Reducing Logistics Cost, MSME Productivity Gap Will Improve Manufacturing Output
A reduction in logistics cost by 10 per cent could increase the country’s exports by about 5-8 per cent: Federation of Indian Export Organisations (FIEO)
CHENNAI: Reducing the reliance on road transport can bring down the logistics cost of the manufacturing sector. A reduction in logistics cost by 10 per cent can increase the country’s exports by about 5-8 per cent. Further, the MSME productivity gap is huge and narrowing it can add up to 10.5 per cent to the GDP.
Cheap, reliable logistics is the missing link between India’s current assembly-led export boom and its ambition to become a high-value manufacturing powerhouse.
The use of roads by the manufacturing sector in India is 60 per cent against 37 per cent in the US and 22 per cent in China. Railways account for 29 per cent of cargo movement in India against 48 per cent in the US and 47 per cent in China. Inland waterways support just two per cent for India’s freight movement against 14 per cent in the US and 31 per cent in China, finds a study by Cushman and Wakefield.
Freight movement by truck cost roughly $0.09 per tonne-km, against $0.04 in rail and coastal shipping at $0.03. Higher usage of rail and waterways helps China and the US keep logistics costs low and their manufacturing competitive.
While recent infrastructure upgrades, including sprucing up inland waterways and developing freight corridors have made it easier to move goods, more freight needs to leave the road for rail and waterways to realize full benefits.
Federation of Indian Export Organisations (FIEO) believes a reduction in logistics cost by 10 per cent could increase the country’s exports by about 5-8 per cent. Freight-cost savings will help India increase its competitiveness and hike global market share.
Further, MSMEs in India employ four of every five manufacturing workers and produce 40 per cent of the sector’s output. Yet each worker in an MSME generates only 14 per cent as much value as a worker in a large plant. Similar manufacturers in other emerging economies generate 29 per cent value and in advanced economies it is 53 per cent. Narrowing the productivity gap with large companies could add up to 10.5 per cent of the GDP.
Though the number of eligible workers has been increasing, only about 40 per cent of ITI and 29 per cent polytechnic graduates are employable with the right skill sets.
