India’s logistic costs average 8.35%, says NCAER study - ET Infra (2024)

India’s logistic costs as a percentage of gross domestic product or GDP is 8.35% on an average, the New Delhi based think tank National Council of Applied Economic Research (NCAER) has said in a study, belying the Central government’s long held view that it is as high as 14%.

The NCAER’s conclusions on India’s logistic costs, based on a study commissioned by the Logistics Division in the Ministry of Commerce and Industry, has led the government to hire a consultant for assessing the logistic costs and to work out a ‘criteria or framework’ for calculating the logistic costs on a regular basis on the lines of the Wholesale Price Index (WPI) and the Consumer Price Index (CPI), a top official in the Ministry of Commerce and Industry said, asking not to be identified.

The government has not publicised the NCAER study, which pegs the average logistic costs almost on par with developed nations, fearing that the disclosure would make the logistics industry ‘complacent’.

“We don’t know who said the logistic costs in India is 13-14% and how it was established; nobody knows about it,” the ministry official said, adding that the government had carried out a study through NCAER to understand the actual logistic costs.

The NCAER report said that India’s logistic costs, on an average, is about 8.35%. The study, based on surveys, had also calculated the logistic costs for different commodities and sectors, which in some cases, is as low as 6.05%.

“But we are still not accepting the NCAER report. The study was done on a sample basis. Also, that should not make us relax and do nothing, because if we have already reached the 8% witnessed in developed countries, then we have nothing to do,” the official said.

“We are setting the objective of bringing down the logistic costs to whatever low is possible to make our exports and domestic economic activity more efficient and cost effective,” he said.

The government, including Prime Minister Narendra Modi, has blamed the high logistic costs as one of the factors hurting India’s manufacturing and trade competitiveness in the global markets and locally. The high logistic costs of 13-14% is at the heart of many infrastructure projects, programmes and schemes launched by the government, such as the PM Gati Shakti and Sagarmala, that seek to promote investments including from the private sector to boost infrastructure and logistics. The high logistic costs are also regularly featured in the Economic Surveys.

The Commerce and Industry Ministry is now looking at working out an index which can be calculated on a regular basis taking a few commodities and corridors that have a large contribution to logistic costs. These markers can be identified and on which data is collected by the Ministry of Statistics and Programme Implementation.

“Similar to the CPI and WPI, the government is trying to work out a mechanism to publish a logistics index. It is at a conceptual stage. We are going to engage a consultant, who together with the Ministry of Statistics and Programme Implementation, will work out some criteria or framework for calculating the logistic costs on a regular basis,” the official said, noting that the government is “looking for a more rational calculation of logistic costs”.

“We want to have something that is indigenously calculated, based on which the government can say conclusively that ‘yes, this is the logistic costs’ and even report to Parliament about it,” the official stated.

“The 13-14% logistic costs that were touted earlier is a highly biased percentage, superficial, piecemeal, and truncated. It was calculated by some overseas exporter to India, who only looked at imports coming into India, and the inefficiencies. It was not looking at the domestic sector and exports at all,” he said, while urging everyone not to refer to the 13-14% logistic costs.

The logistics industry has scoffed at the way in which the government has relentlessly targeted them, saying that they have been wrongly blamed for the extra costs eroding India’s competitiveness.

“Whether the logistic costs are 14% or 8%, it should be driven by a process which is reliable,” said Sachin Bhanushali, Chief Executive Officer, Gateway Distriparks Ltd.

Shantanu Bhadkamkar, immediate past president at the Association of Multimodal Transport Operators of India (AMTOI), said India needs to take a “sectoral approach” instead of a macroeconomic view of logistic costs.

“We are heading nowhere if we are going to adopt a macroeconomic approach. We must hit the bull’s eye,” Bhadkamkar, who is vocal about the issue, said. “You decide which sector you want to be competitive in, have a detailed study of each transaction, assess the parameters and the cost drivers and address the cost drivers. Only then can we achieve cost optimisation and efficiency,” he added.

Join the community of 2M+ industry professionals

Subscribe to our newsletter to get latest insights & analysis.

Get updates on your preferred social platform

Follow us for the latest news, insider access to events and more.