The Role of Transportation and Logistics In India’s Economy

In the Union Budget 2023-24, the government presented Amrit Kaal, a blueprint to make India a developed economy in 25 years. As per an Ernst and Young report, India could become a $26 trillion economy by FY48. One of the key growth drivers to achieve this long-term goal is growing merchandise exports to $1 trillion by 2030 from $422 billion in FY22. This ambition is driving demand for an efficient and effective logistics ecosystem.

Source: https://assets.ey.com/content/dam/ey-sites/ey-com/en_in/topics/esg/04/ey-envisioning-the-future-of-indian-logistics.pdf; April 2023

Challenges in Transportation and Logistics

India’s current logistics ecosystem is fragmented, complex and costly. It takes longer to transmit from one state to another due to complex regulations, delayed clearances, several intermediaries that increases cost and leads to operational inefficiencies.

The need of the hour is to bring everyone from service providers to the government to customers on the same platform and increase end-to-end supply chain visibility. This will accelerate and smoothen the movement of goods and help everyone in the supply chain realise the full potential of the transportation and logistics sector.

India has taken up the task to address these challenges and reduce logistics cost from ~14% to ~8% of GDP, by 2030, as per a report by the Bombay Chamber of Commerce & Industry. To achieve this target, the sector is undergoing significant development in infrastructure, digitalization, and sustainable logistics.

Source: https://assets.ey.com/content/dam/ey-sites/ey-com/en_in/topics/esg/04/ey-envisioning-the-future-of-indian-logistics.pdf April 2023

Making Logistics Efficient With Technology

India’s march towards an efficient and effective transportation and logistics ecosystem is a three-step process.

The first step involves adoption of advanced technologies and new, upgraded business models. The government is adopting digitization to improve transparency and reduce inefficiency. India’s digital initiatives such as “Make in India”, Unified Logistics Platform (ULIP) are enhancing transparency in the logistics sector. The government’s digital solutions such as ICEGATE and E-Logs are helping streamline processes and remove inefficiencies.

Indigenous technological innovations, such as the NavIC (the Indian Regional Navigation Satellite System) developed by ISRO, can also help transportation and logistics companies get better positional accuracy and real time end-to-end connectivity at a lower cost. NavIC’s India-focussed navigation and tracking system can suggest fastest and most fuel-efficient routes that can help improve truck utilisation and slow vehicle wear and tear.

Greater use of technology is also bringing more transparency, less documentation and enhanced tracking systems for shipments to the logistics sector, whose foundations lie in speed and innovation. According to a report by the Bombay Chamber of Commerce & Industry, such digitisation also helps fulfil the government’s target of bringing down logistics costs to 8% of the GDP.

Source: https://assets.ey.com/content/dam/ey-sites/ey-com/en_in/topics/esg/04/ey-envisioning-the-future-of-indian-logistics.pdf April 2023

Reaching The Last Mile / Improving Connectivity With Infrastructure

The second step is enhancing physical infrastructure to improve operational efficiency. As per an Ernst and Young report, 66% of India’s freight movement happens on road, 31% on rail, 3% on shipping and 1% in air, which increases cost.

Source: https://assets.ey.com/content/dam/ey-sites/ey-com/en_in/topics/esg/04/ey-envisioning-the-future-of-indian-logistics.pdf April 2023

To redistribute the freight movement among rail and ship, the government has proposed maritime clusters, dedicated freight corridors and multi-modal logistics parks (which include warehouses, specialized cold chain facilities, freight/container terminals etc). This new infrastructure will increase cargo handling capacity and bring significant annual revenue for ports and railways. Improved efficiency will reduce the time taken in handling cargo, thereby reducing cost.

In simple words, instead of 10 workers individually carrying bricks from one place to another, they create a line and pass on the brick to another, thereby saving effort and time and improving productivity.

Adopting sustainable transport and logistics

The third step is to make transport and logistics sustainable by reducing dependence on oil imports. Hence, the government is encouraging companies to adopt alternate fuel vehicles and renewable energy in ports by offering various incentives. It has introduced several incentives to boost electric vehicle (EV) manufacturing and adoption. One of the key initiatives driving the EV revolution is the Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles (FAME) scheme, launched in 2015.

India’s electric vehicle (EV) market is poised for an unprecedented surge, with projected growth reaching an impressive $152.2 billion by 2030. By 2030, the goal is to achieve 30% EV penetration in private cars, 70% in commercial vehicles, and a remarkable 80% in two and three-wheelers.

Source: https://timesofindia.indiatimes.com/blogs/voices/the-state-of-ev-adoption-in-india-unveiling-the-promising-future-of-battery-e-rickshaws-and-e-rickshaw-loaders/; May 2023

Investing in India’s logistics ecosystem

Transportation and logistics are one of the pillars on which India’s ambitions of being a global manufacturing and trade hub rest. With the government, private sector, startups and even consumers coming together united in the long-term goal to progress, the opportunity window has opened up wide. Ernst and Young April 2023 report expects India’s transportation and logistics sector to grow at a compounded annual growth rate of ~4.5% by 2050.

Aditya Birla Sun Life Transportation and Logistics Fund gives you an opportunity to invest in this structural shift. This open-ended equity scheme invests in transportation and logistics-related companies from automakers to airlines, tyres, ancillary auto parts, e-commerce, digital solutions, etc.

The theme covers 200 companies in 22 basic industries. The fund manager skims through companies and invests in both new-age and traditional companies, big and small, that fall within the broad transportation and logistics theme. These companies have a low correlation to the Nifty 50 and Nifty 500 Index, adding to your portfolio diversification.

Give your investment the opportunity to be a part of building India’s new logistics ecosystem with Aditya Birla Sun Life Transportation and Logistics Fund.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.