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Unleashing the growth potential

Following the government’s move, it will be easier for companies in the sector to raise long-term credit at lower rates, and access more funds; development firms with larger land parcels may now utilise their excess land holdings to develop logistics facilities

Written by Ramesh Nair |
November 25, 2017 2:33:13 am
Indian logistics sector, Transport and Logistics, business news, indian express (Illustration: C R Sasikumar)

The Indian logistics sector being granted infrastructure status is a landmark move having wide-ranging implications for an industry that is now set to grow 10-15 per cent annually. Specifically, the sector is now included in the Harmonised Master List of Infrastructure Sub-sectors under a new head ‘Transport and Logistics’, and categories such as multi-modal logistics park, cold chain facility, and warehousing facility have been defined. This will have decidedly positive implications, making the sector a sought-after asset class for investments.

Investments to rise

Taking a long-term perspective, the most encouraging impact of the move will be on the investments coming into the logistics sector. The new status makes it easier for companies operating within the sector to raise long-term credit from banks and other financial institutions at lower rates, and also attract foreign investments.

According to the government’s notification, the inclusion also makes it easier for logistics companies to:

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# Access larger amounts of funds as external commercial borrowings (ECB)

# Access longer-tenure funds from insurance companies and pension funds, and

# Be eligible to borrow from India Infrastructure Financing Company Limited (IIFCL)

Warehousing is already seeing big-ticket investments. In one of the biggest investment deals so far in the country, JLL India facilitated the Canada Pension Plan Investment Board (CPPIB) in acquiring a majority stake in IndoSpace, the warehousing and logistics real estate arm of Everstone Group. As part of this deal, CPPIB will acquire 13 industrial and logistics parks totalling 14 million sq ft of space.

Meanwhile, the Centre plans to work with the state governments and the private sector to set up 34 mega logistics parks across the country. It has already allocated Rs 1,00,000 crore for such targeted development.

Supply of logistics facilities to increase

There is now more clarity on the minimum land requirement for setting up logistics facilities. To get the infrastructure tag, minimum investment and area requirements for each category of logistic facilities have been spelt out:

# A multi-modal logistics park comprising inland container depot needs to have a minimum investment of Rs 50 crore with a minimum area of 10 acres

# A cold chain facility must have a minimum investment of Rs 15 crore and cover a minimum area of 20,000 sq ft

# Warehousing facilities must have a minimum Rs 25-crore investment and a minimum area of 1,00,000 sq ft

This also means that firms with larger land parcels can utilise their excess land holdings to develop more such facilities, thus boosting supply of warehousing facilities.

Logistics-dependent sectors to benefit

India is already home to leading industries such as automotive components, pharmaceuticals, cement, textiles, fast-moving consumer goods (FMCG) and e-commerce.

Private sector companies across these sectors, whose operations depend hugely on warehousing and logistics, are now likely to register tremendous growth in Tier-II and III cities. These companies will need a stronger network of warehouses and logistics facilities in smaller cities for growth. The changed status, in turn, will boost the viability of opening up businesses in different regions, translating into more demand and growth. Tier-II and III cities will become growth centres. According to a recent JLL report, India’s logistics and warehousing sector is already destined for a quantum jump with the advent of GST and associated infrastructure push to improve surface and air connectivity across the country.

India is ranked 35 out of 160 countries on the World Bank’s Logistics Performance Index (LPI). Between 2014 and 2017, the country’s ranking has moved up by 19 spots — evidence to the solid performance of the sector so far. The LPI measures the state of trade and logistics based on parameters like customs, infrastructure, international shipments, logistics quality and competence, tracking and tracing, and timeliness.

In the future, warehousing and logistics are likely to find a good foothold in emerging urban and semi-urban centres. Developers and several foreign private equity players are now making forays into warehouse developments across Indian cities, coming up with large-scale, high-tech warehousing/ logistics spaces with state-of-the-art facilities. The relatively easier availability of land in Tier-II and III cities compared to the larger metros, along with improving connectivity through infrastructure developments, make for a winning combination in these cities.

The impediments

Immediate problems, such as an inadequate roads and losses during transportation, must be resolved. Improvement road infrastructure at a much faster pace is critical to minimising losses, both economic and environmental. Only when this happens on the right scale will the logistics sector achieve optimal growth.

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The writer is chief executive officer & country head, JLL India

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First published on: 25-11-2017 at 02:33:13 am
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