India is one of the fastest-growing economies in the world, driven by rising demand for goods and services among citizens and rapid urbanisation. These have boosted the country’s economic growth. The country’s economic activity is mostly driven by Indian cities—estimated to contribute to ~70% of India’s GDP (gross domestic product) by 2030. Movement of goods plays a significant role in various sectors (such as e-commerce) to ensure timely product deliveries to customers and contribute to the overall economic growth.
In July 2021, the Indian government introduced plans for ‘Freight Smart Cities’ to enhance urban freight efficiency and reduce logistics costs in an effort to recognise the need for managing movement of goods to improve the city freight traffic. This is likely to boost all sectors of the economy.
The initiative encompasses the following plan:
- Phase I – Identification of the initial 10 cities to be developed as ‘Freight Smart Cities’
- Formation of city-level logistics committees in 10 cities – including member participation from the government and the private sector
- These committees are to co-create ‘City Logistics Plans’ such as promoting electrification of urban freight, building peri-urban freight centres, developing truck routes and managing night-time deliveries
- Expansion of the initiative to the next 75 cities in Phase II. Target segment includes all state capitals and cities that have >1 million population
The government’s increased focus on enhancing urban freight traffic is estimated to reduce logistics costs (as a share of the GDP) to 10% by 2022, from 14% in 2018. This is estimated to save ~Rs. 10 lakh crore (US$ 133.81 billion), according to RMI Analysis (published in June 2021).
Role of ‘Freight Smart Cities’ in Improving Urban Freight Efficiency
According to an RMI India report, the demand for urban freight in India is projected to increase ~140% by 2030. Further, India is witnessing robust growth in sectors such as e-commerce, which is expected to further boost the demand for urban freight. According to a report published by GlobalData, the e-commerce industry in India is expected to grow at ~141% to reach US$ 111.4 billion in 2025, from US$ 46.2 billion in 2020.
By implementing ‘Freight Smart Cities’, the government plans to address the following key challenges of the current urban freight system.
Current Urban Freight System
Improved Urban Freight Efficiency
As per RMI Analysis, urban freight accounts for ~10% of India’s freight-related CO2 emissions. These vehicles impact air quality as they add up to 23 kilo tonnes of Particulate Matter (PM) emissions and 305 kilo tonnes of Nitrogen
Oxides (NOx) emissions annually.
As per the RMI report, by implementing the new freight system, India is estimated to save ~10 giga tonnes of CO2, 500 kilo tonnes of PM and 15 million tonnes of NOx emissions (by freight transport) by 2050.
Final-mile freight movement in cities accounts for ~50% of the total logistics costs in India’s e-commerce supply chains.
India aims to reduce logistics costs (as a share of the GDP) to 10% by 2022, from 14% in 2018. This translates into savings of ~Rs. 10 lakh crore (US$ 133.81 billion).
Traffic congestion and delays are caused by inefficient driving and parking practises.
The government aims to reduce truck traffic on roads by achieving 48% decrease in vehicular-freight activity by 2050.
Thus, with implementation of the new freight plan, the government aims to address key concern areas (environmental impact, logistics-related high costs, etc.) of the current urban freight system and improve efficiencies to meet the rising demand, create employment opportunities and boost economic competitiveness.
Key Trends and Government Initiatives
The urban freight system is experiencing the following key trends:
Multimodal Logistics Parks
In 2017, the Indian government approved 34 multimodal logistics parks in India. Key cities such as Hyderabad, Bengaluru, Surat, Chennai, Nagpur, Vijayawada and Guwahati are expected to witness development of large logistics parks. In 2020, the foundation stone was laid for the Rs. 694 crore (US$ 92.76 million) multimodal logistics park in Assam. The park provides connectivity through road, rail and inland waterway. It is expected to be a consolidation or distribution centre for the North-Eastern states as well as a cross-border trade centre with Myanmar, Nepal, Bangladesh and Bhutan.
Automated Parcel Delivery Terminals
Smartbox, a provider of parcel locker solutions, offers customers one-time password to unlock their delivery box and gather their packages. The service is operational in cities such as Hyderabad, Bengaluru, Delhi and Mumbai. In September 2019, Smartbox became a member of NASSCOM-National Association of Software & Service Companies.
In 2021, the Delhi Development Authority passed the ‘Delhi Master Plan, 2041’. The plans present an outline for future development in the city, empowering stakeholders to understand policies pertaining to land parcels. The ‘2041 Plan’ intends to reduce pollution in the city by separating the urban area into residential, commercial and industrial zones. It underlines zoning limitations to reduce adverse impact on the health of residents from industries.
The Indian government’s initiatives to improve efficiencies in the logistics sector
- Logistics Efficiency Enhancement Program (LEEP)
In 2015-16, the Indian government introduced the Logistics Efficiency Enhancement Program (LEEP) to improve logistics efficiency, leveraging infrastructure solutions such as creating 35 multimodal logistics parks as well as establishing technological and digital solutions such as goods tracking.
- Bharat Stage (BS) Emission Norms
In 2016, the Indian government issued a draft notification for ‘Bharat Stage (BS) VI emission standards’, outlining objectives under the ‘Bharat Stage Emission Norms’ to reduce emissions from motor vehicles and enhance vehicle efficiency. The BS VI has been effective since April 2020.
- FAME II Scheme
In 2019, the Indian government introduced the FAME II scheme, a subsidy to boost manufacturing and deployment of EVs. The scheme aims to reduce the TCO (total cost of ownership) of EVs by offering direct subsidies. Under the FAME II scheme, the government allocated Rs. 8,596 crore (US$ 1.15 billion) as direct subsidies for electric vehicles and Rs. 1,000 crore (US$ 133.67 million) for charging infrastructure.
- National Logistics Policy (Draft)
In 2019, the Indian government issued a draft on the ‘National Logistics Policy’ to boost economic growth by building efficiencies of the logistics sector and reduce logistics costs as a share of the GDP.
- Infrastructure Development
The government is focusing on strengthening the infrastructure to boost rising demand for freight. Under the Union Budget 2021-22, the Government of India has allocated Rs. 118,101 crore (US$ 15.79 billion) to the Ministry of Road Transport and Highways. Development of the sector is expected to boost growth of the logistics sector.
In July 2021, a consultative meeting was conducted by the Indian government key stakeholders to discuss areas of progress in the ‘Freight Smart Cities’ initiative. Key highlights of the development are as follows:
- In July 2021, the government launched a portal and handbook, highlighting 14 actions characterising high-leverage spaces for cities to expand their economic competitiveness and reduce pollution & congestion. These actions are aimed at low-cost, low-effort approaches that could be quickly adopted with the related public and private stakeholders.
14 measures of the handbook are as follows:
Demand and land use planning
Bypasses and ring roads planning
Modal shift planning
Parking and unloading zones
Logistics development and logistics parks
Parcel delivery terminals
Urban consolidation centres
Urban logistics spaces and hotels
Promoting electrification of urban freight
Using intelligent transportation systems
Vehicle use optimisation
Developing truck routes
- In July 2021, the government announced that its logistic division has collaborated with GIZ (Germany) under the Indo-German Development Cooperation, Rocky Mountain Institute (RMI) and RMI India to work on the freight smart city initiatives. To boost participation of cities in the initiative, a trial is expected to be declared soon.
- States and cities such as Hyderabad, Amravati, Gujarat, Panjim and Shimla have boosted efforts towards improvement of the city freight logistics.
The ‘Freight Smart Cities’ initiative’s handbook presents a significant roadmap to Indian cities, highlighting the global best practices to improve logistics efficiencies and economic competitiveness. Realising the potential of efficient urban freight systems, the government is in line with its framework to implement an efficient urban freight system. The improved solutions are also expected to boost the country’s ranking in the Logistics Performance Index as well as deliver a cleaner & safer urban environment for the country.