary support services cost, (iii) Packaging cost, insurance cost, and (iv) Other administrative / operations cost, were identified.

• It was found that secondary data at a disaggregated level on most of these components is not available.

• Lack of data in public domain for the critical components of logistics cost, implied that non-officials / floating estimates of India’s logistics cost lack credibility.

• Immense Big Data being generated in the country is of immense value in computing logistics cost.

• The larger goal of policy making, requires a thorough understanding of trends in disaggregated data in the logistics sector, in terms of trade flows, product groups, EXIM and domestic cargo movement, etc.

The NCAER team led the academic exercise of computing the baseline results and putting together the comprehensive framework for logistics cost calculation in the long run, supported by academia, multilaterals, industry representatives and line Ministries.

The results of this report were widely appreciated by the industry representatives. Building a positive perception in the market, this systematic approach adopted by the Government will facilitate more effective and evidence-based decision making, planning production cycles, resource allocation, etc. Disaggregated data and a clear understanding of trends in the sector will lead to identification of targeted interventions and effective policy making.