How the national logistics policy will improve MSME participation in global supply chains

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The micro, small and medium enterprise (MSME) sector contributes one-third of India’s GDP and accounts for about 40% of the country’s total exports. As India is on its way to becoming a $5 billion economy, exports would become an inevitable component of the country’s growth, and MSMEs would need just as much leverage to show their greatest potential.

However, when it comes to the logistical challenges facing the industry, MSMEs in cross-border trade struggle with high transportation costs, a lack of strong trade support, and geographic imbalances in exports. This regional disparity was highlighted in Niti Ayog’s 2021 Export Readiness Index report, which found that the six major states of Maharashtra, Gujarat, Karnataka, Tamil Nadu and Telangana contribute to 75% of India’s total exports.

Respond to the logistics crisis

The National Logistics Policy (NLP), recently launched by the government, is a comprehensive framework aimed at improving the efficiency of India’s logistics system and ensuring the smooth flow of goods across the country. The main objective of the initiative is to reduce logistics costs from the current 13-14% of GDP to an overall cost of 7%.

Moreover, the policy is meant to help Indian businesses, especially MSMEs, to become globally competitive as it will create a strong logistics infrastructure to facilitate cross-border trade. India’s logistics industry has been fragmented for quite some time now, with MSMEs enduring unnecessary manual processes, cumbersome documentation work, frequent interference from various regulatory authorities, and more. transport costs, delivery delays, difficulty in establishing responsibilities for goods in transit, etc.

Additionally, small businesses face cumbersome shipping processes and additional compliance burdens, including multiple customs clearances and quality/packaging checks. These companies are also plagued by financial difficulties, often overlooked by conventional lenders like banks. All of these factors have hampered their participation in the global supply chain.

Fortunately, the policy solves this problem and includes a Unified Logistics Interface Platform (ULIP) to streamline and digitize all logistics processes and make doing business easier. This will enable various stakeholders, such as government agencies, shippers, traders, etc., to exchange information in real time, thereby facilitating seamless import-export and building supply chain resilience.

Helping MSMEs

The Federation of Indian Export Organizations (FIEO) states that reducing India’s logistics costs by 10% can increase the value of the country’s exports by 5-8%. Direct costs, which include transport and warehousing, represent 60% of the total logistics cost. And NLP promises to reduce these costs and leverage technology to make India’s logistics industry competitive in terms of global standards. The following are the policy measures to enhance the participation of MSMEs in the global supply chain.

1. Numerical approach: Integration of technology through digital systems (IDS), logistics facility (e-LOG), system improvement group (SIG), etc., should reduce inefficiencies and enable import-export without paper. In addition, faceless valuation for customs and e-invoice provisions are a few initiatives that will make business easier for MSMEs, enabling them to make timely deliveries.

2. Logistics network: The NLP will create a framework for seamless multimodal transport and state-of-the-art connectivity across the country, creating strong business support. This will help expedite the delivery of goods to ports and expedite movement through the supply chain.

For example, through its Comprehensive Logistics Action Plan (CLAP), the government will identify infrastructure and procedural gaps in India’s cross-border trade connectivity and create a streamlined and reliable logistics network that ensures transparency and efficiency. This will improve India’s trade competitiveness and facilitate greater integration with regional and global value chains.

3. Technological infrastructure in ports: A study by McKinsey & Co. found that automation in ports could reduce operating costs by up to 55% and increase productivity by up to 35%. There are far too many manual processes in most Indian ports today, which makes Indian shipping uncompetitive with the world. Upgrading and automating ports and implementing high-capacity mobile communication networks to enable real-time updates are the need of the hour.

4. Sustainable shipping: The government is committed to reducing carbon emissions and is constantly investing in new environmentally friendly waterways and other initiatives to make shipping resilient and sustainable.

According to the Logistics Performance Index 2018 – the latest measure released by the World Bank, India ranks 44th, far behind export-oriented economies like China and Vietnam. The study was based on six indicators: customs performance, quality of infrastructure, ease of shipping, quality of logistics services, shipment tracking and timeliness of shipments. Fortunately, industry experts believe that the goals set by NLP will drop the ranking to 25 in the next five years. However, only time will tell.

Conclusion

With its investment in modern technology and other initiatives, NLP will enable MSMEs to better control the supply chain, thereby increasing India’s exports. As India pursues trade agreements with different countries, favorable policies will enable MSMEs to increase their integration into the global supply chain network, gain new markets and develop strategic relationships in economies. keys.



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Disclaimer

The opinions expressed above are those of the author.



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