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Q. Analyze the role of the logistics sector in India's economic transformation. Discuss the key challenges hindering its potential and propose strategic interventions to enhance its efficiency and competitiveness. (250 words)
26 Mar, 2025 GS Paper 3 EconomyApproach
- Introduce the answer by briefing about India’s logistic sector
- Give Role of Logistics Sector in India’s Economic Transformation
- Delve into challenges and suggest strategic interventions
- Conclude suitably.
Introduction
The logistics sector acts as a backbone for economic growth by facilitating smooth movement of goods and services across regions. In India, the sector has witnessed a Compound Annual Growth Rate (CAGR) of 11% from FY2019 to FY2024 and is projected to reach ₹35.3 trillion by FY2029.
Body
Role of Logistics Sector in India’s Economic Transformation
- Trade and Export Facilitation: Efficient logistics lowers transaction costs, boosts export competitiveness, and supports initiatives like Make in India. For instance, the India-Middle East-Europe Economic Corridor (IMEC) aims to enhance trade connectivity.
- E-commerce and Job Creation: The sector has expanded with the e-commerce boom (27% CAGR to reach $163 billion by 2026), creating demand for last-mile delivery and generating employment.
- Infrastructure-led Growth: Initiatives like Gati Shakti and the National Logistics Policy (NLP) are improving multimodal connectivity and reducing logistics costs (currently 13% of GDP).
- Support to Agriculture and MSMEs: Development of cold chains and warehouses helps reduce post-harvest losses and strengthens rural supply chains.
- Attracting Investment: Logistics parks, digitization, and 3PL/4PL services are drawing domestic and foreign investments, boosting formalization and innovation.
Key Challenges:
Area Challenges Infrastructure Bottlenecks like poor roads, port congestion, and delayed projects (e.g., DFCs). Market Structure 90% unorganized sector leads to inefficiencies and lack of standardization. Skill Deficit Severe shortage of trained personnel in warehousing, SCM, and tech-driven roles. Last-Mile Delivery Urban congestion and poor address systems raise costs (41% of logistics costs). Sustainability High carbon emissions; limited EV penetration and green infrastructure. Multimodal Gaps Road dominates freight share (60%); rail’s share down from 85% (1951) to <30% (2022). Cybersecurity Risks Increasing digital threats amid rapid tech adoption. Strategic Interventions:
- Accelerate Infrastructure Projects: Fast-track Dedicated Freight Corridors, Multimodal Logistics Parks, and rural connectivity (e.g., Mumbai Trans Harbour Link).
- Regulatory Reforms: Implement single-window clearance and harmonize state-level logistics policies using platforms like e-SANCHIT.
- Technology Adoption: Scale up use of AI, IoT, and blockchain via ULIP and incentivize India-specific innovations.
- Skill Development: Launch a national logistics certification framework and collaborate with e-commerce firms for last-mile workforce training.
- Green Logistics Push: Provide tax breaks for green tech, expand EV charging infrastructure, and implement a carbon credit system for logistics.
- Multimodal Integration: Develop Integrated Multimodal Logistics Parks and incentivize shift to railways and inland waterways under Bharatmala.
- Cybersecurity Framework: Establish L-CERT (Logistics Cyber Emergency Response Team) and make cyber audits mandatory for logistics firms.
Conclusion
A modern, efficient logistics sector is critical for reducing transaction costs, supporting exports, generating employment, and enabling inclusive economic growth. With targeted reforms and sustained investments, India can transform its logistics landscape to match global benchmarks and accelerate its economic transformation journey.
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