MAKE IN INDIA
When Prime Minister Narendra Modi launched “Make in India”, a major national programme designed to facilitate investment, foster innovation and build best-in-class manufacturing infrastructure, he said, “this is a lion’s step”. Can India’s logistics industry strive for a lion’s share of this “lion’s step”?
Remember the Independence Day speech of Narendra Modi? From the ramparts of Red Fort, he had announced, “Let’s resolve to steer the country to one destination. We have it in us to move in that direction. Come, make in India. Come, manufacture in India. Sell in any country of the world but manufacture here. We have got skill, talent, discipline, and determination to do something. We want to give the world a favourable opportunity. Come, I am giving you an invitation.”
Interestingly, a day after India’s triumphant Mangalyaan or Mars Orbiter Mission and hours before he left for his first visit to the US as prime minister, Modi launched the “Make in India” campaign. Amidst much fanfare at a ceremony attended by big-wigs of the Indian industry, he called upon investors to think foreign direct investment (FDI) with a twist: ‘First Develop India’.
Aimed at putting India prominently on the global manufacturing map and to facilitate the inflow of new technology and capital, while creating millions of jobs, the programme has three pillars — improving the ease of doing business by de-licensing and de-regulation, enabling infrastructure such as industrial corridors and opening up FDI in sectors such as defence, construction and railways. First-time investors will get guidance across 25 identified sectors, which include automobiles and automobile components, aviation, biotech, chemicals, construction, defence manufacturing, electronic systems, food processing, mining, oil and gas, pharmaceutical, ports, railways, renewable energy, roads and textiles among others.
Along with these sectors, the campaign will bring in benefits to the logistics sector. Logistics is an integral part of business operations for any manufacturing firm, involving the process of receiving, storing and distributing raw materials for use in production.
“The advantages that India offers as a manufacturing hub are evident. It is the world’s second largest market, at least potentially, for every kind of product and service. It also has a very large, educated and skilled work force and is home to the world’s youngest population, ensuring not just a continuous source of skilled workers, but also consumers, completing the eco-system that an investor is looking at while making long-term and major investment decisions,” said Sushil Rathi, Senior Vice President, Mahindra Logistics.
Amar More, Senior Vice President, Kale Logistics, said, “This campaign will help boost India’s economy by enhancing GDP contribution from manufacturing. The prime minister has emphasised on skill development, which has been a vital concern for the growing logistics and transportation segment.” According to him the country is expected to get wider investment in high growth sectors like manufacturing, biotechnology, construction, and supply chain. “Supply chain will come to the forefront as e-commerce industry booms. By streamlining regulatory processes and introducing a dedicated cell to address the queries of business entities within 72 hours, the government has made it its mission to have global companies invest in India. This could also potentially spark off a chain reaction leading our domestic manufacturers to become global MNCs. With the mechanisms that the prime minister has put in place, this ‘Make in India’ campaign could spell great success for our logistics and transportation segment.”
Raajeev Bhatnagar, chairman, Universal Freight Management India (UFMI), said, “We have already seen some major players making commitments in aviation, retail and other industries but this needs to be matched with reduced cost in logistics, efficient and reliable technology, with minimum human interaction and paperwork.” Huned Gandhi, Managing Director India – Air & Sea Logistics, DACHSER India, said, “Make in India campaign will certainly lead to an increase in manufacturing in India which will create a great opportunity for the logistics sector. There will be a significant increase in the movement of capital goods, raw materials and finished goods. It will also create a demand for domestic and international transportation, warehousing and distribution. GST (goods and services tax) will also play a key role in the expansion of the logistics sector in India. 3PL in India is still in its nascent stage and holds phenomenal growth opportunities that can be unlocked.”
The business outlook for the Indian manufacturing sector—the business expectation index—improved in Q2 FY 2014–15 due to greater optimism on the overall business situation, production, order books, capacity utilization, imports, and exports. This is complimentary to the growth of Indian logistics sector. Therefore, Prahlad Tanwar, Director – Transport and Logistics, KPMG, said, “It will bring robust road and logistics network in core manufacturing sector. It will also focus on the enhancement of the current logistics services because it is vital to make these services globally comparative.”
‘Make in India’ will bring in investment in India, but the moot question is whether it will help Indian logistics sector in terms of bringing efficiency in infrastructure and technology or will it affect the competitive scenario in the sector. Bhatnagar shared, “Parliament has already passed insurance bill so while Indian investors would be bullish where as foreign investors are still expecting more to be done in order to boost the logistic industry. The major investments required are to be in infrastructure, a need for cargo village in five major metros is critical for operations to run smoothly. One still has to deal with multiple layers of agency which not only increases cost of operations but also a barrier to the efficiency. Logistics industry is set to play a major role, and is capable of supporting growth which is anticipated with major investment being done in infrastructure of which we hear a little from either the government or infrastructure.” On the same line of thought More said, “Evolving government policies and regulations such as the GST, regulations on cargo movement, and security initiatives will affect the supply chain. The industry needs to be prepared to invest in and redesign its supply chain to drive efficiencies after the GST is in place and conform to any legislation that focus on cargo export-import laws and security norms. One trend which we are very glad to have tracked over the past few years is trend towards greater collaboration between supply chain entities. Technology can be a key enabler in building sturdier supply chains through facilitating collaboration.”
While, Gandhi expressed concern over the lack of infrastructure, saying, “Investment will be a great challenge as the infrastructure development in India has always lagged behind. We need better roads, lesser documentation for movement of goods between states and efficient airports and sea ports. This can be a major hindrance and the government will have to initiate a special focus on the infrastructure development in the country.” Tanwar stated, “There are two to three things that will happen. One, we will go to see polarisation of services and service providers. Logistics companies which have expertise and skills, will be in a position to win more business. Second, it will bring standardisation and streamline some processes. Third, it will bring focus on multi-modal operations in logistics. Last, long-awaited GST is very important. So, global companies will bring global practices.”
Manufacturing locally in India enables companies to make significant savings on import duty and logistics costs, which remain considerably high (up to 25-30 per cent of total landed cost). This can be done through different ways and one of the ways is technology. “We see technology as a major enabler in reducing the logistics costs. Today the administration, documentation or what we call as transaction costs are very high. With evolution of technology and usage of latest community platform we see better shipment visibility given to manufacturers which in turn will reduce inventory costs, we see administrative costs going down as with such a technology the duplication of data entry is eliminated,” expressed More. Gandhi is of the opinion that once infrastructure is in place, the logistics industry can be more competitive with faster solutions. While Tanwar believes that there is a shift in the focus from logistics cost to logistics value.
The entire logistics industry is optimistic about the ‘Make in India’ campaign. More stated, “We see ‘Make in India’ driving growth in the logistics segment and along with e-commerce this is a segment that is set to grow quite well. You can expect consolidation coming in along with the growth. India’s economic growth is expected to improve in the forthcoming quarters. Some of the rating agencies have projected a better growth outlook against the backdrop of a new government coming to power with a single-party majority for the first time in three decades. The various policy initiatives by the new government to attract investments and to improve industry sector performance, among others, have helped improve sentiment and expectations. The Reserve Bank of India projects an annual growth of 5.3 per cent in FY 2014–15 and 6.4 per cent in the following year.” Bhatnagar expressing expectations for the budget, stated, “The next budget is awaited with lot of anticipation as this would be the government’s first budget. We are expecting some major decision to be taken and announced. We have already seen unanimity towards GST. Parliament has already passed insurance bill so while Indian investors would be bullish where as foreign investors are still expecting more to be done in order to boost the logistic industry.”
Stating that Make in India is a very important initiative because it is linked to Sagar Mala Project, Tanwar said, “If the government’s Sagar Mala project goes according to plan, India will be witness to a holistic development of ports for the first time. This will lead to development of mega ports. It will also create focus on hinterland connectivity and setting up of industrial hubs which are connected to ports and have good logistics network. Therefore, overall we are quite optimistic.”
“It is certainly a major step and this will benefit the logistics sector tremendously. Logistics in India has immense potential to grow and I am confident that such initiatives can have a huge impact resulting in massive growth for the Indian economy and the logistics industry,” concluded Gandhi.