On India’s Wu Liu

Wu liu, in Chinese, is “the flow of things”, and is apparently the Chinese word for logistics:

Logistics covers transportation, warehousing and the management of goods. Its Chinese translation, wu liu, literally means “the flow of things”. But that flow within the country is costly and cumbersome. Much of the investment in infrastructure has gone to lubricate exports. Now, as China’s government shifts its focus to consumption at home it is finding that the domestic logistics industry is woefully inefficient.
Logistics spending is roughly equivalent to 18% of GDP, higher than in other developing countries (India and South Africa spend 13-14% of GDP) and double the level seen in the developed world. Li Keqiang, the prime minister, recently echoed industry’s complaints that sending goods from Shanghai to Beijing can cost more than sending them to America.

https://www.economist.com/china/2014/07/12/the-flow-of-things

This is an old report from The Economist – it came out in 2014. I’m not quite sure how much better China’s logistics sector has gotten since then, but back in 2014, India was also able to come up with similar statistics:

Indeed, the Financial Times reported in November 2014 that one French company finds that the cheapest and easiest way to send parts from Bangalore to Hyderabad, a few hundred kilometres apart, is to send them first from Bangalore to Europe, and then back from Europe to Hyderabad. It isn’t as if there isn’t a decent highway between the two cities; but the moment that a truck hit a state border, it has to stop and wait. According to the World Bank, Indian truck drivers spend a fourth of their time on the road waiting at the tax checkpoints that mark state borders. Factor in the time they spend in queues to pay highway tolls, and they spend less than 40 per cent of their time on the road actually driving. And that’s when the roads are good. Moving stuff around India costs this country’s manufacturers more than they spend paying their workers, the FT reports. Even India’s lower-than-low wages can’t make up for the dent logistics costs make in our competitiveness.

Sharma, Mihir. Restart . Random House Publishers India Pvt. Ltd.. Kindle Edition.

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As I mentioned, I don’t know how the Chinese logistics sector has evolved since 2014, but India’s logistics sector needs to improve out of sight for us to become internationally competitive. And not just internationally competitive – even when it comes to domestic shipping of goods, there is a lot of scope for improvement:

“At the all-India level, the proportions of the produce that farmers are unable to sell in the market are 34 per cent, 44.6 per cent, and about 40 per cent for fruits, vegetables, and fruits and vegetables combined,” finds the committee on Doubling of Farmers’ Income. This means, every year, farmers lose around Rs 63,000 crore for not being able to sell their produces for which they have already made investments.
But, except for cold storage, the country is lagging in all other agri-logistics required to bring the produce from farm to markets. If plugged, the sector can create over 3 million jobs, a majority of which will be at the village level, says the State of India’s Environment in Figures 2018.
Although this seems to be a good show on the state of cold storage in the country, but it should be underlined that the existing cold storage capacity is confined mostly to certain crop types and not integrated with other requirements. In fact, close to only 16 per cent of the target set for creating integrated pack-houses, reefer trucks, cold storage and ripening units has been met. This means, there is an overall gap of about 84-99 per cent in achieving the target on improving the state of storage and transportation of the farm produce. Out of these, the country is far-far behind in meeting the requirement of integrated pack-houses, reefer trucks and ripening units.

https://www.downtoearth.org.in/news/agriculture/poor-post-harvest-storage-transportation-facilities-to-cost-farmers-dearly-61047

And that’s just agriculture. Taken as a whole, the logistics sector in India is rife with inefficiencies, and for many reasons:

A decade ago, the state of India transport and logistics was abysmal. The movement of goods within the country was an arduous and expensive affair. Serpentine queues at Interstate borders, random documentation checks, multiple regulatory checkpoints, tax compliance issues and poor infrastructure meant that India’s trucks had one of the slowest average speeds [20 to 40 kilometres per hour] and lowest distance covered in a day [250 to 400 kilometres] compared to developed countries [60 to 80 kilometres per hour and 702 800 kilometres per day respectively]. It also meant that Indian trucks spent about 60% of their time on the roads. Moreover the logistics sector was a complex beast with more than 20 government agencies, 40 partner government agencies, 37 export promotion councils and 500 certifications. All these factors combined made the cost of logistics in India much higher than most of her big trading partners.

https://twitter.com/anupammanur/status/1577483121183707136

Currently, we transport about 4.6 billion tonnes of goods worth 9.5 lakh crore rupees every year, and we do that through three different ways: coastal freight, road freight and rail freight. I got these statistics from a recent report on the Capitalmind website:

And as the report goes on to say, this break-up is problematic because its much cheaper to transport stuff by rail or by water than road:

Check the third graph in the Capital Mind article to see how the development of the Indian logistics sector defied economics – that is to say, over time, we’ve ended up transporting more by road than by rail! Except, of course, this isn’t in defiance of economics, it is because of it. Last mile connectivity is still poor in India, as most metro riders in this country will tell you. Plus, the fact that we’re transporting people and goods using the same infrastructure is a problem.

All of which is to say that we don’t transport stuff quickly, cheaply and seamlessly in our country. And that’s a amajor reason behind why we are not internationally competitive, and needlessly expensive in terms of domestic consumption. All of us, myself included, would do well to go over the broad countours of our National Logistics Policy. In addition, take a look at the associated e-book, and also read this interview of Vinayak Chetterjee on this issue. If India is to grow as rapidly as possible in the long run (and it must), getting our logistics right is an integral part of the puzzle.

This stuff matters, and if you are a student of economics in India, you absolutely must be familiar with our logistical challenges. They are many, they are inter-related, and solving them isn’t easy.