Budget ‘22 sets the logistics sector up for success in FY23 and beyond

Budget ‘22 sets the logistics sector up for success in FY23 and beyond

warehouse sector growth

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If we were to assign a theme to this year’s union budget proposal, it would be ‘pragmatic optimism.’ That’s because while the proposal demonstrated a sense of bullishness regarding the nation’s economic prospects—backed by the economic survey’s 8.5% GDP growth projection for FY23—there were also practical steps that indicate a commitment to this goal. The most notable of these actions was increased capital expenditure, which is 2.2 times the CAPEX for FY 2019-20. A considerable portion of this outlay will be poured into the PM Gati Shakti Master Plan, which augurs well for the national logistics and warehousing sector in combination with other proposed moves.

Boost for connectivity and ease of business

The PM GatiShakti Master Plan bets on seven economic growth drivers or “engines”—roads, railways, airports, ports, mass transport, waterways, and logistics infrastructure. It is expected to direct investments—including the initial outlay of INR 20000 crore this year—towards expanding, modernizing, and integrating the multi-modal transportation network across the country. By ensuring the ease of movement of goods from one part of the country to another, the government expects to boost productivity and accelerate commercial growth. As part of this plan, the National Highway system will be extended by 25000 kilometres, and a hundred cargo terminals will be established in three years, accompanying new multimodal logistics parks to be developed across the country.

As a result of the improved connectivity, businesses will be able to combine the advantages of larger, highly-equipped warehouses with smaller in-city spaces in an effective hub-and-spoke distribution network. This will lead to faster deliveries domestically and shorter export operations cycles, making Indian companies more attractive to global supply chain partners.

Value addition through digitization

In addition to building a world-class national infrastructure, this year’s budget proposal also re-emphasized the government’s faith in digital-driven initiatives. Digitization initiatives in the logistics sector, such as introducing the Unified Logistics Interface Platform (ULIP), will enable businesses to handle inventory management and other supply chain-related documentation in a more streamlined and efficient manner. It will ensure that both goods and data seamlessly flow through multimodal logistics networks throughout the country. This will further aid the competitiveness of Indian supply chains and promote domestic and international trade. This development will be further complemented by the digitization of other sectors, such as finance and banking.

Incentives for greener and cleaner production

There is no denying the indirect impact of the above actions on India’s sustainability-related ambitions, in addition to the direct impact of the government’s sustained efforts to boost the electric vehicle market in India. More digitization and greater efficiency will help minimize emissions and wastage. But the government has also sought to take more direct measures towards a greener future, by introducing production-linked incentives, to the tune of INR 19,500 crore, to the makers of solar power equipment. This will be accompanied by the already-existing schemes promoting the production of other green products like electric vehicles.

With these steps, the government has laid down the foundations for the long-term growth of Indian trade and economy. The implementation of these proposals, along with the National Logistics Policy (NLP), will enable the Indian logistics and warehousing sector to become more connected and transparent. As a result, the Indian warehousing and logistics companies will become more reliable as growth partners for not just Indian businesses but also the economy as a whole.

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