Insight - Modernising India’s logistics and transport infrastructure

The Indian government’s massive initiative to modernise India’s logistics sector provides significant opportunities for Australian companies to contribute with products and services.

India’s 2016-17 budget put a strong emphasis on infrastructure growth, with plans to develop highways, railways and rural roads around the country.

A major part of the government’s infrastructure program is the Sagarmala project, an A$130 billion undertaking to develop India’s 7,500 km of coastline and transform India’s ports into modern, world-class operations.

Launched in 2015 by the Indian Ministry of Shipping, Sagarmala has 415 separate projects identified – from port modernisation and new port development to port-linked industrialisation and coastal community development. The project has a 20-year implementation period, and is scheduled for completion in 2035.

India already has 12 major ports – the modernisation work will not only boost coastal shipping, but likely ease the country’s dependence on rail and road transport, cutting inland transportation costs by some 80 per cent.

Six new mega ports have also been given the green light for Sagar Island in West Bengal, Paradip Outer Harbour in Odisha, Engayam and Sirkhazi in Tamil Nadu, Belikeri in Karnataka, and Vadhavan in Maharashtra.

These new ports are expected to enhance the handling capacity of India’s cargo traffic by up to 3,000 million tonnes per year by 2025.

The port’s hinterlands are an integral part of the project, with industrial clusters, efficient transport distributions systems using road and rail, and 14,500km of potentially navigable coastal and inland waterways also set for development.

Skills training as part of Sagarmala

To support its ambitious logistics sector reform, the Indian government plans to train as many as 1.3 million people living in India’s coastal districts in logistics, manufacturing, tourism, and the modern fishing industry.

The Ministry of Shipping has already surveyed 21 coastal districts and will roll out skills training in two phases. Consulting firm PricewaterhouseCoopers has prepared a report which identifies skills gaps in coastal districts, and looks at both wage- and self-employment. The main areas for training will cover agriculture; banking and financial services, including insurance; communications; and construction.

More broadly, India aims to equip up to 500 million people with vocational skills by the year 2022.

On the cusp of a high-growth trajectory

Rohit Chaturvedi, who heads Kitzo Management Advisory based in Mumbai, says India is now on the cusp of a high-growth trajectory. ‘The Indian Government has identified sectors to be promoted to sustain growth momentum,’ he says. ‘And transport and logistics is one of the most important of those sectors.’

“There are so many opportunities. As well as Sagarmala, there is the upcoming Bharatmala project, which looks at India’s road sector – at improving 25,000km of highways, coastal roads, corridor efficiency, and the construction and rehabilitation of some 1,500 bridges.

‘Investment in this program alone is expected to be worth in the vicinity of US$50 billion over the next four to five years,’ Mr Chaturvedi says.

Government initiatives will help fund the changes. These include policies and regulations that will increase the flow of funds to infrastructure such as Infrastructure Investment Trusts (InVITS); the development of new financing structures such as the Railways of India Development Fund (RIDF); and tax reforms such as the new integrated Goods and Services Tax (GST), which came into effect on 1 July 2017.

Increased private sector participation is also expected to make an impact and the large scale of the investments required make Public Private Partnerships (PPPs) the model considered by many to be the most viable option.

Opportunities for Australian organisations

The logistics sector in India divides into a number of segments: transportation accounts for just over 60 per cent of India’s logistics sector business, followed by warehousing with 24.5 per cent of the sector, freight forwarding with 10.10 per cent, and distribution with 5.20 per cent.

Opportunities abound in this sector for Australian organisations, says Grayson Perry, Austrade’s Trade Commissioner for Chennai.

‘There are many specific opportunities. For example, in Technology and Equipment Supplies, Australian exporters could look at providing cold chain transport solutions, automotive logistics, equipment in grain storage silos, and warehouse automation,’ says Dr Perry.

‘Information Technology is another area where Australian organisations can do business. There’s considerable scope in data security products, engaging with Indian technology companies in research and development collaborations, or in acting as a logistics aggregator using IT systems.’

He notes that there is demand for Training and Skills Development, including training centres to impart training in new techniques, and port management training.

‘And, of course, Project Management and Consultancy, and Warehouse Design and Consultancy also provide specific opportunities for Australian companies,’ he adds.

Among the many new initiatives now underway which provide opportunities for Australian organisations, the Delhi-Mumbai Industrial Corridor Project is one of the largest, with an expected investment of some US$90 billion.

The Delhi-Mumbai Industrial Corridor – a planned industrial development program between India’s capital, Delhi, and the country’s financial hub, Mumbai – includes 24 industrial regions and eight Smart Cities, as well as airports, mass rapid transit systems and logistical hubs.

Doing business in India, and market entry strategies

The Australian corporation, Linfox, is a leading player in the logistics and transport sector in India. The company has been in the country for 11 years and manages a huge distribution network which covers multiple operations, including 1.9 million square feet of warehousing space, a diverse fleet, and large mechanised distribution centres spread across the country from the region around Delhi to Bangalore and Chennai. Pankaj Joshi, who heads Linfox in India, says that there are several factors Australian companies need to take into account when considering doing business in India.

‘You cannot come to the country with a short time horizon. It takes time to establish yourself. It is better if you are a sizeable company – not too small – and backed by a good and sustainable investment program,’ he says.

‘You should have a clear-cut differentiation strategy when you enter the Indian market. Providing generalist services won’t work; the competition is already too strong. It is also important to provide services – niche services – that are not already being covered.’

He adds that Australian companies with a differentiation in technology have more chance of success. ‘Technology is an enabler of growth, and technology is what is driving growth in India right now.’

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