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Challenges and Growth in India's Logistics Sector

Updated: May 9

In 2023, the logistics cost in India accounted for 14% of the GDP, a significantly higher value compared to the logistics costs of the United States and Europe, which ranged between 8 and 10% of their GDP, and China's, which was 9%. This places India above the global average logistics costs of 8% of GDP. This situation is largely attributed to the disorganized and fragmented nature of the logistics sector in the country, leading to a semi-efficient industry.

According to the World Bank's 2023 Logistics Performance Index (LPI), which is based on six overall aspects of commercial logistics such as customs, infrastructure, international shipments, logistics competence, tracking/traceability, and punctuality, India ranks 38th out of 139 countries, an improvement from its position in 2014 when it ranked 54th.

Goods Transport in India

Land transport is the primary means by which goods are transported within the territory of India. Just over 60% of the country's cargo is transported by road, whereas more developed countries transport 25% of their cargo by land. This is largely due to the limited maritime transport options due to the lack of navigable waterways within the country, leaving trucks and freight trains as the most viable options.

Regarding the costs of goods transport, they are much higher in India compared to other countries, which reduces the competitiveness of the country's logistics companies against foreign ones that have lower logistics costs. This has made it difficult for many companies in the country to keep up with the changes emerging in the global market.

The Indian government has launched various initiatives in recent years aimed at significantly improving the rural road network. Additionally, measures have been taken to reduce transportation costs by reducing taxes and tariffs on goods from logistics companies in the country.

National Logistics Policies and Projects in India

National Logistics Policy (NLP)

The Indian government has implemented a plan to address the challenges posed by the logistics sector in the country. On September 17, 2022, Prime Minister Shri Narendra Modi launched the National Logistics Policy (NLP) with the aim of reducing logistics costs in the country, improving the Logistics Performance Index ranking to be among the top 25 countries by 2030, and making data-driven decisions to achieve efficient logistics.

National Railway Plan

The National Railway Plan aims for a 45% share of freight traffic by rail by 2030. It seeks to increase network capacity, improve infrastructure, and build exclusive freight corridors across the country. Railway Minister Ashwini Vaishnaw proposes that railways in India should increase their share of freight transportation to 55% to reduce the country's total logistics cost to 8% of GDP.

Multimodal Logistics Park in Obalapura, India (MMLP)

One of the promising projects aimed at strengthening the country's logistics sector is the construction of the largest multimodal logistics park (MMLP) in southern India in Obalapura, located on the outskirts of northern Bengaluru. This project will cover an area of 400 acres and aims to have comprehensive logistics, storage, and cold storage facilities, thereby reducing overall logistics costs from 14% to 9% of GDP and enhancing the country's export competitiveness. It is projected that by 2070, this multimodal logistics park will handle approximately 30 million metric tons of cargo.

This project aims to positively impact the country's logistics by relieving truck traffic and providing an alternative to the congested city of Bengaluru for goods delivery.

Artificial Intelligence and Automation to Optimize Logistics Operations and Procedures in India.

India has made significant strides in logistics efficiency over the past decade, thanks to the increasing implementation of Artificial Intelligence (AI) and automation in processes.

Commercial procedures in the country have increasingly moved towards digitalization. The implementation of the Automated Customs Management System (AGMS) and the Foreign Trade Information System (ICES) exemplifies this trend. AGMS serves as a centralized platform for customs authorities to conduct inspection and tracking of goods, as well as assessment of duties and taxes. On the other hand, ICES allows businesses to streamline the payment of duties and taxes on their goods and submit customs declarations, thereby reducing the time required for customs procedures.

The integration of technological solutions such as AI and automation optimizes logistics efficiency, enabling companies to predict product demand, optimize routes, monitor product quality, manage inventory, among other tasks. In this regard, the government has made significant investments in the development of new technologies aimed at improving India's logistics efficiency.

According to a study by HERE Technologies, a significant portion of logistics companies in India already utilize some form of Internet of Things (IoT) technology, which involves the network of physical objects with embedded software, sensors, and other technologies that connect and exchange data with other devices and systems via the Internet. IoT is utilized for warehouse management (26%), inventory management (21%), and order management (19%) among logistics companies in India. However, there is potential for further adoption of IoT.

The same study found that around a quarter of logistics companies in India plan to invest in drones (33%), cloud computing (31%), and IoT and blockchain (30%). These technologies aim to capitalize on the significant opportunities in India's logistics sector, creating operational efficiency and competitive advantage.

Projections for the Logistics Sector in India

India's high logistics costs rank among the highest in the world, far exceeding the global average of 8%. These exorbitant costs pose a significant obstacle to the country's economy, competitiveness, and trade. Moreover, these figures shed light on the environmental impact of the logistics sector. In response, the Indian government has already taken measures to promote multimodal freight transport and green logistics nationwide through the National Logistics Policy. The policy aims to build a logistics network that maximizes the use of rail, waterway, and air transport.

The future of logistics services in India appears promising, with more and more companies implementing technologies while the government increasingly focuses on strengthening this sector through initiatives that reshape the industry. Challenges undoubtedly exist, but efforts are underway to address them. Consequently, prospects for the sector remain positive, with expectations of significant growth in the coming years, potentially expanding beyond national borders.

In conclusion, India's logistics sector faces significant challenges such as high costs and disorganization. However, both the government and businesses have made significant efforts to address these issues. The government has implemented initiatives such as the National Logistics Policy and the National Railway Plan to make the sector competitive by reducing logistics costs and taxes on goods, as well as working on sector sustainability and reducing road transportation. Meanwhile, businesses are increasingly introducing AI and automation into their logistics processes, enhancing the country's logistics efficiency and competitiveness.

Overall, increased use of technology, higher investment, and collaboration among logistics stakeholders in the country will enable India's logistics sector to reduce its logistics costs, grow in the coming years, and expand beyond its borders. At SPARX, we are experts in cargo services, offering transportation solutions across Indian territory tailored to your specific logistical needs.



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