Gov't Aims to Cut Logistics Costs for E-commerce
India's government is pushing policies like PM Gati Shakti, which is investing ₹11.17 lakh crore in multimodal projects. The initiative targets a reduction in national logistics costs from 13-14% of GDP to 8% by 2030. This push is expected to enable cheaper logistics, which is considered critical for the growth of low-average-selling-price e-commerce in Tier 2 and Tier 3 cities.
- The PM Gati Shakti plan is a US$1.2 trillion megaproject that integrates 16 ministries, including railways, roads, ports, and aviation, onto a single digital platform to ensure coordinated project planning and execution. This digital platform includes over 1,400 geospatial data layers, which helps in identifying infrastructure gaps and optimizing routes. - A primary goal of the initiative is to improve the competitiveness of Indian businesses by streamlining infrastructure projects that support key economic zones like textile clusters, pharmaceutical clusters, and industrial corridors. The plan aims to achieve a $5 trillion economy by 2025 by enhancing multimodal connectivity. - The government is also promoting the Open Network for Digital Commerce (ONDC), a UPI-like platform for e-commerce, to democratize the market and reduce the dominance of major players. This initiative allows small sellers and logistics providers to be discoverable on an open network, offering them a wider reach and reducing the need for multiple platform integrations. - While e-commerce demand from non-metro areas is growing rapidly, with over 60% of orders for some platforms coming from these regions, logistics infrastructure has not kept pace. Key challenges include a lack of Grade A warehousing, poor last-mile connectivity, and fragmented reverse logistics systems. - To address distribution challenges in smaller cities, B2B e-commerce platform Udaan is implementing "Project Vistaar," which involves opening smaller micro-fulfillment centers (7,000-10,000 sq. ft.) in district headquarters to enable next-day delivery to rural retailers. This initiative aims to expand Udaan's reach to 10,000 towns and villages. - The Indian conversational commerce market is projected to grow at a compound annual growth rate (CAGR) of 17.8%, as businesses increasingly use platforms like WhatsApp to engage with customers for sales and support. A joint report by Meta and Bain & Company found that over 50% of surveyed users prefer conducting transactions via conversational journeys for high-frequency purchases. - Under the Gati Shakti framework, the government is also implementing the Strengthening Multimodal and Integrated Logistics Ecosystem (SMILE) initiative with the Asian Development Bank. This program focuses on integrating urban freight with city mobility plans and land-use policies in eight pilot cities to address issues like warehousing, e-commerce flows, and last-mile delivery congestion. - Recent data from a Department for Promotion of Industry and Internal Trade (DPIIT) and NCAER report indicates that India's logistics costs were estimated to be 7.97% of GDP in 2023-24, a significant decrease from the previously cited 13-14%. This improvement is attributed to initiatives like Gati Shakti and the development of dedicated freight corridors.
