Digitization can bring logistics’ share of India’s GDP to single digits

R S Subramanian, SVP South Asia, DHL Express shares his perspective on logistics and digitization in the current context, and how it can potentially transform India’s trade ecosystem.

The Indian logistics market is large and lucrative, having a worth of approximately US$ 160 billion. According to a McKinsey study, the Indian technology and services market is expected to reach about US$ 350 billion by 2025. The market is very complex and has evolved over 75 years. Some numbers tell us about the complexity and indicate how we can streamline and digitalize the logistics space.

There are numerous Ministries in the Centre and State, which have their Regulatory agencies apart from Trade promoting agencies. The ecosystem covers vast regions of the country including various logistics options via seaports, airports, inland container depots, road and railway networks, inland waterways, etc. Hence, the existence of these complexities opens possibilities for eliminating waste and creating efficiencies in productivity and cost.

An NCAER study says that logistics as a percentage of gross value added can contribute anywhere between 15-22% depending on the commodity. This shows the scope of economic value that can be created from simplification, elimination of waste, automation, and the need for digitalization. Logistics is the flow of goods in one direction, which almost always leads to the flow of money in the opposite direction and data flowing in all directions. An often quoted number of logistics costs is pegged at 13-14% of GDP. In developed economies, it can be as low as 5-6%. The NPL endeavours to bring down the cost of logistics to a single digit, which can happen through digitization.

Over the last 5-6 years, DHL has had its share of challenges in onboarding customers onto the basics of digitalization, of which 50-60% are MSMEs. The pandemic accelerated the shift to digital, and today the airway bill, which is the most basic information or data contract between enterprises and customers, is 100% digital. We do about a million shipments a month typically, with 3-4 copies of the airway bill for use. So about 5 million A4 size papers have been eliminated since we embraced digitalization. All bills that DHL now gives out to its customers are digital. Collection is over 99% digital.

Sound digital processes across the regulatory environment can bring more efficiency and sustainability. Going paperless and digital in a smart way is the right option for India, which aspires to be among the largest economies in the world.

India is moving towards becoming a US$ 5 trillion economy soon and has a 2047 vision as well. Trade infrastructure is essential to make this vision a reality. But almost every major project has the risk of delays. Digitalization and data interchange can result in simplification of regulations and improvement in automation of processes. This is necessary so that more can be done with existing infrastructure while allowing entities more time to create infrastructural capacities that the economy needs.

The recently launched National Logistics Policy addresses many concerns. It talks about a few elements that rely on digitalization - the Integrated Digital System (IDS), the Unified Logistics Interface Platform (ULIP), and the Ease of logistics, or E-log system. However, basics of data compliance and data cleanliness from the grassroots level have to be adhered to for clean digital adoption rates.

The ambition of NLP is the interoperability of multimodal logistics with the standardization of ideas. Twenty years back, when I went to Germany, it was fascinating to see that you can check in your luggage at the train station, get a boarding pass, walk into the airport, and get on a flight. You can be rest assured that the luggage will be checked in, as the train, road, and air networks for goods and passengers were fully interconnected. That kind of interoperability will come if there is standardization, and IDS and ULIP are promising to deliver that.

PM GATI Shakti Master Plan, NLP, and ONDC (Open Network for Digital Commerce) are three major pillars in the making. When they come together, we will see the kind of transformation that UPI has done for payments. A significant amount of trade education is needed to build awareness so that the bottom of the pyramid understands and appreciates the need for compliance. From the regulatory side, compliances have to be made more accessible.

In fact, I am positive about the future. Emerging from this state of flux, I am sure we will be amazed at the progress that India would make in the logistics industry.

R S Subramanian, SVP South Asia, DHL Express