Infrastructure Status for Logistics Sector - A Major Growth Catalyst..
by Mr. Ramesh Nair, CEO & Country Head, JLL India
- Development firms looking to set up warehousing and logistics facilities will attract more funding from private institutional investment firms and banks
- Excess land holdings can now be monetized for the development of such facilities in emerging urban and semi-urban centres
- Sharp focus on tier 2 and 3 cities with infrastructure growth potential
The
Indian logistics sector being granted infrastructure status is a
landmark move with wide-ranging implications for an industry now set to
grow 10-15% annually. Specifically, the logistics sector is now
included in the harmonized master list of Infrastructure sub-sectors
under a new head ‘Transport and Logistics’, and categories like
Multi-modal Logistics Park,
Cold Chain Facility, and Warehousing Facility have been clearly defined.
This will have decidedly positive implications, making the sector a sought-after asset class for investments:
Investments to rise
Taking
a long-term perspective, the most encouraging impact of the development
will be on the investments coming into the logistics sector. The
new status makes it easier for companies operating within these
segments to raise long-term credit from banks and other financial
institutions at lower rates, and also attract foreign investments.
According to the government’s notification, the inclusion also makes it easier for logistics companies to:
- Access larger amounts of funds as External Commercial Borrowings (ECB)
- Access longer-tenure funds from insurance companies and pension funds, and
- Be eligible to borrow from India Infrastructure Financing Company Limited (IIFCL).
Warehousing
is already seeing big-ticket investments in the country. In one of the
biggest investment deals so far in the country, JLL India
facilitated the Canada Pension Plan Investment Board (CPPIB) in
acquiring a majority stake in
IndoSpace, the warehousing and logistics real estate arm of
Everstone Group. As part of this deal, CPPIB will acquire 13 industrial and logistics parks totalling 14 million
sq.ft. of space.
The
Government plans to work with the state governments and the private
sector to set up 34 mega logistics parks across the country. It has
already
allocated INR 100,000 crore for such targeted development.
Supply of logistics facilities to increase
There
is now more clarity on the minimum land requirement for setting up
logistics facilities. To get the infrastructure tag, minimum investment
and area requirements for each category of logistic facilities have
been spelt out:
- A Multi-modal Logistics Park comprising Inland Container Depot (ICD) need to have a minimum investment of INR 50 crore along with a minimum area of 10 acres
- A Cold Chain Facility must have a minimum investment of INR 15 crore and cover a minimum area of 20,000 sq.ft.
- Warehousing Facilities must have a minimum INR 25 crore investment and a minimum area of 100,000 sq.ft.
This
also means that development firms with larger land parcels can utilise
their excess land holdings to develop more such facilities, thereby
boosting the supply of warehousing facilities.
Logistics-dependent sectors to benefit
India
is already home to leading industries such as automotive components,
pharmaceuticals, cement, textiles, FMCG, and e-commerce. Private sector
companies across these sectors, whose operations depend hugely on
warehousing and logistics, are now likely to register tremendous growth
in tier 2 and 3 cities. These companies will need a stronger network of
warehouses and logistics facilities in smaller
cities for growth. The changed status, in turn, will boost the
viability of opening up businesses in different regions, translating
into more demand and growth.
Tier 2 and 3 cities will become growth centres: According to a recently published JLL report
‘The Dawn of India’s Future Cities,’
India’s logistics and warehousing sector is
already destined for a quantum jump with the advent of the unified Goods
and Services Tax (GST) and associated infrastructure push to improve
surface and air connectivity
across the country.
India
is ranked 35 out of 160 countries on the World Bank’s Logistics
Performance Index (LPI). Between 2014 and 2017, the country’s ranking
has
moved up by 19 spots – evidence to the solid performance of the sector
so far. The LPI measures the state of trade and logistics based on
parameters like customs, infrastructure, international shipments,
logistics quality and competence, tracking and tracing,
and timeliness.
In
the future, warehousing and logistics are likely to find good a
foothold in emerging urban and semi-urban centres. Developers and
several
foreign private equity players are now foraying into warehouse
developments across Indian cities, coming up with large-scale, high-tech
warehousing/logistics spaces with state-of-the-art facilities. The
relatively easier availability of land in Tier 2 and
3 cities compared to the larger metros, along with improving
connectivity through infrastructure developments, make for a winning
combination in these cities.
Ongoing impediments
While
there are growth opportunities for the industry, some existing
challenges must be addressed. Immediate problems, such as an inadequate
road network and losses that occur during transportation, must be
resolved. Improvement of India’s road infrastructure at a much faster
pace is critical to minimize losses, both economic and environmental.
Only when this happens on the right scale will the
logistics sector achieve optimal growth.
Ramesh Nair
CEO & Country Head, JLL India
+91 22 66207575
Arun Chitnis
Head - Corporate Communications & Media Relations
JLL India
Level 6, Amar Avinash Corporate Plaza
Bund Garden Road,
Pune 411001.
Tel: (020) 40196100 Fax: (020) 40196101
Mob: 91 9657129999
Website: www.joneslanglasalle.co.in
Blog: www.joneslanglasalleblog.com/
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