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The Interim Budget 2024 announced on 1 February (Thursday) saw an increase in allocation for the logistics sector. Currently India’s logistics and transportation costs accounts for over 12% of GDP making it difficult for logistics service players to compete at ground level in the global ecosystem. As a part of the infrastructure development and MSME logistics allocation, the Union Finance Minister Nirmala Sitharaman highlighted in her Budget announcement on the implementation of railway corridors to foster faster movement of goods and freight. The priority to the infrastructure investment initiative is expected to drive logistics cost reduction, improved turnaround time, logistics efficiency, and economic growth.
We take a closer look at the details of the infrastructure development and MSME logistics enhancement initiatives to drive cost reduction and logistics efficiency.
Budget’s infrastructure development plans and impact on logistics sector
In the last ten years, the government’s development programmes have targeted a wider audience segment through initiatives on housing for all, access to water, electricity and cooking gas for all.
When it comes to ‘Economic Management’, the budget highlights that all form of infrastructure, physical, digital or social are being built in remarkable time. It also highlights the importance of Digital Public Infrastructure, and how it will play a pivotal role formalising the economy.
Infrastructure investment for development
The Union Budget Interim lays down the outlay for the next year to ₹11,11,111 crore. This marks an increase of 11.1% and comprise almost 3.4% of India’s GDP.
Improvements in Railways for enhanced logistics
Railway corridors programme:
The proposal is to have three major economic railway corridor programmes (i.e., rail transport system). These will be for:
- Energy, mineral and cement corridors
- Port connectivity corridors
- High traffic density corridors
The projects have been identified to propel multi-modal connectivity across the country and will be initiated under the PM Gati Shakti programme. The commodity specific rail corridors is a strategic move, attempted to reduce congestion in rail transport, in specific regions. It is expected that the initiative will help businesses to bring logistics efficiency, reduce turnaround time and facilitate cost reduction.
In the long-run, these economic corridors will also facilitate first mile and last mile delivery, and help to reduce operational and transportation costs (in alignment with the nation’s overall goal to reduce logistics costs by 2030).
Initiatives for passengers:
By clearing congestions in the high-traffic corridors, there will be safety, agility, speed, and better operations of passenger train commute. Moreover, to promote safety, convenience and comfort, and speed of travel, 40,000 normal rail bogies will be converted to the more efficient Vande Bharat standards.
Along with the freight corridors, these economic corridors are aimed to reduce logistics expenses and transport costs and accelerate GDP.
Note: As per the Economic Survey (2021), the contribution of the logistics industry to India’s GDP is around 13%-14%.
Also read: Learn about Multi-Modal Logistics Parks in India
Logistics initiatives for the Aviation sector
The canonical growth of the aviation sector is not surprising. Number of airports have doubled and roll-out to Tier-II and Tier-III cities under the UDAN scheme is evident.
Today there are 517 new routes, with 1.3 crore air traveller movement. With 1000 new aircraft orders placed, the Budget also highlights the efforts and investment being made for infrastructure development through the expansion of existing airports and building of new ones.
Initiatives in Metro rail development
Recognising the growing middle-class population and the need for quick, economic, transportation, metro railways is being identified as the catalyst for speedy transport in urban India.
The Budget highlights provisions for the expansion of these systems in large cities focusing on ‘transit-oriented development’.
Sustainability and the Electric Vehicle ecosystem
Sustainability and environmental well-being have been a constant concern for the government and the Interim Budget makes provisions for e-Vehicles. Plan for promoting the manufacturing of EVs (i.e., automotive sector) and development of charging points (i.e., infrastructure investment) is highlighted.
There’s also mention of the adoption of e-buses for public transport.
Also read: Automotive logistics and what it means for business
Note: Under the FAME India Scheme (Phase-II) there has already been the sanction for building 2,877 charging stations across 68 cities, considering EVs help to reduce transport costs but require the necessary infrastructure support to be adopted.
India – Middle East – Europe economic corridor
The times following the global pandemic was a slack period for all. It was marked by slow growth rate, low trade growth and other challenges.
The recently announced economic corridor between India – Middle East – Europe is aimed at being a strategic game changer, acting as the basis of world trade for the years to come.
From the perspective of facilitating trade and the industries related to it (i.e., infrastructure development, logistics , etc.), this is bound to boost global trade, imports and exports.
Infrastructure development with housing for middle class
Another notable infrastructure investment measure is the proposal to launch a scheme to help deserving sections of the middle class to buy or build their own homes. These include people, living in rented accommodations, slums, chawls and unauthorised housings.
What Budget Interim means for the MSME sector in India?
High costs in moving goods (especially for manufacturing sector) have impacted global competitiveness. With the establishment of railway corridors, the initiative to reduce traffic in congested routes, is likely to reduce logistics costs and enable MSMEs to compete in a holistic manner.
Also read: Meaning and how to optimise manufacturing logistics
In the wider context, improvement in transportation and logistics systems (i.e., rail, aviation, waterways, road) will prove beneficial for the overall supply chain operations. With investments in logistics and infrastructure, it can be expected that the manufacturing sector will be able to scale. This holds true for large and small businesses that are impacted by infrastructure and logistics challenges.
The MSME sector in India is a major contributor to manufacturing GDP and exports. It can be expected that with infrastructure investments (raised by 11.1%) and logistics enhancement there will be noticeable improvement and ease of doing business for the sector. From the perspective of tax reforms and compliance, in recent times there has also been a relaxation on the GST threshold limit for small businesses – all measures aimed at empowering MSMEs to foster the culture of innovation and entrepreneurship.
Moreover, several measures have being taken in the area of ‘Customs’ to facilitate, streamline and fasten international trade, imports and exports. This has enabled import release time to declined by:
- 47% to 71 hours only at Inland Container Depots
- 28% to 44 hours only at air cargo complexes
- 27% to 85 hours only at sea ports
In conclusion, though there has been remarkable growth in the past and the Budget has been designed keeping the future in mind, infrastructure development is only the first step. What’s required is a trained workforce capable to manage modern technologies. The Budget also makes provisions for and priorities workforce training, to prepare human resources to adopt technology and innovative solutions at the workplace.
Also read: National Logistics Policy in India
These initiatives in logistics transport and infrastructure, along with the relaxations offered on GST relaxation, corporate taxes, tax reforms and MSME compliance, is sure to witness a new wave of MSME growth in the years to come.