India’s supply chain and logistics costs account for 14% of GDP

BENGALURU: India’s supply chain and logistics costs currently account for 14 per cent of the country’s GDP at a massive $400 billion, compared to global average of approximately 8 per cent, says a report by Arthur D. Little India released in collaboration with CII.

According to the report, there is a competitiveness gap of $180 billion in the sector, and this is expected to increase to $500 billion by 2030 if the inefficiencies in the supply chain are not addressed. The World Bank Logistics Index released in 2018, for instance, ranked India 44th-far behind the US at 14 and China at 26. Other countries in the region, such as Thailand and Vietnam, also have high logistics costs.

The report also noted that the Covid-19 pandemic has further laid bare the weaknesses in the logistics industry-with 75 per cent of companies in the sector experiencing disruptions and a majority lacking a contingency plan to deal with a problem of such magnitude. The crisis has also necessitated the reimagination and redesign of supply chain management after businesses underwent digital transformation. 

Meanwhile, an excessive dependence on transportation by road and the under-utilisation of waterways, rail, and sea networks, coupled with poor infrastructure, has ballooned costs for the supply chain industry. The lack of technology adoption has also proven detrimental, adding to the competitiveness gap between India and its peers. The slow adoption of supply chain technology, including artificial intelligence, blockchain, and IoT, remains a major shortcoming, the report noted. 

Another factor is the absence of leading players in the industry as well as clear regulations, which has prevented the growth of the sector with small and fragmented businesses at a cost disadvantage. And India’s huge unorganised retail sector, with nearly 12 million kirana stores, has contributed to a convoluted supply chain. 

Barnik Chitran Maitra, lead author of the report and managing partner of Arthur D. Little India and South Asia said that to bridge the current competitiveness gap of $180 billion, India needs to halve logistics cost from 14 per cent of GDP to 7 per cent. “The supply chain industry in India needs to be reimagined and efforts need to be made to move towards creating an optimized and digitized logistics ecosystem, a delayered distribution system and a green, resilient and flexible supply chain,” he said.

Covid kickstarts evolution in logistics sector
The Covid-19 pandemic has disrupted the working of 75 per cent of companies in the sector, with the majority lacking a contingency plan. The crisis has also necessitated the reimagination and redesign of current business models and many firms have digitised operations