India’s logistics and supply chain sector is experiencing a transformative era, driven by infrastructure advancements, technological innovation, and regulatory reforms. As a critical pillar of the economy, this sector not only facilitates seamless trade within and beyond borders but also holds the key to India’s aspirations of becoming a global manufacturing hub. However, challenges such as a skills gap, fragmented markets, and infrastructure bottlenecks continue to impede its progress. This article explores the present landscape of logistics in India, highlighting key drivers of growth, pressing issues, and future opportunities.
The Current Landscape: An Industry on the Rise
The logistics sector in India has demonstrated robust growth, with a compound annual growth rate (CAGR) of 11% between FY 2019 and FY 2024. Projections suggest that the sector could achieve a market size of ₹35.3 trillion by FY 2029. Despite contributing 13% of GDP—a relatively high figure compared to global averages—optimism remains strong for efficiency improvements, particularly with enhanced infrastructure and formalisation of the economy.
The transportation segment dominates the sector, with roadways playing a pivotal role as of FY 2021. However, significant investments in rail infrastructure, such as the Dedicated Freight Corridor (DFC), promise to reshape the modal mix, increasing the efficiency and cost-effectiveness of freight movement.
Key Drivers of Growth in India’s Logistics Sector
1. Government Initiatives and Policy Support
The Indian government has played a crucial role in reshaping the logistics landscape through strategic initiatives and policy support. Programs like the PM Gati Shakti National Master Plan and the introduction of the Goods and Services Tax (GST) have streamlined operations, reducing transit times and costs. Additionally, the establishment of dedicated freight corridors, logistics parks, and multimodal transport systems has further enhanced the sector’s efficiency. Policies encouraging public-private partnerships have attracted significant investment, driving innovation and infrastructure upgrades. The focus on digitisation and ease of doing business has also simplified regulatory processes, enabling smoother trade and transportation. By addressing long-standing challenges and fostering a business-friendly environment, these initiatives are positioning India as a global logistics hub.
The Indian government has taken several steps to streamline logistics operations and reduce costs.
- National Logistics Policy (NLP): Launched in September 2022, the NLP aims to reduce logistics costs from 13-14% of GDP to the global average of 8% by 2030.
- PM Gati Shakti National Master Plan: Introduced in October 2021, this initiative focuses on developing multimodal connectivity infrastructure across economic zones. As of August 2023, over 1,400 layers of data have been integrated into the Gati Shakti portal, enhancing infrastructure planning and execution.
These initiatives are instrumental in improving operational efficiency and enabling businesses to scale seamlessly across state boundaries.
2. E-commerce Boom and Last-Mile Delivery
The explosive growth of e-commerce in India has revolutionised the logistics sector, particularly in last-mile delivery. As online shopping becomes a norm, logistics providers are tasked with meeting rising consumer expectations for speed and reliability. Innovative solutions, such as hyperlocal delivery networks, drones, and electric vehicles, are reshaping urban logistics. E-commerce giants are collaborating with logistics companies to enhance efficiency, while startups are addressing niche delivery requirements. Rural markets, once underserved, are now part of the supply chain, creating new opportunities for growth. This surge has also spurred advancements in tracking systems and customer engagement tools, ensuring seamless operations in an increasingly competitive landscape.
India’s e-commerce market is expected to grow at a CAGR of 27% to reach USD 163 billion by 2026. This exponential growth has created a surge in demand for efficient last-mile delivery services.
- Specialised logistics companies have emerged to address this demand, investing heavily in technology-driven solutions.
- The Covid-19 pandemic further accelerated the shift toward online shopping, necessitating robust logistics networks.
3. Infrastructure Development
Infrastructure is the backbone of India’s logistics sector, and significant strides have been made to enhance it. Mega projects like the Bharatmala Pariyojana and Sagarmala aim to improve road and port connectivity, while dedicated freight corridors are transforming rail logistics. Airports and inland waterways are being modernised to facilitate multimodal transport. The development of logistics parks and warehousing zones in strategic locations further supports supply chain efficiency. These infrastructure advancements not only reduce operational costs but also enhance India’s global competitiveness by ensuring faster and more reliable goods movement.
Massive investments in highways, railways, ports, and airports have been critical to the sector’s growth.
- Dedicated Freight Corridor (DFC): The Eastern and Western corridors are expected to revolutionise freight movement, significantly reducing transit times.
- National Infrastructure Pipeline (NIP): Allocating ₹111 lakh crore for FY 2020-25, the NIP includes substantial funding for transportation projects, boosting connectivity and reducing costs.
4. Technology Adoption and Digitalisation
Technology is driving unprecedented changes in India’s logistics sector, making operations smarter and more efficient. From AI-powered route optimisation to IoT-enabled tracking systems, digitalization is enhancing visibility across supply chains. Blockchain technology is streamlining documentation processes, while automation in warehouses is boosting productivity. E-logistics platforms are bridging the gap between businesses and logistics providers, ensuring seamless service integration. As technology adoption accelerates, logistics operations are becoming more transparent, cost-effective, and customer-centric.
The integration of advanced technologies like AI, IoT, blockchain, and data analytics is reshaping logistics in India.
- Companies like Rivigo use AI to optimise routes and reduce delivery times, enhancing operational efficiency.
- The implementation of e-way bills and FASTag has digitised goods movement and toll collection, reducing delays.
5. Rise of Third-Party and Fourth-Party Logistics Providers
The increasing complexity of supply chains has driven the demand for third-party (3PL) and fourth-party logistics (4PL) providers in India. These players offer specialized services, from inventory management to freight forwarding, allowing businesses to focus on core operations. With advanced analytics and robust networks, 4PL providers are redefining end-to-end supply chain management. The rise of e-commerce and globalization has further spurred growth, as companies seek agile and cost-effective solutions.
- The India 3PL market is projected to grow by USD 16.77 billion at a CAGR of 9.45% between 2025 and 2028.
6. Warehousing and Cold Chain Development
The expansion of warehousing and cold chain infrastructure is a cornerstone of India’s logistics evolution. Modern, tech-enabled warehouses are emerging in key industrial zones, catering to diverse industries. Cold chain logistics, vital for perishable goods like food and pharmaceuticals, is witnessing robust investment. Enhanced storage facilities and temperature-controlled transport are reducing spoilage and boosting exports.
Demand for modern warehousing facilities and cold chain infrastructure has surged.
- The warehousing sector attracted $743 million in investments in FY 2022, according to Knight Frank India.
- Under the Pradhan Mantri Kisan Sampada Yojana (PMKSY), over 400 cold chain projects have been approved, boosting agricultural and pharmaceutical storage capabilities.
7. Growing Export-Import Trade
India’s burgeoning export-import trade is a key driver of logistics growth. Simplified customs processes, free trade agreements, and enhanced port infrastructure are facilitating faster cargo movement. The rise of e-commerce exports and a focus on Make in India have created new opportunities for global trade.
India’s increasing global trade participation has driven logistics demand. For instance:
- Merchandise imports surged by 16.51% to USD 714.24 billion in 2022-23.
- The India-Middle East-Europe Economic Corridor (IMEC) agreement, signed in September 2023, aims to enhance connectivity, further bolstering demand for maritime logistics.
Key Challenges in India’s Logistics Sector
1. Infrastructure Bottlenecks
Despite progress, gaps in infrastructure remain a significant challenge. Poor road conditions, congestion, and limited rail connectivity increase transit times and costs.
- Poor road conditions, congested ports, and inadequate rail connectivity result in delays and increased costs.
- India’s rank of 38th in the World Bank’s Logistics Performance Index 2023 highlights the need for better infrastructure.
2. Fragmented Market
The logistics market in India is highly fragmented, with numerous small players operating independently, leading to inefficiencies.
Over 90% of the logistics sector remains unorganised, leading to inefficiencies and lack of standardisation. This fragmentation complicates the implementation of uniform regulations and best practices.
3. Skills Gap and Workforce Challenges
A lack of skilled professionals in warehousing, supply chain management, and technology adoption hampers sectoral growth.
The logistics sector faces a severe shortage of skilled professionals in areas like supply chain management, warehouse automation, and technology adoption. Despite training initiatives under schemes like the Pradhan Mantri Kaushal Vikas Yojana, placement rates remain low.
4. Last-Mile Delivery Challenges
Rural connectivity and urban congestion create hurdles in efficient last-mile delivery, impacting customer satisfaction. Urban logistics face hurdles like improper addressing systems and limited parking. Last-mile delivery costs account for 41% of total logistics supply chain costs, underscoring the need for innovation.
5. Sustainability Concerns
The logistics sector’s heavy reliance on fossil fuels raises environmental concerns. Transitioning to greener alternatives remains a pressing challenge.
The sector’s environmental impact, particularly from carbon emissions, is under scrutiny. With transport accounting for 13.5% of India’s carbon emissions, the shift to sustainable practices like EV adoption remains slow.
The Road Ahead: Creating a Future-Ready Logistics Ecosystem
1. Accelerate Infrastructure Development
Prioritising multimodal connectivity projects and fast-tracking the completion of the DFC will improve logistics efficiency. Innovative projects like the Mumbai Trans Harbour Link highlight the potential for transformative impact.
2. Streamline Regulatory Processes
Implementing a unified national market through harmonized state regulations and single-window clearances will reduce bureaucratic hurdles and enhance ease of doing business.
3. Promote Technology Adoption
Tax incentives and subsidies can encourage the adoption of AI, IoT, and blockchain, driving innovation across logistics operations.
4. Focus on Skill Development
Strengthening workforce training programs and partnering with educational institutions can address the skills gap. Apprenticeships and certification courses can build a future-ready workforce.
5. Encourage Green Logistics
Incentives for EV adoption, developing charging infrastructure, and promoting eco-friendly practices will reduce the sector’s carbon footprint and align with global sustainability goals.
Conclusion
India’s logistics and supply chain sector stands at a crossroads, with immense potential for growth and transformation. By addressing challenges such as regulatory complexity, skill shortages, and sustainability concerns, the sector can evolve into a world-class network. Through a combination of infrastructure development, technological innovation, and policy reforms, India’s logistics landscape is poised to strengthen its position on the global stage. With continued momentum, the sector will not only reduce operational inefficiencies but also catalyse India’s journey toward becoming a manufacturing and trade leader.