0 | P a g e

Contents

Contents .....................................................................................................................................................................0

List of Figures: .............................................................................................................................................................1

Problem Statement and overall goal for India ...........................................................................................................3

Supply Chain in India ..............................................................................................................................................7

Challenges & Issues ................................................................................................................................................8

Highly concentrated logistics flows ....................................................................................................................8

Logistics Infrastructure .......................................................................................................................................9

Roadways ............................................................................................................................................................. 10

Railways ....................................................................................................................................................... 12

Airport ......................................................................................................................................................... 13

Seaport ........................................................................................................................................................ 14

Inland Waterways ........................................................................................................................................ 15

Warehousing Industry ................................................................................................................................. 17

Third Party Logistics ..................................................................................................................................... 19

Case Study: ...................................................................................................................................................... 21

Whole Sale and Mom and Pop Stores Model in India ............................................................................. 21

Cold Chain Industry ..................................................................................................................................... 24

Supply Chain in India ........................................................................................................................................... 27

Challenges & Issues ............................................................................................................................................. 28

Highly concentrated logistics flows ................................................................................................................. 28

Logistics Infrastructure .................................................................................................................................... 29

India: The Vision ...................................................................................................................................................... 30

Road Map Engineering ........................................................................................................................................ 34

Government Policies ....................................................................................................................................... 34

Goods and Service Tax ................................................................................................................................. 34

Make in India ............................................................................................................................................... 35

Vision ....................................................................................................................................................... 35

National Investment & Manufacturing Zones (NIMZ): ............................................................................ 35

Simplification of Regulatory Environment .............................................................................................. 36

E Governance ............................................................................................................................................... 36

Foreign Direct Investment ............................................................................................................................... 36

1 | P a g e

Recent Policy Measures ............................................................................................................................... 36

Incentives ..................................................................................................................................................... 37

Manufacturing Revolution ............................................................................................................................... 38

Leverage Intermodal Connectivity for an Interconnected Supply Chain 2050......................................... 38

Leveraging the Previous Plan to achieve International Intermodal Connectivity 2030 to 2050 .............. 42

Use the Dessert Land to place Dry Ports for Active Consolidation 2030 ................................................. 43

Taking Advantage of the Present Models and Infrastructure: ........................................................................ 46

Regional Warehouses: Platform to design interconnected supply chain ................................................... 46

Mom and Pop Model: A boon in interconnected Supply Chain Model ...................................................... 49

Mom and Pop Stores in coalition with E-Commerce .................................................................................. 51

Cold Chain in India: The Future ....................................................................................................................... 54

The Future: Third Party Supply Chain Solution Firms ...................................................................................... 54

Summary .................................................................................................................................................................. 56

References ............................................................................................................................................................... 57

List of Figures:

Figure 1: Population Growth Table ............................................................................................................................3

Figure 2: Population Growth Prediction .....................................................................................................................3

Figure 3: State wise Population Density .....................................................................................................................4

Figure 4: Life Expectancy, Indian States .....................................................................................................................4

Figure 5: Population Pyramid 2014 ............................................................................................................................5

Figure 6: Population Pyramid- 2020 ...........................................................................................................................5

Figure 7: Population Pyramid 2050 ............................................................................................................................5

Figure 8: India - Economic Projections .......................................................................................................................6

Figure 9: Supply Chain in India ..................................................................................................................................8

Figure 10: Logistics Network ......................................................................................................................................9

Figure 11: Freight Transport on Road ..................................................................................................................... 10

Figure 122: Picture of 1109 Truck in India ............................................................................................................... 11

Figure 13: Tons transferred through railways Figure 14: Railways total route ................................................... 12

Figure 15: Railway Network Map ............................................................................................................................ 12

Figure 16: Major Airports in India ........................................................................................................................... 13

Figure 17: Major Seaports in India .......................................................................................................................... 14

Figure 18: Indian Ports vs International Ports ........................................................................................................ 14

Figure 19: Inland Waterways India ......................................................................................................................... 15

Figure 20: Trade Share on Inland Waterways ......................................................................................................... 16

Figure 21: Distribution of Logistics Spend ............................................................................................................... 17

2 | P a g e

Figure 22: Warehouses in Chandni Chowk (10sq km) area in Delhi Source: (Google Maps, 2015) ........................ 18

Figure 23 Evolution of Logistics Source: [ (KPMG, Logistics Game Changers:, 2013), p.44] ................................... 20

Figure 24: Non-Standard Trucks .............................................................................................................................. 20

Figure 25: Business Model of Mom & Pop Stores ................................................................................................... 22

Figure 26: Typical Mom & Pop Store ....................................................................................................................... 22

Figure 27: Congested Traffic in India ....................................................................................................................... 23

Figure 28: Congested Traffic in India ....................................................................................................................... 23

Figure 29: Poor Material Handling in India.............................................................................................................. 24

Figure 30: Poor Material Handling in India.............................................................................................................. 24

Figure 9: Supply Chain in India (ATKearney, 2013, p. 6) .......................................................................................... 27

Figure 10: Logistics Network (McKinsey, 2014, p. 11) ............................................................................................. 28

Figure 11: Freight Transport on Road (McKinsey, 2014, p. 12) ............................................................................... 29

Figure 31: Future Logistics Infrastructure (KPMG, Logistics Game Changers:, 2015, p. 6) ..................................... 31

Figure 32: Impact of GST (Indirect Tax Professionals, n.d.) ..................................................................................... 32

Figure 33: Progress Plan-Interconnected Supply Chain in India.............................................................................. 34

Figure 34: Geographical location of Steel, Auto Components and Automobile Industry (www.ibef.org, 2015) ... 38

Figure 35: Automobile Clusters in India, source: (www.ibef.org, 2015) ................................................................. 38

Figure 36: Growth Projection for India's Auto Industry (Kearney, 2015) ................................................................ 39

Figure 37: National Waterways ............................................................................................................................... 42

Figure 38: Current Logistics Network through road ................................................................................................ 43

Figure 39: Delhi Mumbai Corridor Figure 40: Rajasthan, India .................... 44

Figure 41: Proposed Export Oriented Logistics ....................................................................................................... 45

Figure 42: Dry Port................................................................................................................................................... 45

Figure 43: National Highway Network of India ....................................................................................................... 47

Figure 44: Regional Distribution Web ..................................................................................................................... 48

Figure 45: Whole Sale Stores in Chandini Chowk (Google Maps, 2015) ................................................................. 50

Figure 46: Mom & Pop Stores in Chandini Chowki (Google Maps, 2015)................................................................ 50

Figure 47: Proportion of organized and unorganized retailing ............................................................................... 51

Figure 49: Retails-things to do (KPMG, 2015) ......................................................................................................... 52

Figure 50: Coalition of E commerce and Mom & Pop Stores .................................................................................. 53

3 | P a g e

Problem Statement and overall goal for India

India is the second largest nation by population in the world and its yearly growth rate in the last 20 years was between 1.22% and 1.93%. As seen from the table below, Indias population almost doubled since 1980 and projections show, that in 2030 India will overtake China in terms of largest population, having 1.8 billion

inhabitants. (Worldmeter, 2005)

Figure 1: Population Growth Table

(Worldmeter, 2005)

Figure 2: Population Growth Prediction

(Imgarade, 2015)

4 | P a g e

Figure 3: State wise Population Density

(Wikipedia, 2015)

The above map shows the population density distribution across the states of India. The map below shows the life

expectancy distribution across states. Both the maps together predicts the demand center in the future India.

Figure 4: Life Expectancy, Indian States

(Wikipedia, 2015)

5 | P a g e

The Population pyramid shows the proportion of a population in different age group and therefore gives a good directive towards the available of working class in the country. The following pictures shows the population pyramid of India in 2014, 2020 and 2050.

Figure 5: Population Pyramid 2014

(Index Mundi, 2015)

Figure 6: Population Pyramid- 2020

(Yang Ziyang's Digest, 2015)

Figure 7: Population Pyramid 2050

(Imgarade, 2015)

6 | P a g e

This immense growth rate represented a huge challenge for India in the past and will be even more challenging in the future. The Government of India has to make sure that the economy and the infrastructure is capable of providing sufficient employment and wealth so that the growing demand expectations of the population for food, healthcare etc. can be fulfilled.

Achieving this basic goal for such a huge population is challenging as shown by a report of the United Nations World Food Program. The proportion of undernourished people in India is still 17% and the poverty rate is 29.5%. Although both figures went down from 21.5% (2004-06) to 17.0% (2011-13) and from 38.2% (2009-10) to 29.5 (2011-2012), the absolute numbers are still serious due to Indias huge population. (United Nations World Food Program, 2015)

The Government is aware of these challenges and defines its goal to put India on a world map as a Manufacturing hub. Therefore creating new, better, higher paid jobs for the growing population and give them the opportunity to earn for their own living and provide everybody with sufficient nutrition and health care support. Additionally the demand of the growing middle class for high quality food, which requires an efficient cold supply chain, must be fulfilled. (Department of Industrial Policy & Promotion, Ministry Commerce and Industry India, 2015)

Following the Chinese example, this growth is mainly based on exporting products to the whole world. The basic roadmap of the GOI contains improving the business environment, enabling manufacturing and opening up foreign direct investment in key sectors. (Department of Industrial Policy & Promotion, Ministry Commerce and Industry India, 2015)

Below are some of the key economic projections for India:

Figure 8: India - Economic Projections

7 | P a g e

This report analyses how India can achieve its goal to become a global manufacturing hub and focuses on the needs of global supply chains, which must be met in order to become more attractive to international companies. We will go beyond the scope of current supply chains, which are normally owned by a single company and consist out of a system of factories, warehouses and distribution centers - all used only by that particular company. Instead, our analysis is based on the vision of interconnected supply chains, in which companies use open warehouses, distribution centers etc. as services, which result overall in reduced cost, more flexible supply chains and higher customers satisfaction.

This new supply chain requires infrastructure that is significantly different from what is required by the current supply chain. Taking into consideration Indias huge investments into its currently underdeveloped infrastructure in the next couple of decades, this situation is a huge opportunity to build up the infrastructure based on the concept of shared distribution and transportation channels. As a result of doing so, India will be able to get ahead of the game when it comes to harnessing the benefits of the Physical Internet.

The first part of the report will give a brief overview of the current situation in India from a supply chain perspective and is the foundation for the following analysis. We will analyze the current infrastructure and its conduciveness to incorporate the physical internet. We will highlight certain situations that are typical to India like the dominant Mom & Pop store retail model and analyze their benefits and drawbacks.

The next part of our report will present our vision of India and how implementing the interconnected supply chain can help us achieve it. This would include building a roadmap of the steps necessary for building an interconnected infrastructure in India. We will look into some of the projects and government policies that are in the pipeline and the potential impact they will have on the implementation of the physical internet. Additionally, we will look at some of the ways that we could tackle the shortcomings highlighted in the preceding analysis.

India: The Present Picture

Supply Chain in India

The supply chain of India has developed over years and the current supply chain of India plays a very important

role in the growth of India. The massive size of the country and uneven distribution of resources and industries

across the nation demands for a very robust supply chain. The following picture summarizes the present state of

supply chain in India. Though, the domain has not experienced the required technological excellence yet, the

major industry players have realized the role of this domain in the success of the business and have started

investing and fostering supply chain in India.

8 | P a g e

Figure 9: Supply Chain in India (ATKearney, 2013, p. 6)

Logistics Sector

Indias logistics sector is poised for an accelerated growth, led by GDP revival, ramp up in transport infrastructure,

e-commerce penetration, impending GST (Goods and Service Taxes) implementation, and other initiatives like

Make in India. Empirical evidence suggests the Indian logistics industry grows at 1.5-2 times the GDP growth.

Moreover, infrastructural bottlenecks that have stifled sectors growth and promoted inefficiency are being

addressed by the government. However, currently the logistics sector faces a number of challenges and issues

which are implemented in the next section. (Financial Express, n.d.)

Challenges & Issues

At present, there are numerous challenges and issues thats acting as the bottleneck in the development of India.

In this section we have made an attempt to document all those challenges. The interconnected supply chain can

be established on platform that could overcome all these challenges.

Highly concentrated logistics flows

Seven long-haul corridors of Indias logistics network account for over half of total freight traffic flow in the

country. National highways along these corridors handle 40 per cent of road freight traffic even though they are

less than 0.5 per cent of the Indian road network. Similarly, rail links on the corridors account for 27 per cent of

the Indian rail network but handle over 50 per cent of rail freight traffic in the country.

9 | P a g e

Figure 10: Logistics Network (McKinsey, 2014, p. 11)

Logistics Infrastructure

Indias infrastructure is in general in a critical condition. It is ranked 87th in the world by the Global Competitiveness Report 2014-15 of the World Economic Forum and is stated as the fourth most problematic factor for doing business after access to financing, tax rates and foreign currency regulations. Taking a closer look at the logistic infrastructure, especially the quality of roads (rank 76), of port infrastructure (rank 76) and air transport infrastructure (rank 71) are ranked low. The quality of railroad is ranked 27th and the quality of electricity supply is ranked only 103rd, which is especially problematic in terms of cold supply chain. (Global Competitiveness Report, 2014-15, p. 211) Around USD 45 billion is lost each year due to inefficient and overstretched logistics network. As per a McKinsey

report, poor logistics infrastructure in India costs the economy an extra USD 45 billion or 4.3 per cent of GDP each

year. Also, statistics show that Indias current infrastructure is already over-stretched. As per McKinseys

projection, Indias freight traffic is likely to more than double from current levels by 2020. Most of the national

highway network and rail links along the Golden Quadrilateral and North-South and East-West corridors are

congested. Many large ports are already operating at very high utilization rates. A 2.5 times increase in freight

traffic in the next decade will put further pressure on Indias logistics infrastructure. Inadequacies in Indias

logistics infrastructure could render less competitive on account of higher transit times and lower reliability.

However the quality of railroads is significantly ranked higher than of roads, Indias freight transport is dominated by road (Figure 11). In comparison to other countries such as China or the USA, India does not exploit mode-specific opportunities of cost savings or smaller CO2 emissions. The road has a share of approximately 57% of all ton-km, whereas rail has only 36% followed by 6% water and less than 1% by air.

10 | P a g e

Figure 11: Freight Transport on Road (McKinsey, 2014, p. 12)

While in absolute terms, as per Government of India analysis, India spends 13-14 per cent of GDP on logistics

which is more than what the US (9.5 per cent) and Germany (8 per cent) spend. As per Wikipedia stats, USA,

Germany, and India are ranked 1st, 4th and 10th respectively on the basis of GDP. This makes it clear that, Industry

spend on logistics in India is lowthe relative spend is high. Also, rail and coastal shipping costs in India are

approximately 70 per cent higher than those in the US. Likewise, road costs in India are higher by about 30 per

cent. This not only results in higher prices and lower competitiveness, but also hampers economic growth.

Having this overview, the following paragraphs will give more detailed information about the conditions of the different types of infrastructure.

Roadways

As stated above, roads continue to constitute the most significant component of Indias logistics industry, although the road infrastructure is underdeveloped. In 2012 the total length of the road network was 4.7 million km, of which 4,455,511 km (96%) were district, rural or other roads, followed by 163,898 km (3%) of State highways and only 70,934 km (1%) of National Highways. Additionally approximately only half of the total length is paved and 40% of the total road traffic is running over the national highways, so that the road freight is highly condensed. Therefore it is not surprising that the road network is behind the world average and that the average truck speed is with 30-40 km/h only half of the global average of 60-80 km/h. (KPMG, Logistics Game Changers:, 2015) p. 32, 33; (National Highway Authority of India, 2015)

The GOI was aware of it and therefore launched the $13 billion National Highway Development Program (NHDP) in 1998 in order to build 50,000 km of new highways. The NHDP contains 8 sub-programs of which the golden quadrilateral - connecting Delhi, Mumbai, Kolkata and Chennai- and the North-South (Srinagar-Kanyakumari) and

11 | P a g e

East-West-highways (Porbandar-Silchar) are probably the most important ones. The other highways connect smaller cities and ports to these major highways. Currently 22,000 km of the almost 50,000 km are already constructed. (National Highway Authority of India, 2015)

Other characteristics of the Indian road freight transport industry are the high fragmentation and that its capacity is mainly based upon light commercial vehicles (LCV) (see Figure 12). 70-75% of the trucking companies own less than 5 trucks, 15-20% of the companies own between 5 and 20 trucks whereas only 9-11% own more than 20 trucks. Of the total trucking capacity, it is estimated that 47 percent is constituted by a fleet of 2.6 million LCV (up to 3.5 tons), the rest largely belonging to medium and heavy CV (more than 3.5 tons) category constituting 2.8 million vehicles. (KPMG, Logistics Game Changers:, 2015) p. 35

Figure 122: Picture of 1109 Truck in India

Figure 13: Highways Network (National Highway Authority of India, 2015)

Both, the disaggregated ownership as well as the low cost of entry results in intense competition and low freight rates. The lack of differentiation makes it easy for consumers to switch, resulting in even higher consumer bargaining power. Thereby reducing the profit margin and the investment capacity of truck operators resulting in

12 | P a g e

high average age of trucks and limited adoption of technology as tracking and fleet management. (KPMG, Logistics Game Changers:, 2015) p.35 ff., (KPMG, 2010) p.7 ff.

The effect of the slow moving trucks, the small regional trucking companies and the small trucks is that larger companies face a lack of strong logistic provider. Additionally they have to operate under high uncertainty due to the longer lead times (low speed, interstate tax controls) and the low reliability of the old trucks. Moreover freight in India normally is not palletized, in order to minimize waste of vulnerable space. These circumstances are especially a problem for international companies, which want to enter the Indian market.

Railways

Indias railway network is the second largest in the world under one management and the largest network in Asia. Its total length is 109,000 km. In 2014 Indian Railways moved freight of 1,058.81 million originating tons and 666,000 million net tons km. As seen from the following figures, the tons originating increased by a factor of 5 since 1980 whereas the total length of the network increased only by 4000 km during the same time period, resulting in major congestion and a low average speed of 25 km/hr. for freight trains, which is also represented in the small percentage of only 36% of the total tons km moved in India. (IndianRailways, 2015)

The GOI therefore initiated the dedicated freight corridor (DFC) project, which contains out of 6 railroad corridors traversing the whole country. Currently only 2 of the 6 freight corridors with 3300 km are under construction: the Western DFC connecting the states of Haryana and Maharashtra, and Eastern DFC connecting the states Punjab and West Bengal. (Dedicated Freight Corridor Cooperation of India, 2015)

Figure 13: Tons transferred through railways Figure 14: Railways total route (IndianRailways, 2015) (IndianRailways, 2015)

Figure 15: Railway Network Map (Wikipedia, 2015)

13 | P a g e

Airport

In 2011 all Indian airports handled 2.3 million tons, which is relatively small compared to other airports such as the airport of Shanghai, which handled alone 2.6 million tons during the same period. However the air freight is growing fast by 10.3% to 5.9 million tons until 2020. of the total cargo is international and is concentrated in Mumbai, Delhi, Chennai, Bengaluru and Hyderabad. Next to these major airports, II-tier-airports grew even faster with 14.5% annually compared to 10.5% between2006-2011. (KPMG, Logistics Game Changers:, 2015) P. 10 ff.

Figure 16: Major Airports in India (KPMG, Logistics Game Changers:, 2015) p.14

14 | P a g e

Seaport

90% of the volume and 70% by value of Indias international trade is covered by seaports. India has 13 major ports and 60 non-major ports. The biggest port by cargo handled is Kandla with 87 million tons whereas the biggest container port is Jawaharlal Nehru Port with 4.1 million TEU. (Indian Port Association, 2015)

At 51 percent, the containerization level in India continue to fall short of that in developed countries, which have achieved significant levels of 7080 percent. Moreover the west coast of India is very shallow so that the ship size is very limited by the depth of the sea. The east coast is more deep although here again only very few ports have a maximum depth of 16 m, which is just enough for the largest containers ships today. Additionally Indian ports underperformed in global comparison as it can be seen from the next figure. As a result major shipping routes currently bypass India. (KPMG, 2013) p. 21 f.

Figure 17: Major Seaports in India

Figure 18: Indian Ports vs International Ports (KPMG, 2013) p. 23

15 | P a g e

Inland Waterways

Current Situation (India, 2015)

India has about 14,500 km of navigable and potentially navigable waterways of which around 55% is used

regularly. Inland waterways in India consist of the Ganges (Ganga)BhagirathiHooghly Rivers, the Brahmaputra,

the Barak River, the rivers in Goa, the backwaters in Kerala, inland waters in Mumbai and the deltaic regions of

the Godavari -Krishna rivers. About 44 million tons of cargo is moved annually through these waterways using

mechanized vessels and country boats. Inland Waterways Authority of India (IWAI) is the statutory authority in

charge of the waterways in India. It does the function of building the necessary infrastructure in these

waterways, surveying the economic feasibility of new projects and also administration and regulation.

Currently 6 different National Waterways are recognized by the IWAI as follows:

National Waterway # River System Length (KMs)

Estd

National Waterway-1 AllahabadHaldia stretch of the GangesBhagirathiHooghly river system.

1620 Oct-1986

National Waterway-2 Sadiya Dhubri stretch of Brahmaputra river 891 Sept-1988 National Waterway-3 Kottapuram-Kollam stretch of the West Coast Canal,

Champakara Canal and Udyogmandal Canal. 205 Feb-1993

National Waterway-4 KakinadaPondicherry stretch of canals and the Kaluvelly Tank, Bhadrachalam Rajahmundry stretch of River Godavari and Wazirabad Vijayawada stretch of River Krishna.

1095 Nov-2008

National Waterway-5 TalcherDhamra stretch of the Brahmani River, the Geonkhali - Charbatia stretch of the East Coast Canal, the CharbatiaDhamra stretch of Matai river and the Mangalgadi - Paradip stretch of the Mahanadi River Delta.

623 Nov-2008

National Waterway-6 In Assam, Lakhipur to Bhanga of river Barak. 121 Dec-2013

(Wikipedia, 2015)

Figure 19: Inland Waterways India (India, 2015)

16 | P a g e

Major trade through the Inland Waterways include bulk goods like iron ore, coal and chemicals:

Figure 20: Trade Share on Inland Waterways (India, 2015)

Challenges and Scope:

Currently Inland Waterways in India is heavily underutilized, from the reports we could access we found that just

about 0.15% (India, 2015) of the total trade moved domestically in India is through the Inland Waterways. There

is a great scope for the improvement. We identify that in order to be globally competitive with respect to the

cost of manufacturing, India needs to do a radical shift from its current share of roadways to a balanced modal

mix of railways and waterways. If Inland Waterways can be utilized to its fullest potential, the throughput in the

cargo movement can be increased drastically. This would help the country to achieve a higher economies of

scale which would in turn bring the logistics cost of the nation. Currently India spends about 13% of its GDP into

logistics which is relatively much larger than the USA, EU and China.

Further with a rapidly growing population in India, Inland Waterways would reduce the congestion on the roads.

Inland Waterways are cleaner, requires much less capital investment and has a significantly lower operational

cost as compared to all the other hinterland modes of transportation like roads and railways. Inland Waterways

would be a great resource for a long leg (>500KM) cargo transportation. We found that the ratio for the cost of

transportation per KM is 1 to 5 for Waterways and Railways respectively and 1 to 8 for Waterways and

Roadways respectively (Youtube, 2015). This explains that there is huge cost benefit if we adopt Waterways as a

major mode of transportation with a right mix of other modes.

17 | P a g e

Warehousing Industry

The size of the Indian warehousing industry is about INR 560 billion (excluding inventory carrying costs, which amount to another ~INR 4,340 billion).

The industry is growing at over 10% annually. India spends around 14% of its GDP on logistics. The distribution of spend on logistics along with its distribution across multiple business models exist within

the warehousing industry. The key segments can be represented as:

Industrial/Retail warehousing: accounts for ~55% of the total market Container Freight Stations / Inland Container Depot: ~14% share Agri warehousing: 15% share Cold stores: ~16% share[Source: (EY Analysis, Crisil Report on Warehousing, 2013)]

Figure 21: Distribution of Logistics Spend

[Source: (EY Analysis, Crisil Report on Warehousing, 2013), p.8]

18 | P a g e

Challenges to development of the Warehouse Industry

Strategic challenges:

Infrastructure: An efficient warehousing operation hinges critically on good connectivity. The total share of

organized warehousing space is less than eight per cent of the total warehousing space in India. The industry

is fragmented and largely unorganized and is dominated by small players with bad connectivity and small

capacities.

Land availability: As a result of lack of classification of land in Indian cities, as well as increase in land prices

even in the fringe of cities has made development of warehouses a difficult operation. In addition, different

states having different rules regarding agricultural land acquisition, create further entry barriers and have

serious cost and time implications.

Lack of standardization: Currently, there does not exist any standard for warehouse development in India.

This has been further complicated by different clients requiring specific needs due to lack of standardization

in packaging and storage. The current warehouses layouts have made upgrade in terms of technology

compliance or accommodating automated equipment difficult.

High cost of credit: Access to timely credit at a reasonable cost is one of the most critical problems faced by

this warehousing sector. The main reason for this has been the high-risk perception among banks about the

unorganized nature of this sector as well as the inability of small or medium entrepreneurs that are mainly

present in this sector to provide collateral to avail of loans from banks.

Fragmented market with unorganized players: Economies of scale cannot be exploited due to the fragmented

nature and large number of small players in the warehousing sector in India. All over the world, cold-chain

service providers have large fleet sizes and big warehouses with state-of-the-art technology. So far, the

current practices of fleet ownership and other policies in India have not encouraged large ownership of fleets

resulting in stunted development of the cold supply chain.

Figure 22: Warehouses in Chandni Chowk (10sq km) area in Delhi Source: (Google Maps, 2015)

19 | P a g e

Power outages: Power outages are a major problem currently plaguing cold chains leading to a huge wastages

of agri-products every year in India. The increasing cost of power adds further to the warehousing cost for

agri-products.

High costs due to long transit time: Longer transit time and inadequate infrastructure also increase

transportation costs. This leads to collection of material directly at mini-warehouses distributed across

locations thereby defeating the purpose of augmentation and distribution.

Complex tax regime: The delay in the implementation of GST and the existing complex sales and transport

tax system tends to discourage the establishment of a national-level centralized distribution center or hubs,

the likes of which are often seen in developed countries. [Source: (PWC, Building Warehousing

Competitiveness in India:, 2011), p.15]

Operational challenges:

Lack of integration with complete supply chain: Presently, there is no clarity regarding demand forecast

shared between manufacturer and warehouse facility provider. As a result of this lack of visibility there is

disintegration in the upstream, downstream or both ends of warehousing leads to unpredictability of usage

of space and facilities. In addition, this impacts the value-added service performance level expected from

warehousing service providers.

Lack of trained manpower: The lack of training institutes paired with the poor working conditions, relatively

less incentives and benefits, and the emergence of attractive alternate career options are responsible for the

skill shortage in the Indian warehousing sector.

Lack of IT penetration: The warehousing sector in India, with some exceptions, is characterized by low

technology levels. Lack of IT enabling has led to limited visibility in inventory management and warehousing

management. The existence of these will be in jeopardy in the face of international competition from 3PL and

4PL service providers.

Lack of expertise in warehousing technologies: A majority of the Indian warehousing players today have

inefficient methods of storing, handling and monitoring of goods. They also suffer from stock visibility issues,

stock traceability, higher pilferages and damages.

Process inefficiencies: There is an absence of standardized operating processes and procedures at

warehouses. The material unloading, handling, storing and loading are more often carried out in an ad-hoc

manner. This not only builds in inefficiency but also leads to many mishandling problems including damages

and subsequent increases in cost. [Source: (PWC, Building Warehousing Competitiveness in India:, 2011),

p.16]

Third Party Logistics

The third party logistics market is still in its nascent stages in India, facing issues such as lack of infrastructure (viz,

warehouses and cold storage chains), lack of economies of scale due to unorganized private truck operators, and

lack of efficient processes and automated, technologically advanced monitoring systems. [Source: (KPMG,

Logistics Game Changers:, 2013)]

The general trend of evolution of the Logistics Industry is show below:

20 | P a g e

Figure 23 Evolution of Logistics Source: [ (KPMG, Logistics Game Changers:, 2013), p.44]

Currently, India is in the first stage of the evolution of Logistics. As a result:

Long lead times for delivery observed

Lack of consolidation observed

Inefficient utilization of assets due to empty back hauls

No standardization of vehicles across as well as within the same providers

Figure 24: Non-Standard Trucks

21 | P a g e

However, there are signs of evolution into the second stage with the emergence of 3PL providers like:

Aegis Logistics Ltd.

Allcargo Logistics Ltd.

Gati Ltd.

Transport Corporation of India Ltd.

Challenges for the Introduction of the Physical Internet

No communication/cooperation between large number of small regional 3PLs No standardization of vehicles across providers Lack of information of available loads leads to empty back hauls or long wait after delivery Very few 4PL companies present Lack of technology leads to inefficient management and poor service

Case Study: We shall now look at a few cases of supply chain that are typical to India and are critical to be considered while

creating a strategy for designing the future of the supply chain landscape in India.

Whole Sale and Mom and Pop Stores Model in India

The diversity of Indias culture (which encompasses 18 major languages, 400 tribes and all major religions) and

complexities of its infrastructure presents significant challenges, but none may be as daunting as the complicated

distribution network for the foreign retail companies to penetrate the Indian Market. With more than 12 million

retail outlets, India has one of the highest retailing densities in the world. Mom and Pop stores account for more

than 95 percent of the market across most product categories. An organized retail sector has emerged but that

contributes to only 3 or 4 percent of the whole market. Many distribution models in India have many

intermediaries between the companies and the retailer customers and thus accounts of higher and varying cost.

The wholesale model, for instance in which the large wholesale companies buy products from the manufacturers

and sells to the small retail store whom they finance gives manufacturer little control of the distribution network

but provides considerable reach. Whereas, under the distribution model, the distributor acts as an extension of

the manufacturer and operates in a particular specified territory. Most of the mom and pop stores are part of

unorganized retail sector of India with minimal information flow among them. The following diagram shows a

representative model of mom and pop stores in India.

22 | P a g e

Figure 25: Business Model of Mom & Pop Stores

Figure 26: Typical Mom & Pop Store

23 | P a g e

The Major challenges of Mom and Pop stores in the present scenario are:

Inefficient distribution network: Since most of the stores are unorganized they dont have a robust

distribution network and uniform fulfillment cycle. Such an inefficiency normally translates into loss of

sales or increase in cost incurred.

Traffic Congestion: The mom and Pop stores are located in every nook and corners of the societies. The

fulfillment trucks arriving frequently to these stores create significant traffic congestion in the already

cluttered underdeveloped roadways in India. The following pictures explains the situation vividly:

Figure 27: Congested Traffic in India

Figure 28: Congested Traffic in India

Low Service Level Measures: in the current scenario the stores experience high risk of stock outs and the

fill rate for most of the stores are not high as well.

24 | P a g e

Customers time investment: In the present model, a customer has to dedicate major proportion of the

daily/weekly schedule to travel through the congested traffic, prepare his pick list, wait in queue for his

order to be built and then travel back in the crowded road. This doesnt present a sustainable option of

shopping considering the exponential rise in population.

Material Handling: Since the mom and pop stores are low capital stores they cant afford to have

sophisticated or some cases the mediocre material handling equipment. They depend largely on the

manual labor and thus experience transit damages and longer time for restocking.

Figure 29: Poor Material Handling in India

Figure 30: Poor Material Handling in India

Cold Chain Industry

India is the second largest producer of fruits and vegetables in the world which contributes for about 10% of the total fruit production in the world. India is the largest producer of fruits (32mT annually) in the world, which is about 8 per cent of the global production; India is also the second largest producer of vegetables in the world (first being China), producing around 71 MT annually, which is about 15% share in the world market. The key area in India is Food processing and it processes about 1.3% of its total fruits and vegetable where as it is 80% in USA, 70% in France, 80% in Malaysia and 30% in Thailand. To become a top exporter and processor of fruits and vegetables, India needs a high quality cold chain. Due to lack of cold storage facilities and energy infrastructure

25 | P a g e

about 40 percent of the fruits and vegetables grown in India (40 MT worth $13 billion) gets wasted every year, which is huge enough to feed countries like Brazil and Vietnam.

The reason for this huge wastage is the wide gaps that are existing in the cold chain and there is no well-equipped cold chain for the preservation of fruits and vegetables. The Infrastructure for Cold chain is not existing for the produced capacities and same is the case with storage, also these close storage facilities are not available close to the farms, in addition to these the transportation (temperature controlled) is also inefficient. So it is important to establish world class cold storage logistics, which play a crucial role in reducing the global foods shortage by eliminating wastages, which would provide us enough scope to feed many parts of the world. With growth rate of around 12% the Indian chemical industry is amongst the fastest growing. Exports contributed to $16.1bn whereas imports were at $24 bn (excluding petrochemicals). Large coastline, land area and the largest rail network provides an immense opportunity to Logistics & Warehousing companies. The industry needs shared warehouses closer to the demand centers with high tech facilities to handle chemical products. It will ensure reduced lead time, reduction in freight costs, reduced product outages, eliminate damage goods handling and ensures high product availability

The number of cold storages in India is about 5316 and the total capacity is around 23,333,694 MT. The number of Private sector cold storages in India account for 4820 with a capacity of 222343607mTs, cooperative sector 363 numbers with 989445 MTs, Public sector account for 133 numbers with a capacity of 100642 MT. The existent cold storage facilities mainly serve the potato products. There is a lack of facilities such as cold storage vegetable, cold storage fruits, cold storage tamarind, cold storage fish, cold storage meat, and cold storage milk and dairy products. Cold storage services are available for only 10% of the produce. [ (UKessay_Student, 2015)]

Challenges

Cold storage industry is facing following challenges:

1. Lack of Uniform Technology standards: There is lack of uniform electronic and bar code standards. International standards vary widely, and domestic standards are almost as disparate, creating unnecessary paperwork and profit-eating delays.

2. Consolidation: The trend toward consolidation sprung from the growing tendency for warehouses to act as shipping venues, as well as the entry into the market by warehouse holders. Though consolidation spurred overall industry growth, smaller warehouses have struggled to compete with larger industry players.

3. Capital Investment and Technology: The cold chain Storage and logistics is a capital-intensive industry (investment for refrigeration equipment and real estate) with a large capacity cold storage chain has a high payback period of around five years.

4. Incumbency advantages independent of size: Existing players like Snowman have built expertise by operating in this industry for longer periods in time & use imported hi-tech equipment, which new entrants find difficult.

5. Economies of scales: It is a largely untapped, fragmented & full of unorganized small size players. No player has achieved economies of scale and thus a new a new entrant with deep pockets can enter this industry and still be at a major cost advantage.

6. Human Capital and Domain Skills: It requires skilled human resources for operating and controlling the cold storage facilities. Lack of technically qualified employees is also one of the hindering factors for Indian cold storage industry.

26 | P a g e

7. Lack of logistical Support: Small land holdings remain a challenge because it requires multiple farm gate collection centers. Also Fragmented cold chain industry has not encouraged the growth of cold logistics for horticulture produce. Standard refrigerated systems are inefficient and poorly designed. Also, domestic market for fresh perishable produce is underdeveloped.

8. Uneven Distribution of cold stores: Available capacity is mostly focused on single commodities. Problem of financial viability is also their due to seasonality.

Other pertinent issues are:

1. Erratic power supply

2. High operational costs and low yield models.

3. High insurance/ Risk coverage premiums.

4. Large gap in demand supply conducive to small unorganized service providers.

5. Government tax and commercial regulations. [ (UKessay_Student, 2015)]

Present Players

The Leading Cold chain companies in India with established cold chain infrastructure are Container Corporation of India (Concor), Indraprastha Cold Chain, Glacio Cold Chain, Bulaki Deep Freeze, Nowman, Refcon Carriers, Kausar, Gatia, Gateway Distiparks, R.K. Foodland, Adani Group, Future Group, Bharti, ITC, Reliance, Godrej, Tata Group, Aditya Birla Group, and Apollo Everest Kool Solutions. [ (UKessay_Student, 2015)]

Role of Government and Initiatives

Government policy acts as a catalyst in this industry. Following are the salient features of Government policies for cold storage sector:

1. Encourages Investments Agricultural food is identified as priority sector.

2. Encourages organized sector- ECB route opened, Import duty relaxed.

3. Liberalizes Marketing Norms- Focus on increased retail, improved supply chain.

4. Rationalizes Tax Laws- Moving towards uniform VAT/GST.

5. Provides Grants and subsidies- VG funding, Grants, Infrastructure status

6. Eases foreign investment- 100% FDI in food sector. ECB for cold chain.

Government of India Initiatives:

1. Excised waved on F&V, meat preparations, ice-cream, other RTE food mixes.

2. Automatic approval for 100% foreign equity in processed food items. External commercial borrowing opened (except in beer, alcohol etc.)

3. Priority lending status; Duties reduced on imports; Zero service tax on installations.

27 | P a g e

4. EOI floated for 30 mega food parks- allocated US $ 1.02 billion by 2012. Objective of the scheme is to provide backward and forward linkages as well develop reliable and sustainable supply chain.

5. GOI initiating National Highway Development Program and partnering with Indian railways to establish cold chain infrastructure. Indian railway is planning to invite private parties to run refrigerated container trains for transporting agricultural products across the country.

6. Integrated food law (FSSA) notified and ready for implementation.

7. Task force on Development of cold chain established and national center for Cold Chain Development (NCCD). [ (UKessay_Student, 2015)]

India: The Present Picture

Supply Chain in India

The supply chain of India has developed over years and the current supply chain of India plays a very important

role in the growth of India. The massive size of the country and uneven distribution of resources and industries

across the nation demands for a very robust supply chain. The following picture summarizes the present state of

supply chain in India. Though, the domain has not experienced the required technological excellence yet, the

major industry player have realized the role of this domain in the success of the business and have started

investing and fostering supply chain in India.

Figure 31: Supply Chain in India (ATKearney, 2013, p. 6)

28 | P a g e

Logistics Sector

Indias logistics sector is poised for accelerated growth, led by GDP revival, ramp up in transport infrastructure, e-

commerce penetration, impending GST (Goods and Service Taxes) implementation, and other initiatives like

Make in India. Empirical evidence suggests the Indian logistics industry grows at 1.5-2 times the GDP growth.

Moreover, infrastructural bottlenecks that have stifled sectors growth and promoted inefficiency are being

addressed by the government. However, currently the logistics sector faces a number of challenges and issues

which are implemented in the next section. (Financial Express, n.d.)

Challenges & Issues

At present, there are numerous challenges and issues thats acting as the bottleneck in the development of India.

In this section we have made an attempt to document all those challenges. The interconnected supply chain can

be established on platform that could overcome all these challenges.

Highly concentrated logistics flows

Seven long-haul corridors of Indias logistics network account for over half of total freight traffic flow in the

country. National highways along these corridors handle 40 per cent of road freight traffic even though they are

less than 0.5 per cent of the Indian road network. Similarly, rail links on the corridors account for 27 per cent of

the Indian rail network but handle over 50 per cent of rail freight traffic in the country.

Figure 32: Logistics Network (McKinsey, 2014, p. 11)

29 | P a g e

Logistics Infrastructure

Indias infrastructure is in general in a critical condition. It is ranked 87th in the world by the Global Competitiveness Report 2014-15 of the World Economic Forum and is stated as the fourth most problematic factor for doing business after access to financing, tax rates and foreign currency regulations. Taking a closer look at the logistic infrastructure, especially the quality of roads (rank 76), of port infrastructure (rank 76) and air transport infrastructure (rank 71) are ranked low. The quality of railroad is ranked 27th and the quality of electricity supply is ranked only 103rd, which is especially problematic in terms of cold supply chain. (Global Competitiveness Report, 2014-15, p. 211) Around USD 45 billion is lost each year due to inefficient and overstretched logistics network. As per a McKinsey

report, poor logistics infrastructure in India costs the economy an extra USD 45 billion or 4.3 per cent of GDP each

year. Also, statistics show that Indias current infrastructure is already over-stretched. As per McKinseys

projection, Indias freight traffic is likely to more than double from current levels by 2020. Most of the national

highway network and rail links along the Golden Quadrilateral and North-South and East-West corridors are

congested. Many large ports are already operating at very high utilization rates. A 2.5 times increase in freight

traffic in the next decade will put further pressure on Indias logistics infrastructure. Inadequacies in Indias

logistics infrastructure could render less competitive on account of higher transit times and lower reliability.

However the quality of railroads is significantly ranked higher than of roads, Indias freight transport is dominated by road (Figure 11). In comparison to other countries such as China or the USA, India does not exploit mode-specific opportunities of cost savings or smaller CO2 emissions. The road has a share of approximately 57% of all ton-km, whereas rail has only 36% followed by 6% water and less than 1% by air.

Figure 33: Freight Transport on Road (McKinsey, 2014, p. 12)

30 | P a g e

While in absolute terms, as per Government of India analysis, India spends 13-14 per cent of GDP on logistics

which is more than what the US (9.5 per cent) and Germany (8 per cent) spend. As per Wikipedia stats, USA,

Germany, and India are ranked 1st, 4th and 10th respectively on the basis of GDP. This makes it clear that, Industry

spend on logistics in India is lowthe relative spend is high. Also, rail and coastal shipping costs in India are

approximately 70 per cent higher than those in the US. Likewise, road costs in India are higher by about 30 per

cent. This not only results in higher prices and lower competitiveness, but also hampers economic growth.

Having this overview, the following paragraphs will give more detailed information about the conditions of the different types of infrastructure.

India: The Vision

India needs to create enablers to maximize network efficiency, extracting more from existing assets. Governance

changes needed at the highest levels to develop appropriate policies that will simulate industries to make their

supply chain robust and competitive.

India will be able to achieve its goals by translate its current weaknesses of small, regional logistics players as

well as small regional suppliers into a major future strength to build up an efficient and powerful interconnected

supply chain system, which will be highly flexible and decentralized, extending the current decentralized

infrastructure, which is characteristic for todays India. Thereby enabling a various number of industries to do

business in India and provide sufficient income to the population.

One major approach of the Government of India (GoI) to achieve these goals is to increase the contribution of

manufacturing output to 25 per cent of gross domestic product (GDP) by 2025, from 16 per cent currently. With

the recently launched Make in India initiative by the GoI, the manufacturing activity in India is set to accelerate

at a rapid growth. The interconnected supply chain systems would enable to achieve the expected growth rate.

Indias manufacturing sector could touch US$ 1 trillion by 2025, according to a report by Mckinsey and

Company. There is potential for the sector to account for 25-30 per cent of the countrys GDP and create up to

90 million domestic jobs by 2025. (McKinsey, 2014, p. 8)

Infrastructure Upgrades

Currently, Indias freight transport is excessively relies on road. India needs overlay of transportation networks,

allowing for the efficient transportation of each commodity type as well as a natural handover point. It needs

networks that intersect and where large quantities are broken down into smaller volumes for last-mile

transportation into urban centers. Indian Government is planning for A National Integrated Logistics Policy

(NILP) that shapes a vision for Indias logistics infrastructure in coming future and beyond would be a critical

enabler for such efforts. The NILP could help the government reduce recurring losses to the economy and

improve capital efficiency in the following three ways. First, it could define the blueprint for the most effective

and efficient logistics infrastructure to support a balanced modal mix, based on the anticipated increase in

freight flows by 2020. Second, it can ensure better coordination between multiple national and state-level

bodies responsible for developing logistics infrastructure. Third, it can facilitate easier access to and optimal

allocation of scarce resources such as investments, equipment and people. Below image shows desired state of

logistics infrastructure in India.

31 | P a g e

Figure 34: Future Logistics Infrastructure (KPMG, Logistics Game Changers:, 2015, p. 6)

Indian States Need a Free Trade Deal

Complex tax laws and unfriendly state borders have turned India into fragmented sub-markets. This, along with Indias poor record on ease of doing business, discourages investments both domestically as well internationally. As per Government of India statistics, India is a fully integrated market worth $2 trillion with 1.25 billion people. This could be very attractive for investors to come and make in India. Removing the barriers to inter-state trade should be the first step in that direction, as should the implementation of GST. Below figure shows expected positive impacts of implementing GST on Indian industry. Doing so would enable businesses to reap the benefits of economies of scale and increase the share of manufacturing in the GDP, which has remained stagnant at 16 percent since the 1960s. It would also reduce Indias dependency on the outside world and protect the economy from external shocks such as world recession in 2009. (Indian States Need a Free Trade Deal, n.d.)

32 | P a g e

Figure 35: Impact of GST (Indirect Tax Professionals, n.d.)

Increased number of Shared/Multi-client Warehouses:

Indian industries needs shared / multi-client warehouses closer to the demand centers with high tech facilities

to handle chemical products. It will ensure reduced lead time, reduction in freight costs, reduced product

outages, eliminate damage goods handling and ensures high product availability. The government has set up

three agencies which are engaged in building large scale shared and dedicated storage/warehousing capacity:

Food Corporation of India (FCI), Central Warehousing Corporation (CWC), State Warehousing Corporations

(SWCs). However functions of these agencies are very much limited which we will discuss in later sections of this

report. Generally, shared/multi-client warehousing offers shorter, more flexible contracts than those of a single-

user (contract) arrangement. This makes it particularly useful for companies that are either just starting up, have

a small clientele base, deal with seasonal products, or have a product where demand fluctuates, with no

concrete idea of what their future warehousing requirements are. This is in line with Indias vision of make in

India policy which is expected to generate many new players in the manufacturing industry.

For these customers, it is crucial that space can be reduced (or increased) to correspond with their personal

business demands shared/multi-client warehousing provides a solution to rapidly changing distribution needs,

and without committing to a long term contract. This flexible approach naturally reduces the worry of having to

pay for an area the client cant fill, or conversely, not having enough space.

Multi-client warehousing is also the perfect solution for businesses that require several smaller locations,

offering multiple distribution points, rather than one large space.

(FMI Logistics, n.d.)

33 | P a g e

Increased number of 3PL/4PL logistics solution providers:

Third Party Logistics is an effective way to reduce operational costs, and allow a company to focus on their core

competencies. Outsourcing logistics operations to a 3PL provider adds to the bottom line for both the customer

and supplier through accurate, well-managed inventory and supply chain solutions. Major advantages of using a

3PL Provider are as below: (Cerasis, 2015)

Shared Resource Network

3PL providers have a vast resource network available that provides advantages over in-house supply chains.

Using a 3PLs resource network, each step in the supply chain can be executed in the most efficient, cost

effective way. 3PLs can leverage relationships and volume discounts, which results in lower overhead and the

fastest possible service. Additionally, choosing a 3PL provider allows a company to benefit from resources

which are unavailable in-house.

Save Time and Money

Outsourcing logistics will save a wealth of time and money for companies. Using a 3PL provider eliminates the

need to invest in warehouse space, technology, transportation, and staff to execute the logistics process. 3PL

providers can save from costly mistakes, and allow business owners to build a global logistical network with

lower risk and higher return.

Ongoing Industry Expertise

A 3PL provider is knowledgeable of industry best practices, and stay up to date with the latest developments

in technology, manufacturing, and logistics. 3PL software is capable of advanced reporting, inventory

management, and provides visibility to monitor the entire process.

Scalability and Flexibility

A benefit of using a 3PL provider is the ability to scale space, labor, and transportation according to inventory

needs. Businesses with seasonal periods can enjoy stress free transitions between industry ups and downs,

having the ability to utilize more space and resources when needed. Using a 3PL provider allows businesses

to grow into new regions without barriers. Furthermore, as the company grow, a 3PL provider can help

companies scale as they have the resources to seamlessly support growth into new markets.

Continuous Optimization

3PL providers have the resources at hand to make adjustments and improvements to each link in the supply

chain. 3PL professionals will ensure companys needs are met, by using the fastest, most efficient, and cost

effective methods. A 3PL provider has the tools to restructure the supply chain, and use technology that

ensures the proper amount of goods arrive when and where companies need them. Sophisticated

management software can analyze and monitor practices to eliminate inefficiencies and streamline the

supply chain. Outsourcing 3PL services will ensure continuous improvements are made to the logistics

process. Third Party Logistics providers can help maximize profits, reduce wait times, and improve customer

service.

34 | P a g e

Road Map Engineering

Keeping the present challenges and issues in hindsight, we have designed the following roadmap which is also

coherent with the policies and growth plan of the Government of India. The following picture provides a

snapshot of the timeline. In subsequent sections we have explained the different strategies in detail.

Figure 36: Progress Plan-Interconnected Supply Chain in India

Government Policies

The government of India has realized that one of the bottlenecks in the growth of the nations economy is the stringent rules and regulation. Numerous bills are being passed by the government to deregulate and delicense the redundant processes and favor foreign direct investment in different sectors. This section will highlight the different policies and initiatives taken by government towards this vision.

Goods and Service Tax

The system allows the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. However, the end consumer bears this tax as he is the last person in the supply chain. GST is likely to improve tax collections and boost India's economic development by breaking tax barriers between States and integrating India through a uniform tax rate.

Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.

It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. It will divide the tax burden equitably between

35 | P a g e

manufacturing and services. This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.

India is planning to implement a dual GST system. Under dual GST, a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value of a transaction. All goods and services, barring a few exceptions, will be brought into the GST base. There will be no distinction between goods and services. [ (Government of India, 2015)]

Based on our research on the different analysis of GST implementation, we believe that this unified taxation system will be in full practice by 2020 and thus will help in fostering the manufacturing sector and contribute positively in the growth of Indian Economy.

Make in India

Make in India is a recent initiative campaign by GOI to attract foreign investors to establish the manufacturing

facility in India. Considering the huge availability of resources and labor force, such an initiative will catalyze the

manufacturing evolution in the country and thus will improve the employment and growth rate of the country.

Vision

The GOI has designed a vision to achieve the above discussed goal. The following section is an extract from the

GOI website for Make in India initiative.

An increase in manufacturing sector growth to 12-14% per annum over the medium term.

An increase in the share of manufacturing in the countrys Gross Domestic Product from 16% to 25% by 2022.

To create 100 million additional jobs by 2022 in manufacturing sector.

Creation of appropriate skill sets among rural migrants and the urban poor for inclusive growth.

An increase in domestic value addition and technological depth in manufacturing.

Enhancing the global competitiveness of the Indian manufacturing sector.

Ensuring sustainability of growth, particularly with regard to environment. [ (Governement of India, 2015)]

National Investment & Manufacturing Zones (NIMZ):

The GOI has identified different economic and industrial corridors or zones and is designing the policies keeping

in focus the development of these corridors and the smart cities around them. The following write up is an

extract from the GOI website for Make in India.

The National Investment and Manufacturing Zones are being conceived as giant industrial Greenfield townships to promote world-class manufacturing activities.

The minimum size is 5000 hectares (50 square kilometers) wherein the processing area has to be at least 30%.

The central government will be responsible for bearing the cost of master planning, improving/providing external physical infrastructure linkages including rail, road, ports, airports and telecom, providing institutional infrastructure for productivity, skill development and the promotion of domestic and global investments.

The identification of land will be undertaken by state governments. State governments will be responsible for water requirement, power connectivity, physical infrastructure, utility linkages, environmental impact studies and bearing the cost of resettlement and rehabilitation packages for the owners of acquired land.

The state government will also play a role in its acquisition if necessary.

36 | P a g e

In government, purchase preferences will be given to units in the national investment and manufacturing zones. [ (Governement of India, 2015)]

Simplification of Regulatory Environment

Central & State governments to provide exemptions from rules and regulations related to labor, environment etc. subject to the fulfilment of certain conditions.

Mechanisms for the cooperation of public or private institutions with government inspection services under the overall control of statutory authorities to be developed.

Process of clearances by center and state authorities to be progressively web-enabled.

The submission of multiple returns for different departments will be replaced by one simplified monthly/quarterly return.

A single window clearance for units in NIMZ.

E Governance

E-government (short for electronic government, also known as e-gov, Internet government, digital government, online government, or connected government) consists of the digital interactions between a citizen and their government (C2G), between governments and government agencies (G2G), between government and citizens (G2C), between government and employees (G2E), and between government and businesses/commerce (G2B). [ (Wikipedia, 2015)]

National e-Governance Plan (NeGP) is a plan of the Government of India to make all government services available to the citizens of India via electronic media. NeGP has been formulated by the Department of Electronics and Information Technology (DeitY) and Department of Administrative Reforms and Public Grievances (DARPG). The Government approved the National e-Governance Plan, comprising 31 Mission Mode Projects (MMPs) and eight components, on May 18, 2006. [ (Governement of India, 2015)]

National e-Governance Division (NeGD)The Department of Electronics and Information Technology, Government

of India has formed the National e-Governance Division (NeGD) as an autonomous business division within Media

Lab Asia, under the Ministry of Communication and Information Technology, Government of India, for supporting

and assisting Department of Electronics and Information Technology in the Program Management of NeGP. [

(Wikipedia, 2015)]

Foreign Direct Investment

With Indias vision to traverse the path of economic growth, the government has revisited the policies and

identified the relaxation on FDI as one of the key measures for the evolution of industrial sector and global

trade.

Recent Policy Measures

The following is an extract from the GOI website on Make in India initiative.

100% FDI allowed in the telecom sector.

100% FDI in single-brand retail.

37 | P a g e

FDI in commodity exchanges, stock exchanges & depositories, power exchanges, petroleum refining by PSUs, courier services under the government route has now been brought under the automatic route.

Removal of restriction in tea plantation sector.

FDI limit raised to 74% in credit information & 100% in asset reconstruction companies.

FDI limit of 26% in Defense sector raised to 49% under Government approval route. Foreign Portfolio Investment up to 24% permitted under automatic route. FDI beyond 49% is also allowed on a case to case basis with the approval of Cabinet Committee on Security.

Construction, operation and maintenance of specified activities of Railway sector opened to 100% foreign direct investment under automatic route. [ (Governement of India, 2015)]

Incentives

To encourage the multinational companies to invest in India, the GOI has outlined different incentives at the

central and state government.

CENTRAL GOVERNMENT INCENTIVES:

The following section is a direct extraction from the GOI website on Make in India initiative.

Investment allowance (additional depreciation) at the rate of 15 percent to manufacturing companies that invest more than INR 1 billion in plant and machinery available till to 31st July 2015.

Incentives available to units set-up in SEZ, NIMZ etc. and EOUs.

Exports incentives like duty drawback, duty exemption/remission schemes, focus products & market schemes etc.

Areas based incentives like unit set-up in north east region, Jammu & Kashmir, Himachal Pradesh, and Uttarakhand.

Sector specific incentives like M-SIPS in electronics.

STATE GOVERNMENT INCENTIVES:

The following section is a direct extraction from the GOI website on Make in India initiative.

Each state government has its own incentive policy, which offers various types of incentives based on the amount of investments, project location, employment generation, etc. The incentives differ from state to state and are generally laid down in each states industrial policy.

The broad categories of state incentives include: stamp duty exemption for land acquisition, refund or

exemption of value added tax, exemption from payment of electricity duty etc.

38 | P a g e

Manufacturing Revolution

Exploiting Intermodal Connectivity to achieve Economies of Scale:

Leverage Intermodal Connectivity for an Interconnected Supply Chain 2050:

Figure 38: Automobile Clusters in India, source: (www.ibef.org, 2015)

Motivation (GDP Vs Manufacturing Vs Automobile):

Based on our study from the (www.ibef.org, 2015), India currently ranks 11th in car production and 13th in commercial vehicle production globally. With an increasing industrial production and growing spending power of the Indian middle class households, the country is expected to make it to the top five markets in the cars and commercial vehicles segment by 2020. India has set for itself an ambitious target of increasing the contribution of manufacturing output to 25 per cent of gross domestic product (GDP) by 2025, from 16 per cent currently. Specifically, the automobile industry accounts for 22 per cent of the country's manufacturing gross domestic product (GDP) currently. The auto sector is one of the biggest job creators, both directly and indirectly. It is estimated that every job created in an auto company leads to three to five indirect ancillary jobs. In order to meet the ambitious growth plans of India, auto industry thus has to play a very large role in Indias economy. Further, India also aspires to be a globally competitive player in the Auto exports globally.

Steel Industry Auto components Industry Automobile Industry

Figure 37: Geographical location of Steel, Auto Components and Automobile Industry (www.ibef.org, 2015)

39 | P a g e

Figure 39: Growth Projection for India's Auto Industry (Kearney, 2015)

In order to be globally competitive by keeping the cost of manufacturing low the auto industry will have to increase

its sourcing from the Indian Steel Industry. In the current scenario, we identified that the Indian Steel Industry

which is a major raw material supplier to the Auto Component and Automobile Industry, is not completely

geographically aligned with the current location of all its customers. Steel industries in order to keep their cost of

manufacturing low are bound to be closed to their raw materials supplies which are primarily coal and iron ore.

Both coal and iron ore resources in India are concentrated in the Eastern, South Eastern and some South Western

Part of India currently. With an assumption that this is not going to change drastically until 2050, we assume that

the steel industry would continue to flourish in the same region where they are currently present. From an overall

supply chain perspective when we notice that there is an ongoing and developing auto manufacturing activity in

the north of India, we are poised with the question on how this would sustain considering the geographical

distance from the steel industry. The current logistics network and mode which is largely truck, pushes up the

logistics cost and hence the manufacturing cost which could hinder Indias strategic vision of being globally

competitive in manufacturing.

From an interconnected supply chain perspective, we paid attention on how a collaborative supply chain between

the auto and steel industry with a strong intermodal connectivity in the background can help achieve a lower

logistic cost and hence achieve Indias goal of being a global powerhouse in manufacturing.

Key Elements in this Proposal - Economies of Scale by higher Throughput:

The logistics industry in India is highly fragmented today. With our earlier reference of making the 3PL industry

the sole supply chain player providing an end to end solution for the manufacturers, we believe it would make the

40 | P a g e

3PL players financially stronger and hence they would be able to play a much larger role in achieving the overall

lower logistics cost. But the overall auto and steel industry would also have to collaborate in order to further

suppress the logistics cost. Also keeping in mind that the lower logistics cost for both the Auto and Steel Industry

has to be achieved two way on any given freight lane, right intermodal mix should be adopted. For example, trucks

are efficient for small legs but for longer legs (>500KM), rails or waterway would make a much greater sense.

Indias Inland Waterway (IWT) hasnt been exploited to its largest potential. Currently it handles only 0.1% of the

total trade flow in the country. This presents a huge opportunity for the industry since the capital cost for the

infrastructure investment and the cost of operations on a waterway is much lesser than most of the other modes

of transportation. In addition to it, IWT also gives a unique advantage of getting naturally close to the coast.

Specific to our case, river Ganga which is identified as National Waterway-01 could serve this purpose. We propose

the following intermodal mix for our case:

Proposed Plan of Action:

3PL in South East and East Regions of the country can do something similar to a localized milk run but slightly on

a larger scale between the steel industries on a continuous basis which will help them achieve a full truck load.

For this purpose open trucks should be used to speed up the handling at the consolidation hubs which we propose

IWT Consolidation Hub

- East

IWT Consolidation Hub - North

Short Leg (

41 | P a g e

to be close to the National Waterway-01 Terminal in the East. Faster and efficient material handling equipment

can be deployed to transfer the steel directly on to a High Capacity Barge. The goods can then be transported

using IWT to an another consolidation/distribution hub in the North from where it can then be again transported

using trucks performing continuous milk run around the auto industry. The overall supply chain design can reap

the benefits of deploying IWT over a long leg (>500KM) and the consolidation activity.

We understand that over a long leg especially through IWT, the transportation time would be higher as compared

to train but the savings achieved in transportation would be much higher. Yes, it would inflate the pipeline

inventory value but would help us achieve a higher economies of scale for the transportation. We also assume

that the 3PL with its eminent participation in the logistics activity will have a higher negotiation power and hence

would significantly drive the terms and conditions on the mode of transportation they would like to adopt. It is

quite obvious that for them low transportation cost is of the utmost importance. Use of IWT would also eliminate

the challenges which are associated with the management of the mobile resources like wagons for railways.

In reverse the assembled automobiles can be transported directly to the consolidation hub in the north by Truck

(in case of 2 Wheeler, 3 Wheeler, LCV or MCV) or by driving them directly and then from there they can be

transported using IWT on the barges towards the ports located in the East. We emphasize this because of the fact

that the Ocean Depth near the coast is higher as compared to the West. This would allow the Mega Sized Ships to

dock at the ports. The ongoing trend in the shipping industry is about growing size of the ships at a rapid pace to

cut down the cost of transportation per unit of item moved. This possess a demand on the Hinterland Logistics to

adapt. IWT has been proved efficient in such situation especially in the EU. The overall increase in the throughput

would help in achieve a higher economy of scale. We should also emphasize on the fact that the industries in the

future are going to be modular and smaller in size. The industries would be quick to change its current location of

manufacturing. Therefore a larger capital investment solely in one mode of transportation should be avoided. IWT

presents this advantage over the other competing mode of transportation like railways which needs re