Indian logistics industry may grow at 9-10%: ICRA

New Delhi: The logistics industry in India is likely to grow at a rate of 9-10 per cent over the medium- term, supported by underlying structural positives, rating agency ICRA said today.

While the key driving factor on the demand side would be the economic recovery, the trend towards outsourcing of non- core activities like logistics, warehousing and associated activities to integrated players is likely to drive the share of the organised segment, it said.

"The domestic sector is currently in a transformation phase with game-changing trends like implementation of GST, increasing focus by foreign investors across the logistics value chain, growing demand for end-to-end solution providers and emergence of new avenues such as e-commerce, logistics parks, cold chains and new startups.

"The government's thrust towards building multi-modal transportation infrastructure is also likely to have a significant influence," Subrata Ray, Senior VP and Group Head-Corporate sector ratings, ICRA, said.

"The logistics space in India is expected to grow at a rate of 9-10 per cent over the medium-term," the rating agency said in its report.

The GST implementation will also support organised players as it will have three major implications - consolidation of warehousing network and a shift towards a 'hub and spoke' model, higher degree of tax compliance and creation of level playing field between express and traditional transport services providers by virtue of access to input tax credit, ICRA said.

It said the Railways' competitive position is expected to improve on the back of commercialisation of DFCs and augmentation of existing network.

The railways account for 30 per cent of total freight movement in India and are a preferred mode of transportation for long haul and bulky commodities such as coal, iron ore, fertilisers, steel and cement.

"Despite its dominance in transportation of select commodities, it has gradually lost market share over the past few decades due to a confluence of factors, including under- investment in infrastructure, limited private sector participation, better service and reliability offered by road transport segment, and increase in freight charges by railways," it said.

Additionally, the government's other major emphasis is on improving India's transportation mix by developing inland and coastal waterways.

At present, seaways account for a minuscule 6 per cent of total freight movement in India compared to countries like China (30 per cent) and USA (14 per cent) that heavily use waterways.

Given the economic and environmental benefits, the government has chalked an ambitious Sagarmala project that aims at doubling the share of seaways in the transport mix over the next decade by executing multiple projects related to expansion and modernisation of various ports.

The report said with an attempt to improve integrated logistics, the government also plans to develop about 35 strategically located multi-modal logistic parks (MMLPs), close to major manufacturing and consumption centres. These initiatives have significant potential to bring down the logistics costs in the country over the medium term.

"Overall, the Indian logistics industry is at the cross- roads, poised for growth on the back of the economic recovery and changing industry dynamics," it said.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.