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Budget 2023: Logistics Start-Ups Seek Incentivisation for Digital Transformation

A focus on the development of infrastructure through dedicated allocation to the logistics sector will allow for more developments, including building a greener logistics sector

Budget 2023: Logistics Start-Ups Seek Incentivisation for Digital Transformation
POSTED ON February 01, 2023 9:33 AM

When the government announced the National Logistics Policy and Pradhan Mantri GatiShakti last year, it showed the path to transformation and growth for the country’s logistics industry. The Unified Logistics Interface Platform (ULIP) rollout further enabled businesses to manage inventory and other supply chain-related documentation in a more streamlined fashion. 

Now, the industry expects Finance Minister Nirmala Sitharaman to expedite the integration and development of ULIP in the Union Budget 2023. This will unify digital logistics systems and enhance efficiency, transparency, and collaboration between various industry stakeholders. They also look forward for measures that will incentivise logistics players keen on adopting artificial intelligence, Internet of Things, automation and big data.

Live Updates | Union Budget 2023 News And Live Updates: FM Nirmala Sitharaman's Budget Speech At 11; Income Tax Slabs, Subsidy & Other Expectations Here

In 2021, the logistics sector employed 22 million people directly and was valued at $160 billion. This growth can be attributed to the rise of e-commerce-based platforms and the dependence on last-mile delivery in the aftermath of the pandemic. However, with this growth came a series of bottlenecks that hampered the sector’s potential.

Saahil Goel, CEO, Shiprocket
Saahil Goel, CEO of Shiprocket

Currently, the logistics business is tackling multiple challenges, ranging from infrastructural constraints, bureaucratic hurdles, limited access to funding and the need for a talent pool. Saahil Goel, co-founder and CEO of Shiprocket, elaborated, “Underdeveloped road and rail networks, as well as limited warehousing and storage facilities, make it difficult for start-ups to reach their 100 per cent efficiency potential in terms of transportation. Similarly, complex regulations and a lack of transparency in the logistics sector can make it difficult for start-ups to navigate the system and obtain the necessary permits and licenses.”

Lalit Das, founder of 3SC Analytics noted that the finance minister can address the challenges faced by the logistics sector in several ways in the Budget 2023. One of the key ways is by ensuring easy funding availability to start-ups in the sector.

"This can help these businesses to overcome financial barriers and scale up their operations. The finance minister can also consider providing tax rebates to start-ups in the logistics sector, which can help these businesses to reduce their costs and increase their competitiveness," he added.

Slicing And Dicing The Facts

Since transport is a state subject, many states are coming up with mandatory transitions to transition to electric vehicles, which might not be feasible for the logistics ecosystem. With the rising need for sustainable mobility, there is a need for viable and easy-to-implement policies and guidelines. 

Goel explained that the high tax rates levied on internal combustion engine (ICE) vehicles also posed challenges for the industry due to technical and infrastructural bottlenecks. 

Zaiba Sarang, the co-founder of iThink Logistics
Zaiba Sarang, the co-founder of iThink Logistics

“The current GST levied on procuring ICE vehicles in India stands at 28 per cent, whereas the same for electric vehicles stands at 5 per cent. There is a huge difference between the two vehicle categories. Given the higher procurement cost of electric vehicles, and the lack of feasibility, it might be beneficial to reduce the tax slabs on the ICE vehicles until the EV market is well established in India,” he noted. 

Demarcated Areas

The last year’s budget saw a strong focus on the development of multi-modal logistics parks by the government, with the announcement of four multi-modal logistics parks via the public-private partnership (PPP) mode. While these play a significant role in reducing logistics costs and streamlining operations, the founders hope the government will continue to focus on easing the operations with more initiatives. 

Zaiba Sarang, the co-founder of iThink Logistics, pointed out that all companies face financing challenges currently. Hence, founders always have to be aware of what should be prioritised, where the budget should be allocated, and how to maximise the available resources. 

“Simultaneously, we must prepare for the worst-case scenario. Aside from that, rising fuel prices, which have increased the cost of freight, must be addressed with alternatives such as EV fleets, optimised routes, and regional warehousing, which will not only help reduce costs but also accelerate the process,” she added.

The allocation and funding for MMLP in the Union Budget 2022 delved into this, acting as an integrator between different modes of transportation, utilising the hub-and-spoke model to facilitate intermodal connectivity. However, more must be done to give the sector a leg-up to gear into a faster mode. 

A Holistic Approach 

Logistics start-up founders hope the government will focus on ensuring holistic development of the sector by removing most of the bottlenecks affecting the sector. In Union Budget 2021, the administration proposed completing 11,000 km of national highways, and in Union Budget 2022, it proposed expanding the national highway network by 25,000 km by allocating Rs 20,000 crores.

Rising fuel prices have been a prolonged issue for the Indian logistics sector. To resolve this, petrol and diesel costs should be brought under the GST. This will allow the logistics and transportation companies to take input credit for it leading to an overall reduction in the logistics costs.

Pranav Goel, CEO and co-founder of Porter, noted that to aid in building a robust logistics infrastructure, the government recently announced the National Logistics Policy. “We hope that, similarly, the government continues to focus on the expansion and maintenance of national highways in the forthcoming Union Budget 2023,” he added.

Lalit Das, Founder, 3SC Analytics
Lalit Das, Founder of 3SC Analytics

The industry is also hoping for more feasible and purpose-driven policies and guidelines that ensure the easy adoption of EVs, specifically for the logistics players. “In terms of reducing the tax-related issues, the government can consider reducing the tax slabs for ICE vehicles in India by a small margin as the current EV segment in India does not offer reliability for long distances owing to technical and infrastructural related challenges,” Goel added. 

Additionally, the finance minister Nirmala Sitharaman can consider providing a rebate for those involved in exports and bringing foreign currency into the country. This can encourage more businesses to participate in international trade, which can, in turn, help unleash export opportunities for the logistics sector. 

Finally, the finance minister can also focus on promoting more foreign direct investment (FDI) in the logistics sector, which can help bring much-needed capital and expertise. Goel recommended that the administration focuses on developing purpose-driven start-up accelerators and mentorship programmes for budding entrepreneurs to help them with go-to-market strategies and guide them on the path to profitability. Such programs will benefit entrepreneurs by offering the necessary guidance and support. 

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