Capex focus and faster execution of infrastructure projects: With a global slowdown and headwinds to exports growth anticipated, the government is expected to emphasise on capex to ensure that infrastructure-led growth continues to keep the economy moving. Till October 2022, out of Rs 7.5 lakh crore allocated for capital spending in FY23 Budget, 55 per cent, or Rs 4.09 lakh crore, had been utilised. Infrastructure-building has been a prominent feature in the last few budgets, with the PM Gati Shakti National Master Plan being the most ambitious among other initiatives, as it has the potential to save Rs 10 lakh crore annually by improving India’s logistics efficiency. The budget can include measures to improve the execution of infrastructure projects allotted under the plan, such as logistic parks, dedicated freight corridors (DFCs) and cold storages. As the government is prioritising 15 MMLPs to be developed in the next three years, bids for these at Bengaluru, Nagpur and Indore are projected to be completed soon. The budget is expected to focus on provisions for accelerating this process to achieve a seamless integration of the scheme’s vision.
Similarly, for DFCs, additional budgetary support to the Ministry of Railways (which is undertaking the project) will be a welcome move. Of the total sanctioned length of 2,843 km for DFCs, 1,610 km has been recently completed. A higher capex allocation would expedite the development of such projects, leading to a faster resolution of logistics bottlenecks.
The cold storage industry depends on imported equipment for its operation. A reduction in import duties and the government’s attempt to encourage locally made equipment would be a good boost for the sector.
Quicker execution of the National Logistics Policy (NLP): Launched in September 2022, the National Logistics Policy (NLP) was much appreciated by the industry. The next step now is to execute the measures announced so that the impact can be felt in the next 12–18 months. The budget can lay stress on the creation of standards of physical assets and benchmarks for service standards for a fast execution of the NLP.
Aligning stakeholders, such as the states, and creating a roadmap is also a critical factor for the timely success of the NLP. For instance, the government can ensure maximum usage of the data-driven insights provided by the recent Logistics Ease Across Different States (LEADS) 2022 survey report to form immediate strategies to further enhance logistics efficiency across the country.
The government must also focus on developing and integrating the Unified Logistics Interface Platform (ULIP) further to promote efficiency, transparency and visibility.Expansion of the PLI scheme: The Production Linked Incentive (PLI) schemes, with an outlay of INR1.97 lakh crore, aims to extend the manufacturing share of the GDP from 16–17 per cent to 25 percent. These also will help India position itself as a manufacturing and exports hub. For instance, the PLI scheme for large-scale electronics has proven to be very successful with the export of smartphones growing by 139 per cent over the last three years. Overall, electronics manufacturing is expected to rise to USD300 billion by 2025–26.
As the PLI schemes intend to incentivise domestic production in strategic growth sectors where India has comparative advantage, the government is expected to extend the scheme further to include sectors such as textiles, electronic components, furniture, toys and leather, some of which are already under discussion. The budget can also reallocate funds from the schemes that have witnessed lesser takers to those where the demand is higher. Further, the PLI scheme for green hydrogen electrolysers and utility-scale batteries manufacturers, viability-gap funding for the offshore wind sector, and the allocation for solar PLI (Rs 19,500 crore currently) can be increased in the upcoming budget to help promote the green economy. Additionally, the government can ensure solar project financing at competitive rates and include the Micros, Small and Medium Enterprises (MSME) sector in the PLI scheme to boost domestic solar manufacturing.
Incentivising EVs: Concessions and investments in the electric vehicle (EV) infrastructure (such as charging stations) will accelerate the adoption of EVs for commercial purposes, resolving last-mile delivery issues in supply chains. When it comes to electric two-wheelers (E2Ws), India has seen rapid adoption—in November 2022, a total of 1,847,708 two-wheelers were sold across the country out of which 76,162 were E2Ws. However, to increase this number, it’s important to reduce the GST for last-mile delivery services, which is currently at 18 per cent. As E2Ws are increasingly dominating India’s last-mile delivery services, reducing the tax component is imperative to make the last mile fully electric and more cost efficient.
Further, the commercial EV segment is also important from a supply chain as well as decarbonisation points of view. Indian trucks account for over 40 per cent of the country’s fuel consumption and 40 percent of greenhouse gas emissions across the road transport sector. To make the transition into electric four-wheelers (E4Ws) easier, the industry expects the scope of FAME to include commercial vehicles (LCVs and M&HCVs) on a project-mode basis. The government can also consider lowering interest rates for EV financing and standardised residual battery value calculation. Additionally, as the domestic manufacturing of lithium-ion batteries is still in its initial stage, the budget can look into reducing import duty on the parts used in lithium-ion batteries. The PLI scheme for promoting electric mobility must also include MSMEs and start-ups in its ambit as right now the scheme is more in favour of larger organisations.
Revise the inverted duty structure: The industry expects the government to correct the inverted duty structure, which is affecting the competitiveness of domestic manufacturers. Under the present duty structure, there are certain instances where the domestically manufactured product is much more expensive than the imported finished product. While past budgets have attempted to correct this structure, further efforts are required to ensure that crucial raw materials, for instance, steel, aluminium and cotton, are available at cheaper rates.
The takeaway
To realise India’s ambition of being a $5 trillion economy by 2025, it is imperative to resolve challenges posed by the logistics and supply chain industry. As active policy upgradations and crucial initiatives have been the core agendas of the recent budgets, Budget 2023 is expected to continue along those lines to keep the growth trajectory firmly upwards.
The writer is Co-Head & COO – India Global and National Leader – Supply Chain Realignment KPMG in India.
