World Bank has a Logistics Performance Index (LPI), with a focus on trade logistics. This is based on six heads of customs, infrastructure, international shipments, logistics competence, tracking and tracing, and timeliness. As is the case with every index, especially when data is based on subjective responses to questionnaires, methodology can always be questioned and improved. In the 2023 LPI, India is ranked 38 out of 139 countries. In 2014, India was ranked 54th. Despite possible caveats about LPI, it is obvious that logistics performance has improved and the goal has also been clearly articulated in 2022. “Targets for achieving the vision of the National Logistics Policy are to (i) Reduce cost of logistics in India to be comparable to global benchmarks by 2030; (ii) improve the Logistics Performance Index ranking—endeavour is to be among top 25 countries by 2030; and (iii) create data driven decision support mechanism for an efficient logistics ecosystem.” In addition, there is PM Gati Shakti, launched in 2021. Because of understandable time lags, the impact of this doesn’t show in LPI 2023, but will, eventually.
A cross-country ranking of logistics performance is one thing, estimating logistics cost is another. Economic Survey 2022-23 told us, “Logistics costs in India have been in the range of 14-18 per cent of GDP against the global benchmark of 8 per cent.” That kind of range floats around. In 2018, there was a port logistics report by Dun and Bradstreet (D&B), which found cost of doing business at sea-ports was around 15-16% of the consignment value (there was wide variation across ports.) Before Economic Survey 2022-23, in 2020, there was a CII-Arthur D. Little report on India’s supply chain.
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The debate over India’s logistics costs
To quote, “Logistics costs in the Indian supply chain amount to almost USD 400 billion, or 14 percent of GDP. A comparison with global peers shows that logistics costs amount to 8-10 percent of GDP in the US and Europe, and 9 percent in China. The global average is close to 8 percent of GDP, which reveals a competitiveness gap of USD 180 billion for India. …Other South-Asian countries, such as Thailand and Vietnam, also have high logistics costs. These countries’ costs reach 14 and 16-17 percent of GDP, respectively.” The D&B methodology was clear. In any event, it computed cost of doing business as percentage of consignment value. But when it comes to logistics costs as percentage of GDP, since methodology isn’t clearly explained, numbers seem to be plucked out of thin air.
Also Read Lessons from the Maldives fiasco: India-Maldives relations under strain after PM Modi’s Lakshadweep visit The nudge that UPI needs: NPCI chief proposes UPI fee for large merchants, sparks debate on digital payments E-auction of flats by DDA: How efficient, equitable, fair? The ‘easy revenue’ addiction: States’ dependence on Alcohol excise duties has been deepening This brings one to a recent (December 2023) report by NCAER on logistics cost in India. This is precise in its methodology and estimation. To quote from this paper, “In the context of India, there are no official estimates for logistics costs as a percentage of GDP. However, private sector institutions and academic institutions have computed logistics costs, which are widely quoted to stress the point that India is a country with high logistics costs.” In addition to the ones I mentioned earlier, NCAER cites three—Armstrong and Associates (2017), an estimate of 13% of GDP; CII (2015), an estimate of 10.9% of GVA; and NCAER (2019), an estimate of 8.9% of GVA. Clearly, there are variations in what is being measured and how. This new NCAER report uses supply and use tables. What does it find? In 2021-22, logistics costs had an estimated range of between 7.8% and 8.9%. In 2014-15, they had an estimated range of between 8.3% and 9.4%. There has been a decline over time (with a transient increase in 2017-18 and 2018-19). It cannot be anyone’s case that this new NCAER report is the last word on the subject. But it is a beginning, with a clear methodology. And two points emerge. First, logistics costs aren’t as bad as they are often made out to be. Second, they have declined over time (also evident from LPI).
Logistics, good or bad, are driven by the states and the commerce ministry has a LEADS (Logistics Ease Across Different States) report, based on perceptions. The 2023 version was released in December. Since states are heterogenous, in the reporting, they are divided into four groups—coastal, landlocked, north-east, and UTs. States that do well are called achievers. Nomenclature matters. Thus, states that are middling aren’t called average. They are called fast movers. States that are sub-par are called aspirers. Let me highlight coastal states, since 75% of export cargo is estimated to originate from them. Among coastal states, ones that do well are Andhra Pradesh, Gujarat, Karnataka, and Tamil Nadu. The ones that lag are Goa, Odisha, and West Bengal. While India’s logistics performance may have improved over time, that’s not true of every state. Some have slipped. Most states have a state-level logistics policy, including Goa and Odisha. West Bengal, bottom of the pecking order in the coastal category, doesn’t have one. To quote from LEADS 2023, “Looking ahead, the State (West Bengal) could benefit from formulating a State Logistics Master Plan and State Logistics Policy to drive efficiency improvements and facilitate investments within the logistics sector and undertake consultation with the logistics stakeholders for educating and informing them about the initiatives State is undertaking for the development and improvement of logistics sector.”
Logistics has been talked about for a long time and India has also focused on improving performance. We are now getting some precise data on measurement and quantification. That helps.
Bibek Debroy, chairman, EAC-PM. Views are personal.
World Bank has a Logistics Performance Index (LPI), with a focus on trade logistics. This is based on six heads of customs, infrastructure, international shipments, logistics competence, tracking and tracing, and timeliness. As is the case with every index, especially when data is based on subjective responses to questionnaires, methodology can always be questioned and improved. In the 2023 LPI, India is ranked 38 out of 139 countries. In 2014, India was ranked 54th. Despite possible caveats about LPI, it is obvious that logistics performance has improved and the goal has also been clearly articulated in 2022. “Targets for achieving the vision of the National Logistics Policy are to (i) Reduce cost of logistics in India to be comparable to global benchmarks by 2030; (ii) improve the Logistics Performance Index ranking—endeavour is to be among top 25 countries by 2030; and (iii) create data driven decision support mechanism for an efficient logistics ecosystem.” In addition, there is PM Gati Shakti, launched in 2021. Because of understandable time lags, the impact of this doesn’t show in LPI 2023, but will, eventually.
A cross-country ranking of logistics performance is one thing, estimating logistics cost is another. Economic Survey 2022-23 told us, “Logistics costs in India have been in the range of 14-18 per cent of GDP against the global benchmark of 8 per cent.” That kind of range floats around. In 2018, there was a port logistics report by Dun and Bradstreet (D&B), which found cost of doing business at sea-ports was around 15-16% of the consignment value (there was wide variation across ports.) Before Economic Survey 2022-23, in 2020, there was a CII-Arthur D. Little report on India’s supply chain.
To quote, “Logistics costs in the Indian supply chain amount to almost USD 400 billion, or 14 percent of GDP. A comparison with global peers shows that logistics costs amount to 8-10 percent of GDP in the US and Europe, and 9 percent in China. The global average is close to 8 percent of GDP, which reveals a competitiveness gap of USD 180 billion for India. …Other South-Asian countries, such as Thailand and Vietnam, also have high logistics costs. These countries’ costs reach 14 and 16-17 percent of GDP, respectively.” The D&B methodology was clear. In any event, it computed cost of doing business as percentage of consignment value. But when it comes to logistics costs as percentage of GDP, since methodology isn’t clearly explained, numbers seem to be plucked out of thin air.
This brings one to a recent (December 2023) report by NCAER on logistics cost in India. This is precise in its methodology and estimation. To quote from this paper, “In the context of India, there are no official estimates for logistics costs as a percentage of GDP. However, private sector institutions and academic institutions have computed logistics costs, which are widely quoted to stress the point that India is a country with high logistics costs.” In addition to the ones I mentioned earlier, NCAER cites three—Armstrong and Associates (2017), an estimate of 13% of GDP; CII (2015), an estimate of 10.9% of GVA; and NCAER (2019), an estimate of 8.9% of GVA. Clearly, there are variations in what is being measured and how. This new NCAER report uses supply and use tables. What does it find? In 2021-22, logistics costs had an estimated range of between 7.8% and 8.9%. In 2014-15, they had an estimated range of between 8.3% and 9.4%. There has been a decline over time (with a transient increase in 2017-18 and 2018-19). It cannot be anyone’s case that this new NCAER report is the last word on the subject. But it is a beginning, with a clear methodology. And two points emerge. First, logistics costs aren’t as bad as they are often made out to be. Second, they have declined over time (also evident from LPI).
Logistics, good or bad, are driven by the states and the commerce ministry has a LEADS (Logistics Ease Across Different States) report, based on perceptions. The 2023 version was released in December. Since states are heterogenous, in the reporting, they are divided into four groups—coastal, landlocked, north-east, and UTs. States that do well are called achievers. Nomenclature matters. Thus, states that are middling aren’t called average. They are called fast movers. States that are sub-par are called aspirers. Let me highlight coastal states, since 75% of export cargo is estimated to originate from them. Among coastal states, ones that do well are Andhra Pradesh, Gujarat, Karnataka, and Tamil Nadu. The ones that lag are Goa, Odisha, and West Bengal. While India’s logistics performance may have improved over time, that’s not true of every state. Some have slipped. Most states have a state-level logistics policy, including Goa and Odisha. West Bengal, bottom of the pecking order in the coastal category, doesn’t have one. To quote from LEADS 2023, “Looking ahead, the State (West Bengal) could benefit from formulating a State Logistics Master Plan and State Logistics Policy to drive efficiency improvements and facilitate investments within the logistics sector and undertake consultation with the logistics stakeholders for educating and informing them about the initiatives State is undertaking for the development and improvement of logistics sector.”
Logistics has been talked about for a long time and India has also focused on improving performance. We are now getting some precise data on measurement and quantification. That helps.
Bibek Debroy, chairman, EAC-PM. Views are personal.
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