The Indian logistics sector being granted infrastructure status is a landmark move with wide-ranging implications for an industry set to grow 10-15% annually. Now, the logistics sector is included in the harmonised master list of infrastructure sub-sectors under a new head ‘Transport and Logistics’, and categories like Multi-modal Logistics Park, Cold Chain Facility, and Warehousing Facility are clearly defined. This will have decidedly positive implications, making the sector a sought-after asset class for investments.
Investments to rise
This development makes it easier for companies operating within these segments to raise long-term credit from banks and other financial institutions at lower rates, and also attract foreign investments. As per the government, the inclusion also makes it easier for logistics companies to:
1. Access larger amounts of funds as External Commercial Borrowings
2. Access longer-tenure funds from insurance companies and pension funds
3. Be eligible to borrow from India Infrastructure Financing Company Limited
Warehousing is already seeing big-ticket investments in India. In one of the biggest investment deals so far, JLL India facilitated the acquisition of a major stake in IndoSpace, the warehousing and logistics real estate arm of Everstone Group, by Canada Pension Plan Investment Board. The deal includes 13 industrial and logistics parks totalling 14 million sqft. Additionally, the government plans to work with state governments and the private sector to set up 34 mega logistics parks across the country and has already allocated INR 100,000 crore for the same.
Increase in logistics facilities
There is clarity now on the minimum land requirement to set up logistics facilities:
• Multi-modal Logistics Park comprising Inland Container Depot (ICD) needs a minimum investment of INR 50 crore and a minimum area of 10 acres
• Cold Chain Facility must have minimum investment of INR 15 crore and cover a minimum area of 20,000 sqft
• Warehousing Facilities must have minimum INR 25 crore investment and a minimum area of 1,00,000 sqft
This means that development firms with larger land parcels can utilise their excess land holdings to develop more of such facilities, thereby boosting their supply.
Benefits to other sectors
India is already home to leading industries such as automotive components, pharmaceuticals, cement, textiles, FMCG and e-commerce. Private sector companies in these sectors, whose operations depend on warehousing and logistics, are now likely to register tremendous growth in tier 2 and 3 cities. The changed status, in turn, will boost the viability of establishing businesses in different regions, translating into more demand and growth.
Tier 2 and 3 cities will become growth centres: According to a recently published JLL report, ‘The Dawn of India’s Future Cities’, India’s logistics and warehousing sector is already destined for a quantum jump with the advent of GST and associated infrastructure push to improve surface and air connectivity nation-wide.
India is ranked 35 of 160 countries (moving up by 19 spots between 2014-’17) on the World Bank’s Logistics Performance Index, which measures the state of trade and logistics based on several parameters, including customs, infrastructure, international shipments, logistics quality and competence, tracking and tracing, and timeliness.
Developers and several foreign private equity players are now foraying into warehouse developments across Indian cities, coming up with large-scale, high-tech and state-of-the-art facilities. The relatively easier availability of land in tier 2 and 3 cities compared to the larger metros, along with improving connectivity through infrastructure developments, make for a winning combination.
Ongoing impediments
While there are growth opportunities for the industry, existing challenges such as an inadequate road network and losses that occur during transportation, must be resolved. Improvement of India’s road infrastructure at a quicker pace is critical to minimising losses, both economic and environmental. Only once this happens on the right scale will the logistics sector achieve optimal growth.