After building a world class Service Industry, India is now creating hubs for global manufacturers. According to a recent research report by CRISIL, India's Logistics Sector, valued at Rs 3.6 trillion, is poised to grow on strong economic fundamentals. The various steps taken by the government towards this end, such as development of logistics parks and investment-linked tax deduction will help the sector become more organised and accelerate its growth.

There are also the massive developments in the manufacturing segment, especially the steel and automotive sectors, that are pushing the manufacturing sector and the Indian government to take a more urgent role in development of ports and logistics hubs.

According to the apex industry body, Confederation of Indian Industry (CII), the logistics sector is forecast to grow at a compounded annual growth rate (CAGR) of approximately 8% over the next three to five years. Consequently, the requirement for transportation, handling and warehousing is growing at a robust pace and is driving the demand for integrated logistics solutions. Furthermore, MNCs like Siemens, LG Electronics, and Hyundai have spent billions of dollars expanding their operations in the country and developing products that are now being exported globally.

Siemens is reported to have planned investments to the tune of about $1.4 billion to develop and adapt products for the needs of the Indian market. The German group says it is working on 42 products that will be produced and sold in India and exported to other emerging markets.

The recessionary trend in the USA and the recent natural calamities in Japan have also forced manufacturers, especially, large scale operators in the automotive and white goods sectors, to look at India as a "manufacturing hub."

Ford, which has invested more than US $1 billion in building a state-of-the-art plant in Chennai with a production capacity of 200,000 cars and 250,000 engines, has already announced its decision to export its Fiesta range from India.

Ahlers, a leading international logistic company has also initiated experience plans to expand its operations in India. Recently, the company declared that it would open more offices in India in the coming years and invest in logistic hardware through multiple avenues.

As the booming manufacturing and retail sectors are the major users of these technologies, sustained demand from these areas is ensured. The emergence of India as a major sourcing nation for the world's leading retailers is also ramping up demand. When compared to China, the biggest success story in manufacturing in recent times, India has several other advantages.

While the scales of operations may not be matched, India is infinitely a better option when it comes to efficiency, quality and safety standards. The government's desire to implement a manufacturing policy with especially demarcated manufacturing zones has found warm welcome across the industrial sectors.

Currently States such as Tamil Nadu, Karnataka and Gujarat are preferred locations and other States like Chhattisgarh, Orissa and Bihar have begun wooing foreign manufacturers.

The government has played a supportive role by introducing the Goods and Services Tax (GST), enabling seamless credit across the entire supply chain. To obtain the cutting edge in the market, companies are adopting these technologies to improve supply chain management.

India's logistics technology market is set to grow at 19.8 per cent between 2010 and 2015 to cross $600 million. But expensive technologies such as bar-coding, radio frequency identification (RFID), transport management systems (TMS), warehouse management systems (WMS) and GPS tracking solutions have deterred the growth of the logistics technology market. The price-sensitive nature of the Indian consumers prevents them from opting for such technologies.

Logistics Parks

CII, which has been championing the cause of Logistics Parks, recently released a report in which it said that the logistics sector in the country was in need for a better infrastructure, while the government is doing all that it can like construction of road, rail, however, much more needed to be done.

Given this paucity of infrastructure in the country, the Logistics Park route maybe the most viable option especially in a country like India. The country's vast coastline makes for a great opportunity for Logistics Parks that are linked to ports.

However, the concept of logistics park has not met with success as it should because of firstly, there are not many Logistics Parks that are good at value added services. It is imperative for these parks to shift from being looked at as a mere warehousing approach to value added services initiative, said the CII Institute of Logistics.

Sanjay Upendram, CEO, Amarthi Management Consulting, which prepared the report jointly with CII Institute of Logistics, said that India's growth trajectory over the last 20 years had highlighted the need for the country as a whole to develop world class logistics infrastructure (road, rail, port, air, logistics parks, warehouses and cold chains).

Logistic Parks would have a significant impact on the economy of India while providing a comparative advantage. The report estimated that Logistics Parks at strategic locations would contribute to savings of almost US$ 13-16 billion (1-1.25% of GDP) in supply chain management cost for India. The imperative was to develop Logistics Parks at strategic locations across the country with world class standards.

The challenge was to further develop the supply chain capabilities as a nation. While the progress of India was well on course; however it would take significant collaboration across government, sector authorities, industry and a 'stubborn implementation focus' to achieve India's transformation into a logistically advantaged country, says the report.

The government has come up with many incentives with the intentions to set up multi modal logistics parks, small, medium and large, are mostly going to be rail linked. For logistics parks to become successful in India, the approach should be taken on ports to be partner of logistics parks, link a port to two or three Logistic Parks.

The Indian economy today is one of the fastest growing economies in the world with around 8% GDP growth, a promising consumer market, significant improvement in infrastructure and the all enabling policies, increased privatisation, a robust banking sector to support the growth. There is more traffic on the road today; roadways will continue to dominate the market of transportation, and closely coupled with the road transport is the rail freight, which is also growing at a very significant pace.

But if the modal split between the two is considered, roads cover about 65-70%. Is this the most economical usage of energy? Perhaps this is not the case.