The fall and fall of the country’s logistics costs

livemint.com:

MUMBAI : A new and more scientific way of calculation has put India’s logistics cost much lower than before. How sharp is this drop? Mint explains the reduction, where India stands globally when it comes to the cost of logistics, and what more needs to be done. A study by the National Council for Applied Economic Research (NCAER) commissioned by the ministry of commerce and industry has put India’s logistics cost at 7.8% to 8.9% of GDP.

This was arrived at with the help of National Accounts Statistics and included data on transport services, storage, and warehousing. The earlier estimate, which was more a ballpark figure, put the logistics cost at anywhere between 13% and 14% of GDP. Experts have said that the two numbers are not comparable, and that the sharp drop does not mean the logistics cost has declined by 500 basis points in the last decade.

Has there really been a reduction in the cost? Yes. According to the NCAER study, it was 8.6% to 9.8% in 2013-14 and dropped to 7.8% to 8.9% in 2021-22, a nearly 100-basis point reduction. A basis point is a hundredth of a percentage point.

This has been due to investments in roads, ports, and airports apart from Goods and Services Tax and digitization of export-import processes. Rating agency Crisil puts India’s infrastructure spending in the last seven years at ₹67 trillion. Experts point out that the NCAER calculation is not comprehensive and does not include the cost of logistics that is outsourced.

The actual cost would be higher, if that is factored in. While launching the policy in September 2022, Prime Minister Narendra Modi said its objective was to reduce the logistics cost from 14% of GDP to a single digit. Lowering the cost is critical for making India the