‘Private participation to expand India’s warehousing infrastructure’

Deepak Baid states that the growth in warehousing across India is primarily being driven by the burgeoning manufacturing activity, increasing international trade and the emergence of organized retail in the country.
Driven by growth in production and organized retail, the major segment contributing towards the growing Indian logistics industry is the warehousing sector. It plays a vital role in promoting agricultural marketing, rural banking and financing, logistics service providing and ensuring food security for the country. Private participation to upgrade Indian warehousing infrastructure can play an important role in auxiliary of trade and commerce in India.

The Indian warehousing sector is progressively getting redefined from the traditional concept of “Godowns” to modern day set ups with automation. On the demand and supply side of the warehousing sector, recognizing the need for better services and mass customization, logistic companies are opting for modern techniques and data management systems to attain more efficiency and smarter fulfillment. The functioning of large and productive warehouses will be optimized by investing in technologies that will enable visibility, visualization and virtualization. Use of advanced technology, warehouse management systems, material handling equipments, automated pallet racking, forklift trucks; efficient storage systems etc. will determine the modernization and functioning level of a warehouse in the near future.

The growth in warehousing in India is primarily being driven by the burgeoning manufacturing activity, increasing international trade and the emergence of organized retail in the country. Increasing private and foreign investments in infrastructure and easing government regulations are further bolstering the growth of the warehousing sector in India.

Until a decade ago, warehousing in India was a four walled structure with some small size, inadequate light and ventilation, lack of racking system, poor hygiene conditions and no inventory management or technology solutions. Although India is seeing development in the vertical of modern warehousing, the growth is still at a slow pace. With globalization, the industry is experiencing a number of supply and demand size changes. According to KPMG in India, an additional 120 million sq ft of warehousing space is needed to bridge the demand- supply gap.

There is expected to be a significant reorganization of warehousing space in India, with large hubs being developed in key location, coupled with smaller spoke warehouse nearer to production and consumption centers. An appropriate structuring for the sector can lead to significant investments in modern warehousing infrastructure which is expected to be the largest driver for warehousing industry in the past several decades. Many leading companies and logistic service providers have set up large warehouses but the fact still remains that there is a desperate need of financial gap fulfillment by foreign investors.

Warehousing is a capital intensive sector and without availing finance from banks and financial institutions at cheaper interest rate, warehousing facilities cannot be created by the entrepreneur. Land requirements for constructing the warehouse are difficult to meet due to high rising cost of land in urban, semi urban and rural areas. Warehousing has not been accorded the status of full – fledged infrastructure and all financial and other benefits available to infrastructure sector are not available for ware housing sector. Further the storage charges and other handling charges offered by the Government agencies to private warehouse operators are not attractive. It was also stated that modern technology has not been introduced in the warehousing sector.

Privatization will aid to cope with the challenges in this industry. It will enable to acquire expertise in warehousing technologies, well trained manpower, a well equipped infrastructure, improved standardization, clear tax regimes and land availability thereby contributing in transition of vertical sector in to an organized sector.

Private participation though the need of the hour faces challenges in itself. Lack of policy framework breeds illegal warehousing operations is, considered to be the first and foremost building block of the logistics value chain and has led to mushrooming of illegal warehousing on the outskirts of most cities. Acquisition of land being one of the main challenges for warehouse developers, laws of the state play a very crucial role in the development of land-based facilities.

Although the warehousing segment, makes up 20% of the Indian logistics industry it still remains largely unorganized and lack of development rules has hampered it from taking advantage of the boom the country recently experienced in the logistics sector. Except for a few state-controlled companies and a very few large private operators, the segment cannot claim much. The segment also lacks legal framework and there is no specific development control rules (DCRs) or framework for warehousing as a building structure. There are DCRs for commercial buildings and industrial buildings but none for warehouses which are very unique structures built for specific purposes.

For private participation in the warehousing segment it is crucial that the warehousing segment should be reckoned as one of the industries in the logistics space and that it should be treated at par with infra projects and should enjoy similar benefits. It is significant that Government should also involve land reforms which will help in setting apart lands for logistics facilities. The government should identify logistics points and develop facilities on the public-private participation mode.

(The author is Director, Siddhivinayak Logistic Ltd.)

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