Rising Logistics Performance Rankings Will Help India’s Cause To Attract Investment But Some Irritants Need Attention

India’s rise by six places to 38th position in the latest World Bank Logistics Performance Index 2023, is a shot in the arm for the country’s rising ambition and sustained groundwork to attract manufacturing investment. 

India started off with a dismal 54th rank vis-a-vis 28 of China, 25 of Malaysia and 35 of Thailand, in 2014, when the Narendra Modi government assumed office in Delhi. An unprecedented focus has changed the game since then. 

As of 2023, China is ranked 19, Malaysia 26 and Thailand 34. Vietnam is lagging at 43. Clearly, India has reduced the logistics gap with South East Asian export economies and China. The latter, however, is distinctly ahead. 

Notable that over the last nine years, Indian performance has improved in every segment — including customs, infrastructure, international shipments (port operation), logistics competence and quality, timeliness and, tracking and tracing. 

In port operations and timeliness, the Indian score (3.5 and 3.6) is just a notch below China's (3.6 and 3.7). China (4) maintains a huge lead over India (3.2) in infrastructure score, which has tilted the results highly in Beijing’s favour. 

The infrastructure gap will reduce in the next five years as the maze of expressways, rail freight corridors, inland waterways, national gas grid, new LNG terminals etc, will be up and running. 

A lot of effort is also going into easing customs procedures and tracking abilities, using the digital infrastructure. 

Learning While Earning

Improving logistics efficiency to the level of South East Asian majors — except the world topper Singapore — is, therefore, a distinct near-term possibility. That is highly comforting to investors, particularly foreign investors, who are extremely bullish about India after the Apple story. 

“Success of PLI (production-linked incentive) scheme depends on how well Apple's India plans shape up,” pink daily Business Standard wrote in March 2021.

From $3.16 billion in 2020-21 (FY21), smartphone exports crossed $11 billion in FY23. iPhones contributed half of the exports. 

The learnings are bigger than the earnings. Let’s face it, India lost the private sector-led manufacturing culture long, long ago. 

There were efforts to revive it since liberalisation. However, in the absence of due infrastructure, such efforts created some pockets of excellence as in pharmaceuticals, and automobiles. 

The last boom, between 2004 and 2009, created a huge overhang of bad debts and, excess capacities because we failed to optimise even the vast domestic market opportunities.  

Everything hasn’t changed since. Culture once gone takes time to revive. The officialdom, banking sector, media, and intellectuals still see private enterprise with suspicion. 

India’s startup entrepreneurs register companies in Singapore to avoid hassles at home. They raise finance from Silicon Valley Bank in the US, even though our own banks and financial institutions sit on a cash pile. 

According to World Bank, India’s domestic credit to the private sector is barely at 55 per cent of the gross domestic product (GDP). This is one-third of the global average (148 per cent), less than half of Korea (115 per cent) and, nearly one-fourth of China (183 per cent). 

By any measure, we didn’t give a level playing field to our corporates to compete in the global market. But, Indian media and politics are extra watchful on exposure of our banks and financial institutions to the private sector. 

Economic multiplier remains in the books of a few, even the pink media is less vociferous in its demand to the central bank to unlock finance and reduce the cost of money, which is a lifeline to growth. 

However, some things have definitely changed for the better. Goods and services tax, robust digital infrastructure, and physical infrastructure boom have finally unlocked the domestic market opportunities. 

Rising geopolitical risks of concentrating the supply chain in China and Delhi's determination to turn the wheel; convinced investors to take a calculated risk of heading for India rather than more efficient South East Asian economies. This is a new thought. 

Three-fourths of the smartphones manufactured in the country is consumed in the domestic market which has huge headroom. It is expected that domestic sales will grow in tandem with exports, offering manufacturers a cushion against global uncertainty. 

Apple literally guided India to draft a successful PLI plan for electronics manufacturing. The lessons should help the government to mitigate design faults in other PLI schemes. 

This is a trial-and-error story where patience and determination will be crucial. India is showing the right intentions to walk the rope. 

Inspired by Apple, Karnataka and Tamil Nadu amended seven-decade-old rules to increase factory working hours from eight to 12. These are more important changes than the zooming smartphone exports. 

Some Irritants

The animal spirit is back in India. Not only the developed states, even laggards like Uttar Pradesh or Odisha also are now throwing serious competition to attract investment. 

The domestic industry is now having a much cleaner and stronger balance sheet. The latest spate of growth ensured capacity utilisation. Stability in interest rates will lead to a rush for brownfield expansion. 

But some political-economic irritants need urgent attention. The Baddi truck operators’ cartel in Himachal Pradesh is a dangerous precedence that needs to be destroyed immediately. 

Over the last decade, this cartel has taken the growth agenda of the state at ransom. According to a media report, they forced the closure of 43 industrial units in the last three years. Both BJP and Congress are equally responsible for this. 

You may ignore Himachal as a small state but you cannot keep your eyes shut on the cartel that ensures that the entry point of Nhava Sheva port in Mumbai remains choked. 

It is hard to believe that all the powerful men and women in Mumbai and Delhi, cannot ensure the widening of a barely three km road stretch that takes as many as eight hours to cross. 

The business of local warehouses (container freight stations) thrives at the sacrifice of the “direct to port” policy agenda. A similar situation at the Petrapole land border with Bangladesh is now partly dismantled. 

Petrapole is no comparison to India’s leading container port in the commercial capital of Mumbai. But the question is the same. Why do politics accept the existence of such cartels? How big is the vested interest?