Logistics Services in India is a prominent sector in terms of contribution to national and state incomes, trade flows, FDI as well as employment. Considering the huge contribution of logistics and transportation in economic growth, approx. 14% of the Gross Domestic Product (GDP) is spent on transport and Logistics sector in India in comparison to 8 to 10% in other developed countries. Indian Logistics and Transportation sector comprises of Rail, Road, Water and Air Transport.
Increased investor interest across the sector, especially in the warehousing service has surged the private investments over the years along with huge foreign Direct Investments. The warehousing industry in India is worth INR 560 billion in 2017 and is growing at a rate of 10-12% every year. This growth in Indian logistics and warehouse industry is led by various factors such as - Implementation of Goods and Service Tax (GST), growth of e-commerce and digitalisation, growing domestic consumption, increasing international trade and growth in private and foreign investments in infrastructure.
Source: Market research, analyst report on Booming warehousing sector in India
- As per the global scenario, Global transport and logistics sector (T&L) sector is expected to reach to US$15.5 Trillion by 2024 at a CAGR of 7.5% with Asia-Pacific region accounts for nearly 47% of the global T&L industry.
- In terms of volume, global transport and Logistics sector was valued at 54.7 Billion tons in 2015 and is expected to reach 92.10 Billion tons by 2024.
As per the Economic Survey 2017-18,
- Indian logistics sector provides livelihood to 22 Million People and is expected to reach US$ 215 Billion by 2020.
- Logistics Industry revenues accounts for US$ 160 Billion in the year 2017-18 and is expected to touch US$ 215 Billion by 2020.
- Study highlights that improvement in logistic sector will result in 10% decrease in indirect logistics cost and 5-8% growth in exports.
As per a recent study conducted by the World Bank, India has jumped 19 positions in the Logistics Performance Index (LPI) and now ranks at 35th position worldwide in 2017 as compared to 54th in 2014
Logistics sector as a whole contributes nearly 5% to the Indian economy. During 2016-17, Logistics sector share in Gross Value Added recorded as Road Transport (3.14%), Railways (0.77%), Service Incidental to Transport (0.75%), Air Transport (0.15%), Water Transport (0.05%) and Storage (0.05%) (Source: MOSPI)
Favourable Demographics - India accounts for approximately 17.5% of global population and is set to be world’s most populous country by 2028 with 40% of its population below the age of 20. With high population, demand of logistics and transportation services will go up.
Rising disposable income - High GDP and per capita growth has increased the disposable income in the country. In fact, Consumer class households are likely to reach 137 million in 2025 with a collective disposable income of US$ 1.5 trillion which would increase the demand for the sector
Technology Improvements - Adoption of latest technology and innovation is expected to reduce the transportation cost. Quality service at low cost is a major driver to the growth of transportation and logistics services.
Infrastructure Up gradation – Policies and initiatives for infrastructure up gradation, e.g. Logistics Park, freight corridors, Bharatmala and Sagarmala projects etc. are likely to be a major fillip growth driver of these services.
Government Policy Support – Government has given the status of Infrastructure status to Transport sector. Important policy initiatives and targets has been set up by the government to promote logistics and transportation services such as GST, Sagarmala project, high coverage under Union Budget 2018-19 etc. Government has set the target to reduce the logistics cost from present 14% of GDP to less than 10% by 2022.
References - Data and reports available in the public domain including Ministries Annual Reports and Data Statistics, IBEF Sectoral Reports, Department of Industrial Policy and Promotion (DIPP), RBI Handbook of Statistics on Indian Economy, Media & Industry Reports, Press Information Bureau (PIB), Union Budget 2018-19
Disclaimer - This information has been collected through secondary research and is available in the public domain. We are not responsible for any errors in the same.
Growing Demand - Increasing urbanisation, Industrialization and disposable income is driving growth of rail transport in India.
Investments - Government has been investing heavily to upgrade railway infrastructure. FDI Inflows in railway related components from April 2000 to June 2018 stood at US$ 920.21 million.
Policy Support - Government has allowed 100% FDI in the railway sector. Many remarkable initiatives are also taken by the government such as Automobile Freight Train Operator Scheme 2013, R3i policy, Public Private Partnership (PPP), modernisation initiatives, etc.
Foreign Direct Investment (FDI) inflows into Railways from April 2000 to June 2018 stood at US$ 920.21 million as per the data available from Department of Industrial Policy and Promotion (DIPP).
Export of Transportation Services from India has grown from US $ ***** to 17441 million in 2017-18. EXIM cargo is one of the important factors driving the export growth of Transportation services. EXIM cargo is expected to increase to 2,800 MMT by 2020.
|Foreign Direct Investment
||Government allowing 100% FDI in Railway infrastructure, apart from operations, through automatic route.
|Dedicated Freight Corridors (DFC)
||It is one of the largest infrastructure project in India worth US$12.6 Billion and spread across 3,317 km. ~70% of freight is expected to shift to DFC, freeing up capacity on Indian Railways. It will result in decongestion of highways, as one freight train would be able to carry load equivalent to 1,300 trucks.
||Capital and development expenditure of Railways for 2018-19 has been pegged at Rs 148,000 crore (US$ 22.86 billion)
Commitment of all coaches of Indian Railways will be fitted with bio toilets by 2019.
Indian Railways is targeting to triple their freight traffic from current 1.1 billion tonnes in 2017 to 3.3 billion tonnes by 2030.
500 stations will be made friendly for differently abled.
Government of India is going to come up with a ‘National Rail Plan’ focused on integrated rail and multi-modal transportation network.
||Policy aims to attract private sector participation in rail connectivity projects to create additional rail transport capacity. It allows 4 models: (a) Cost Sharing-Freight Rebate (b) Full Contribution-Apportioned Earnings (c) Special Purpose Vehicle (SPV) and (d) Private Line
|Public private Partnership (PPP)
||It aims for better connectivity to major ports through PPP funding. Objective is to develop major stations and equip them with international level of amenities and services.
||Initiatives As per Budget 2018-19, Northern Railways Department of Indian Railways is going to undertake modernisation of its entire signalling system with an estimated investment of Rs. 9,000 crore (US$ 1.40 billion)
‘Operation 5 minutes’ scheme for passengers travelling unreserved, which provides the passengers time to purchase tickets within 5 minutes
Paperless ticketing and charting by development of multi – lingual e – ticketing portal
Electrification of 6,000 km of routes has been planned for 2018-19.
500 stations will be made differently abled friendly by providing lifts and escalators.
Bill Tracking - To enhance transparency in the processing and settlement of bills, Indian Railways has come up with a new bill tracking system for contractors/vendors of Indian Railways to track status of their bills
SHIPPING INDUSTRY AND PORTS
India is the 16th largest maritime country in the world; with a coastline of about 7,517 km. India’s strategic location on the world’s shipping routes makes it an attractive destination for Trade. According to the Ministry of Shipping, around 95% of India's trading by volume and 70% by value is done through maritime transport. Indian ports and shipping industry plays a vital role in sustaining the growth of country’s trade and commerce. Currently, India has 12 major and 200 notified minor and intermediate ports. Major ports in India are expected to have a capacity of 1,452 million tonnes by the end of FY18.
Cargo Traffic is increasing at all major ports of India. During FY18, traffic at major ports increased by 4.77% to 679.36 million tonnes.
Indian government has initiated NMDP, an initiative to develop the maritime sector with planned outlay of US$ 11.8 billion
Huge demand raises plans to create port capacity of around 3,200 MMT to handle the expected traffic of about 2,500 MMT by 2020
Ports sector in India has received a cumulative FDI of US$ 1.64 billion between April 2000 and June 2018.
Total investment in Indian ports by 2020 is expected to reach US$ 43.03 billion
Increasing private participation
Strong growth potential and favourable investment climate are encouraging domestic and foreign private players to enter the Indian ports sector. Along with development of ports and terminals, the private sector are now extensively participating in port logistics services.
Ports to operate on Green energy
Government of India is targeting to make India, first in the world to operate all 12 major domestic government ports on renewable energy. The government plans to install almost 200 MW wind and solar power generation capacity by 2019 at the ports. The energy capacity could be ramped up to 500 MW in future years.
Specialist terminal based ports
Focus is given on Ports Terminals that deal with a particular type of cargo.
Examples of specialist terminals: ICTT in Cochin, LNG terminal in Dahej Port
‘Landlord port’ model
Government has reformed organisational model of seaports to promote private investments.
In ‘landlord port’ model, port authority acts as a regulator and landlord while port operations are carried out by private companies
Rising traffic at non major ports
With increasing private participation, cargo traffic at minor ports is outpacing cargo traffic at major ports. Contribution of non-major port’s traffic to total traffic rose to 42% in FY18
|National Maritime Agenda (2010-2020)
||The objective is to create a port capacity of around 3,200 MT to handle the expected traffic of about 2,500 MT by 2020. To achieve the objective, investments, proposed investments in major ports by 2020 are expected to total US$ 18.6 billion with world class infrastructure.
To establish a port regulator for all ports to set, monitor and regulate service levels, technical and performance standards.
||Sagarmala is a flagship programme to harness India’s potential of 7500 km coastline and promote Port led development in the country. Under the scheme, 508 projects with an estimated investment of more than 8 lakh Crore have been identified.
|De-licensing and Tax holidays
||FDI of up to 100% under the automatic route for projects related to the construction and maintenance of ports and harbours
10-year tax holiday to enterprises engaged in the8 business of developing, maintaining, and operating ports, inland waterways and inland ports
|Model concession Agreement (MCA)
||In March 2018, a revised Model Concession Agreement (MCA) was approved to make port projects more investor-friendly and make investment climate in the sector more attractive
|Favourable system and Price Flexibility
||Government has allowed Private ports (Non-Major) to determine their own tariffs in consultation with the State Maritime Boards. For major ports, tariffs are regulated by the Tariff Authority for Major Ports (TAMP).
Ministry of Shipping allowed foreign flagged ships to carry containers for transhipment (May 2018)
||To identify the opportunity areas for improvement in the operations of major ports. Under the project, 116 initiatives were identified out of which 87 initiatives have been implemented as of May 2018.
Opportunities for Investment
India is a growing economy and forecasted GDP growth by World Bank, giving indicators of strong growth of Trade. The capacity addition at ports is also expected to grow at a CAGR of 5-6 % till 2022, thereby adding 275-325 MT of capacity. Under the Sagarmala Programme, the government has envisioned a total of 189 projects for modernisation of ports involving an investment of Rs 1.42 trillion (US$ 22 billion) by the year 2035. Ministry of Shipping has set a target capacity of over 3,130 MMT by 2020, which is a huge opportunity of investment for Private sector.
According to a report of the National Transport Development Policy Committee, India’s cargo traffic handled by ports is expected to reach 1,695 million metric tonnes by 2021-22. Within the ports sector, projects worth an investment of US$ 10 billion have been identified and will be awarded over the coming five years.
High Scope for Private Ports
With rising demand for port infrastructure, there exists huge opportunities for private payers to invest in Ports development and maintenance.
Opportunities in Ship repair and Port support services
Potential market size of ship repair in India is around Rs 2,500-3,000 crore (US$ 388-466 million) of which only US$ 155-233 million has been tapped as of 2017
Operation and maintenance services such as pilotage, dredging, harbouring and provision of marine assets such as barges and dredgers are also expected to increase in coming years. Huge investment opportunities are there for port support services
India has one of the largest road networks across the world spanning over 5.5 million kms. Over 64.5% of all goods in the country are transported through roads, while 90% of the total passenger traffic uses road network to commute in the country.
- Highway construction in India has increased at 23.25% CAGR between FY14-18. A total of 200,000 km national highways are expected to be completed by 2022. Revenues from Highway construction is forecasted to grow at a CAGR of 20% by 2020.
- As per data available from Department of Industrial Policy and Promotion (DIPP), cumulative FDI in construction development stood at US$ 24.87 billion as of June 2018 since April 2000. Government has permitted 100% foreign direct investment (FDI) in the road sector, along with strong initiatives of PPP with several foreign companies to capitalise on the sector's growth.
Rise in 2 and 4 wheeler vehicles
Increasing freight traffic
Strong trade and tourist flows between states
Greater government focus on infrastructure
Clear policy framework and Tax sops
Huge FDI & FII inflows in Infrastructure development
Strong projected demand for investments
Rising private sector participation
|Investment in roads infrastructure
||Under the Union Budget 2018-19, government has provided an outlay of Rs 1.21 lakh crore (US$ 18.69 billion) for the road sector. Budget outlay for road transport and highways increased at a robust CAGR of 20.91% between FY09 and FY19.
||Scheme aims to build 80,000 Km of roads, highways, greenfield expressways, bridges with an investment of US$ 107 Billion. The main objective is to improve road connectivity & speed of road transport. Under 1 phase, target is to construct ~35,000 Km highways by 2022.
|Innovative project implementation models
||Innovative project implementation models viz Hybrid Annuity Model (HAM), Toll – Operate – Transfer (TOT), etc. has been initiated by Government of India.
|Prime Minister’s Gram Sadak Yojana (PMGSY)
||Prime Minister’s Gram Sadak Yojana (PMGSY) aims for development of rural roads in India. Indian Government has been successfully provided road connectivity to 85% of the 178,184 eligible rural habitations under the scheme. All villages are expected to be connected through a road network by 2019. Total length of roads constructed were 47,447 km in 2017-18. Under the Union Budget 2018-19, Government of India allocated an investment of Rs 19,000 crore (US$ 2.93 billion) for the Pradhan Mantri Gram Sadak Yojana (PMGSY)
||100% tax exemption in road projects for 5 years and 30% relief for the period of 5 years will be given for companies. Along with a grant capital of up to 40 % of the total project cost to enhance viability.
|Infrastructure Debt Fund (IDF) Scheme
||Government of India has set up the India Infrastructure Finance Company (IIFCL) to provide long-term funding for infrastructure projects
|Central Road Fund (CRF)
||Central Road Fund (CRF) Bill, 2017 has been passed in Lok Sabha that aims to assist the state government and union territories in the development of roads.
|Value Engineering Programme
||Ministry of Road, Transport and Highways plans to implement “Value Engineering Program” to promote the use of new technologies and material in highway projects in India.
|Special Accelerated Road Development Programme for the North Eastern region (SARDP-NE)
||Aims to develop road connectivity between remote areas in the North East with state capitals and district headquarters. Government of India plans to invest Rs 1.45 lakh crore (US$ 22.40 billion) towards road infrastructure in North-East region between 2018- 2020. Ministry of Road Transport and Highways approved Bharatmala Pariyojana Phase-I which includes improvement of 3,528 km road in North East region from 2017-18 to 2021-22 (April 2018)
|Goods and Service Tax (GST)
||The implementation of GST has reduced the tax on Infrastructure equipment from 28% to 18%, which is expected to give a boost to infrastructure development in the country.
Government of India has decided to invest Rs 7 trillion (US$ 107.82 billion) over the next 5 years, for construction of new roads and highways in the country. Under Bharatmala project, Government of India aims to complete 200,000 km national highways with the investment of US$82 billion by 2022.
On account of government initiatives to improve transportation infrastructure in the country, market for roads and highways is projected to exhibit a CAGR of 36.16% during 2016-2025. Around half (742) of the 1,531 PPP projects awarded in India until March 2018 were related to roads. The strong targets and projections are indicators of huge investment and growth opportunities in India’s Roadways Sector. A lot of investment opportunities are available in Fleet exchanges to bring together transport customers and vendors and Electronic Toll Collection (ETC). Under Public-Private Partnership (PPP), there are enormous opportunities to invest in road infrastructure and maintenance services.
India’s domestic aviation industry has emerged as one of the fastest growing industries in the country in the past few years. Currently, India is the 3rd largest domestic civil aviation market and 9th largest civil aviation market in the world.
India is expected to become world’s 3rd largest aviation by 2020 and largest by 2030 (Shri Jayant Sinha (Union Minister of State for Civil Aviation, Government of India). According to Handbook of Statistics on Civil Aviation 2017-18, air Passenger Traffic in India (both domestic and international) has witnessed a positive growth in 2017-18 as compared 2016-17. Total passengers traffic has increased from 223.62 million in 2016-17 to 308.75 million in 2017-18.
Low-cost carriers, modern airports, increasing business and leisure travel, Foreign Direct Investment (FDI) in domestic airlines, advancement in Information technology (IT) and growing emp hasis on regional connectivity are some of the driving factors of India’s Aviation Industry.
- Currently, India is the 9th largest civil aviation market in the world and expected to be world’s 3rd largest and largest by 2020 and 2030, respectively.
- During FY18, domestic passenger traffic witnessed a growth rate of 18.3%. Domestic passenger traffic expanded at a CAGR of 13.91% over FY06–18 while International passenger traffic registered CAGR of 9.36 % over FY06-18.
- Overall Passenger Traffic has increased from 265 million passengers in 2017 to 308 million in 2018. Domestic passenger traffic grew YoY by 18.28 % to reach 243 million in Market Size 18.84 21.21 63.87 81.16 78.79 36.13
- FY18 and is expected to become 293 million in FY20E. International passenger grew YoY by 10.43% to reach 65 million in FY18 and traffic is expected to become 76 million in FY20E.
- Freight traffic grew at a CAGR of 7.56% during FY06-FY18 from 1.40 million MT to 3.36 million MT. Freight traffic on airports in India is expected to cross 11.4 million tonnes by 2032. Globally, Airports are planning to surge up passenger traffic and is expected to double to 370 million by 2020.
Rising private participation and Investments
India’s aviation industry is expected to witness US$ 25 billion by 2027. Till date, five international airports have been completed successfully under PPP mode. Many existing airports and 2 green field projects are in line to be offered on PPP basis, which is expected to attract investments from private players.
Under Union Budget 2018-19, government has introduced NextGen Airports for Bharat (NABH)- Nirman Scheme which aims a five- fold increase in India’s airport capacity to handle a billion trips per year.
UDAN Scheme and construction of Navi Mumbai airport is an important initiative of government to give push to Indian air transport.
Increasing Travel & Tourism Spending
Share of travel and tourism in India’s GDP was 9.4% in 2017 and is expected to grow at a CAGR of 7.5% in 2018. Leisure travel spending is expected to grow at 7.6% in 2018 7.1%per annum between 2018 –2028 while business travel spending is expected to grow at 6.7% in 2018 and rise to 7.0 % per annum between 2018 – 2028.India plans to increase the number of airports to 250 by 2030 to cater to growing leisure and business travel.
Greater use of non-scheduled airlines
Rising business activity leading to higher demand for non - scheduled airlines.
India’s exports has grown at a CAGR of 5.61% to US$ 302.84 billion in FY18 whereas Imports registered a CAGR of 4.71% which reached to US$ 459.87 billion in FY18. Around 30% of Trade is operated through airports, trade is significantly impacting the growth of freight traffic in the country.
Foreign Direct Investment
According to data released by the Department of Industrial Policy and Promotion (DIPP), FDI inflows in air transport (including air freight) between April 2000 and December 2017 stood at US$ 1,608.51 million. India’s aviation industry is expected to witness Rs 1 lakh crore (US$ 15.52 billion) worth of investments in the next five years.
Increasing Disposable Income, Rising domestic and foreign tourists and Strong growth in external trade
Greater government focus on Airport infrastructure, ex: UDAAN. Clear policy framework and Tax sops and Huge FDI inflows and PPP for Infrastructure development
Government driving modernisation and development airport projects, expansion and upgradation of existing airports and development of low-cost airports. Strong projected demand driving huge PPP investments.
Policy support and Initiatives
Investment on infrastructure
Under Union Budget for the year 2018, Government of India has allocated strong budget of US$ 11.32 million to Airports Authority of India, US$ 32.44 million to Directorate General of Civil Aviation to implement various schemes. Indian government is planning to invest US$ 1.83 billion for development of airport infrastructure including aviation navigation services by 2026.
Liberalization and Open Sky Policy
With the opening of the airport sector to private participation, six airports across major cities are being developed under the PPP model. India has signed bilateral agreements with foreign countries for increased traffic rights say with Greece, Spain, Australia and Brussels.
100% FDI under automatic route for greenfield projects whereas 74 % under automatic route for brownfield projects is allowed. Also, 100% FDI is allowed under automatic route in scheduled air transport service, regional air transport service and domestic scheduled passenger airline.
Taxes & Duties
100 % tax exemption will be given on airport projects for a period of 10 years. Indian aircraft Manufacture, Repair and Overhaul (MRO) service providers are exempted completely from customs and countervailing duties.
National Civil Aviation Policy, 2016
Policy covers over 22 areas of civil aviation sector. The major focus of policy is to make flying affordable to the masses and to strengthen the regional air connectivity. UDAN is a "Regional Connectivity Scheme" (RCS) covered under National Civil Aviation Policy 2016, with the objective of "Let the common citizen of the country fly", aimed at making air travel affordable and widespread, to boost inclusive national economic development, job growth and air transport infrastructure development of all regions and states of India.
Development of Metro and Non-Metro Airports
AAI aims to bring around 250 metro airports under operation across the country by 2020 in metro cities. Also, AAI will spent US$ 1.3 billion on non-metro projects over the 5 years (2013–17.
There exists huge untapped potential in India’s aviation industry. Country like India, where both leisure and business tourism is increasing sharply, air is a major mode of Transport for millions. Government of India has taken necessary policy initiatives to attract investments in aviation sector and has set remarkable target to become the world's third largest aviation market by 2020. Going with the policies of government, huge investment opportunities are available for industry stakeholders to collaborate with government in existing and green-field airports. Government of India has launched of NABH-Nirman Scheme with the aim is to increase India’s airports’ capacity. As per the huge policy initiatives, it is estimated that India will require investments worth Rs 3 - 4 lakh crore (US$ 46.55 - 62.06 million) to achieve a capacity for having a billion trips per year.
India has huge potential to develop as a MRO hub. Indian airline companies spend over 13– 15 % of their revenues on maintenance, which is the 2nd highest cost component after fuel. The development of Indian Aviation Industry demands robust MRO business in India to make Indian Aviation cost effective and affordable. The industry stakeholders should engage and collaborate with policy makers to implement efficient and rational decisions of investments that would boost India’s civil aviation industry. With the right policies and focus on quality, cost and passenger interest, India would be well placed to achieve its vision of becoming the third-largest aviation market by 2025.