Multi-Modal Logistics Parks in India

Multi-Modal Logistics Parks (MMLPs) are a key policy initiative of the Government of India to improve the country's logistics sector by lowering overall freight costs, reducing vehicular pollution and congestion, and cutting warehousing costs. The government's Ministry of Road Transport and Highways (MoRTH) is developing multi-modal logistics parks at selected locations in the country under its Logistics Efficiency Enhancement Program (LEEP). India is burdened with high logistics costs, which account for about 13% of the value of goods sold in the economy compared with 8% in other major economies. The average cost to export/import one container in India is about 72% higher than in China.
LEEP, which is spearheaded by the MoRTH and the National Highways Authority of India (NHAI), aims to enhance freight transport in India by reducing costs and time, and improving the tracking and traceability of consignments through infrastructural, procedural, and information technology interventions.
The government defines an MMLP as a freight-handling facility encompassing a minimum area of 100 acres (40.5 hectares), with various modes of transport access, and comprising mechanized warehouses, specialized storage solutions such as cold storage, facilities for mechanized material handling and inter-modal transfer container terminals, and bulk and break-bulk cargo terminals. Logistics parks will further provide value-added services such as customs clearance with bonded storage yards, quarantine zones, testing facilities, and warehousing management services. Provisions will also be made for late-stage manufacturing activities such as kitting and final assembly, grading, sorting, labelling and packaging activities, re-working, and returns management (Arora, 2017).
Background.
Keeping pace with India's rapid economic growth is the expansion of the country's logistics sector. The movement of freight in the country nearly doubled to around 2,300 billion ton-kilometers in fiscal year 2015 from 1,200 billion ton-kilometers in fiscal year 2008. The government expects freight movement in the country to continue its growth trajectory, with expected annual growth of 8%–10% over the next 10 years. The logistics sector as a whole, according to a study commissioned by MoRTH, is poised to expand at roughly 1.2 times the rate of India's gross domestic product growth through 2032, by which time it is expected to generate $360 billion in value added, up from $115 billion in 2017.
In 2016, India managed to improve its performance in the Logistics Performance Index (LPI), a ranking published by the World Bank to measure the logistics performance of countries. India's LPI ranking rose to 35th in 2016, up from 46th in 2012. India's ranking, however, still lags behind some of its economic peers, including other Asian countries. The best logistics performer in Asia is Singapore, which was ranked 5th in 2016, followed by Hong Kong, China (9th); Japan (12th); the Republic of Korea (24th); and the People's Republic of China (PRC) (27th). Among the grouping of so-called BRICS—comprising Brazil, Russia, India, the PRC, and South Africa—aside from the PRC, South Africa also outperformed India in 2016 with a ranking of 20th (World Bank, 2016).
However, there remain significant challenges to the sector's development. Logistics costs are high in India relative to costs in developed countries. Logistics costs as a percentage of gross domestic product stood at approximately 13% in 2015. In comparison, the logistics cost in developed countries is approximately 8%–10%. In more specific terms, India's road freight cost per ton-kilometer, adjusted for purchasing power parity, is ₹1.90 ($0.03), which is almost double that of the United States.
Higher logistics costs in India are primarily driven by five key factors. One is an unfavorable inter-modal mix, with 60% of freight movement skewed toward road transport despite the lower freight cost of rail transport. Second is India's inefficient fleet mix, which is characterized by smaller, inefficient trucks. Third is the underdeveloped material handling infrastructure that is characterized by a fragmented industry consisting largely of small, unorganized warehouses with limited mechanization. Fourth is the underdeveloped road infrastructure with a limited presence of 4- and 6-lane national highways. Lastly, the lack of a national logistics policy, institutional and regulatory bottlenecks, such as complicated documentation and procedures related to toll collections, adversely impact logistics costs in India.
Government policy initiatives.
Along with its initial efforts, including the Make in India program and improvements in infrastructure, Government of India has made a number of decisions aimed at transforming the country's logistics sector. According to R. Goyal and S. Singh, adviser and young professional in the infrastructure–connectivity vertical section of NITI Aayog, the government is committed towards an integrated development of logistics sector through policy amendments, infrastructural development, tax reforms and technology adoption.
These decisions include the nationwide imposition of a goods and services tax (GST), which came into effect 1 July 2017. This levy on the supply of goods and services, which replaced many indirect tax laws that previously existed in India, should expedite the conversion of informal logistics operations into formal ones and speed up freight movement at interstate borders as check posts are dismantled. The government further established a new logistics division in the Department of Commerce to coordinate integrated development of the sector via policy changes, improvement in existing procedures, identification of bottlenecks and gaps, and introduction of technology-based interventions. The Ministry of Commerce and Industry is aiming to develop an integrated logistics portal to connect buyers, logistics service providers and relevant government agencies. The logistics sector has been reclassified by the government with its inclusion under the Harmonized Master List of Infrastructure Subsector. With this, the logistics sector can access long-term credit, the approval process for the construction of MMLPs is simplified, and investments by debt and pension funds into recognized logistics projects would be encouraged by the regulated sector's market accountability (Goyal & Singh, 2018).
Purpose and design.
The development of MMLPs is envisaged as a key policy measure to reduce logistics costs and help address three of the five constraining issues identified above. Specifically, these include an unfavorable modal mix, inefficient fleet mix, and underdeveloped material handling infrastructure. In July 2017, the Government of India approved a plan to build 35 MMLPs. State governments will provide the land needed for the projects, which will then be taken up through public–private partnerships.
According to MoRTH, these MMLPs are expected to serve five key functions: freight aggregation and distribution, multi-modal freight transport, integrated storage and warehousing, information technology support, and value-added services.
ADB role and support.
In 2017, the Government of India launched a program to develop 35 multi-modal logistics parks across the country over the succeeding years and invited Asian Development Bank (ADB) to become a lead partner and provide the necessary support (Jeong, 2017). ADB then conducted a pre-feasibility study to assess the suitability of MMLP locations and identify the requisite infrastructure, connectivity, and regulatory reforms in two selected locations: Bengaluru in Karnataka and Guwahati in Assam.
In this regard, the state government identified Dabaspete as the site for the park for Bengaluru in Karnataka. Bengaluru is ideally located for an MMLP in south India, with good connections via rail and road networks, and proximity to 17 million potential consumers in Chennai. ADB sees the Bengaluru MMLP as having the potential to become a model for other multimodal logistics parks in India. ADB also supported the pre-feasibility study for a MMLP in Jogighopa, Assam, which incorporates rail, road, and inland-waterway connectivity. The proposed site is located along National Waterway 2 and on the Indo-Bangladesh road route, making it suitable for the MMLP with multi modal access.