ADB Blog: What Multimodal Parks Can Do for Logistics in India
27 September 2017
The Asian Development Bank (ADB) is currently conducting a pre-feasibility study to gauge the suitability of four multi-modal logistics park (MMLP) locations in India, and identify the requisite infrastructure, connectivity, and regulatory reforms. This commentary by Mr. Hoe Yun Jeong, Principal Economist (Regional Cooperation), South Asia Regional Department, Asian Development Bank, highlights how MMLPs can transform India's logistics landscape, helping realize the country’s enormous economic potential.
This post first appeared on the ADB Blog.
by Mr. Hoe Yun Jeong
Logistics is an essential part of the economy in any country, enabling the movement of resources along supply chains to consumption centers. Freight logistics—comprising transport, warehousing, and value-added services for transit by road, rail, inland water, sea, and air—drives trade and is a catalyst for economic growth.
India has made significant progress in developing logistics capacity in recent years. The country jumped from 54th in 2014 to 35th in 2016 in the World Bank’s Logistics Performance Index, considered a benchmark for national performance on this issue. The implementation of the Goods and Services Tax earlier this year is expected to further boost logistics efficiency.
The logistics sector is poised to grow by roughly 1.2 times the level of national GDP growth until 2032, by which time it is expected to generate $360 billion in value-add, up from $115 billion now.
Despite these achievements, significant challenges persist.
India’s logistics cost almost doubled from 7–8% of GDP in 2000 to about 14% in 2014. In developed economies such as the US, logistics cost accounts for only 8%–10% of GDP. India suffers clogged transport networks, a skewed mix of transport modes, insufficient storage and handling facilities for in-transit commodities, and regulatory hurdles.
The national and state governments recognize the need to intervene to allow freight move more efficiently and seamlessly. They realize that it’s high time to develop the necessary infrastructure and regulatory environment to lay the foundation for a world-class logistics sector to support the government’s Make in India initiative.
The Government of India recently kicked off a program to develop Multi-Modal Logistics Parks, or MMLPs. These parks, to be set up under the Logistics Efficiency Enhancement Program, aim to reduce logistics costs; improve freight aggregation, distribution, storage, and warehousing; and create various value-added services, including labeling, packaging, tagging, and crating.
By providing a variety of services in a single location, MMLPs enable firms to produce more and deliver faster to customers. This leads to greater time and money savings.
For MMLPs to succeed, roads, railways, and other available modes of transportation must be improved for smooth and uninterrupted linkages among adjacent parks, industrial clusters, and consumption centers. Cutting-edge information technology for delivery management must also play an important role for MMLPs to work effectively.
India planning 35 MMLPs
India’s Ministry of Road Transport and Highways and the National Highways Authority of India are planning to establish a total of 35 MMLPs across the country over the next few years. The government has invited ADB to provide the necessary support as a lead partner.
We are now conducting a pre-feasibility study to gauge the suitability of MMLP locations and identify the requisite infrastructure, connectivity, and regulatory reforms in four selected locations: Bengaluru in Karnataka, Guwahati in Assam, Surat in Gujarat, and Hyderabad in Telangana.
ADB recently showcased the findings of the MMLP study for Bengaluru in Karnataka, having already identified Dabaspete as the site for the park. Bengaluru is ideally located in south India, and is well connected to other locations via rail and road networks. Its proximity to Chennai offers the opportunity to serve a vast consumption base of over 17 million people.
The city is also home to 315 large-scale industries with aggregate investments of Rs148 billion ($2.3 billion), with two national industrial corridors nearby. In addition, the presence of large e-commerce players is expected to boost demand for warehousing and logistics facilities, making a strong case to set up the MMLP in Dabaspete.
The Bengaluru MMLP has the potential to become a model for other multimodal logistics parks throughout India. In quickly identifying the viable site for the logistics park, both government and private stakeholders work together closely, showing clear commitment to the project.
The government, logistics service providers, end users, and industry bodies, working as one, are preparing a development plan that encompasses the various components of the MMLPs. Designing the Bengaluru MMLP involves the right combination of transport connectivity projects, park facilities, information technology systems, policy incentives, and regulatory reforms.
The project will also open new business opportunities for private companies to invest in as well as commercially operate the MMLP facilities. This justifies identifying the prospective investor–developer and operator at the planning stage. Bringing in the investors at the start prevents any mismatch between the constructed connectivity infrastructure and the investor’s requirements.
Transforming India’s logistics landscape will help realize the country’s enormous economic potential. To succeed, what is needed is a collaborative effort to define a clear, long-term, and sustainable vision encompassing initiatives that are proactive rather than reactive.
This, in turn, requires a logistics planning approach that considers various modes of transportation cutting across state boundaries, and balances the slew of infrastructure investments with appropriate policy and regulatory reform measures. The MMLPs will be a critical first step toward realizing this vision.