How India’s logistics sector could soon undergo a transformation

For many years, foreign and domestic investors alike have complained about India’s potholed roads, creaky bridges and rail tracks, and congested ports and airports, as they used the poor logistics infrastructure as a key excuse for not making adequate investments in the country. That may well change in the next few years as the Pradhan Mantri Gati Shakti initiative rolls out.

The PM Gati Shakti initiative aims to develop infrastructure to reduce logistic costs and boost the economy. Launched in October 2021, the Gati Shakti mission is basically a National Master Plan for multi-modal connectivity via a digital platform to bring 16 ministries including railways and roadways together for integrated planning and coordinated implementation of infrastructure connectivity projects.

According to the government, the multi-modal connectivity will provide integrated and seamless connectivity for movement of people, goods and services from one mode of transport to another. It will facilitate last-mile connectivity of infrastructure and reduce travel time for people.

Needless to say, it’s a multi-billion-dollar initiative—and the private sector will have a critical role to play in its implementation.

In March last year, for instance, minister of state for finance Pankaj Chaudhary said that public-private partnership (PPP) will be the key driver for the Rs 100 trillion initiative. Reports late last year said the PM Gati Shakti may be opened to the private sector in order to fast-track implementation of key infra projects.

So, what exactly is the plan?

As per the plan worked out by the Narendra Modi government, PM Gati Shakti will incorporate the infrastructure schemes of various ministries and state governments like Bharatmala, Sagarmala, inland waterways, dry and land ports, and UDAN.

The mission will cover economic Zones like textile clusters, pharmaceutical clusters, defence corridors, electronic parks, industrial corridors, fishing clusters, and agricultural zones to improve connectivity and make Indian businesses more competitive. It will also leverage technology extensively including spatial planning tools with Indian Space Research Organisation imagery developed by the Bhaskaracharya National Institute for Space Applications and Geoinformatics.

Moreover, the government wants the PM Gati Shakti plan to work in conjunction with the National Logistics Policy, which was also launched in 2022. Together, the two policy levers are focussed on infrastructure development in seven key areas–roads, railways, airports, ports, mass transport, waterways and logistics.

The business opportunity

Not surprisingly, some of the world’s largest logistics players and private equity fund managers are foraying into Indian industrial and logistics spaces in the country, which has a total stock of about 350 million square feet.

A report in the Business Standard newspaper says that most players are looking to invest anywhere between $500 million and $1 billion in new ventures in the next couple of years.

Among these investors are the likes of Prologis, the largest warehouse owner in the world, which has brought in Vineet Sekhsaria, former executive director and head at Morgan Stanley Real Estate Investing India, as head of its India operations. Prologis, which owned or had investments in properties and development projects spread about 1 billion square feet in 19 countries as of September last year, is said to have has drawn up huge plans for the Indian market and plans to build large warehouses near major industrial and commercial centres of the county.

The report further said that Alta Capital set up by Siddhartha Gupta, a former managing director at US-based fund manager Blackstone, is also evaluating two or three platform-level deals in the industrial and warehousing space. Alta Capital did a platform deal with warehousing developer Pragati last year wherein it spent $50 million and is looking to deploy $150 million more, according to the report. It also bought two warehouses from Morgan Stanley last year.

Another recent example is Mirae Asset Credit Opportunities Fund, part of Mirae Asset Investment Group, buying a pre-leased Grade A industrial asset at Bhiwandi near Mumbai for Rs 130 crore. The industrial property, housed in the 160-acre K Square Integrated Industrial Park and spread over nine acres, was bought from Prakhhyat Group. It was Mirae Asset Investment Group’s first acquisition under its India-focused funds’ allocation for high-grade Indian real estate opportunities. Also, Panattoni, one of the world’s largest industrial property developers, marked its debut in Asia by opening its first operational headquarters in India, located in Bengaluru, last year.

Security concerns

Nonetheless, the government’s plan of giving private sector companies a stab at participating in the country’s infrastructure development via the Gati Shakti plan, and profiting from it, comes with its own set of concerns.

Recent news reports have highlighted how national security continues to weigh heavily on the government’s mind.

In November 2022, The Economic Times, citing a senior government official, said that there had been a couple of concerns around providing access to the private sector, as a lot of the data that would have to be shared, is sensitive. This data, government officials feel, could become a national security threat, if it lands up in the wrong hands.

Another senior official had earlier been cited as saying that the process of providing access to the private sector could become easier if an investor, before, taking an investment decision, is able to visualise the connectivity of a particular geographical area in terms of transport, telecommunications, power and gas infrastructure, and so on.

States benefit

But this does not mean that the PM Gati Shakti project has not already had its share of success.

A report in The Print points out that as the benefits of such large-scale data mining become apparent, state governments have begun mapping their state-specific essential data, relevant for planning physical and social infrastructure on the National Master Plan (NMP). It said that all states have come on board the mission and are mapping some 29 essential data layers related to their infrastructure and logistics facilities/assets on the NMP.

According to the report, the data includes those related to land records, forest, wildlife, ecologically sensitive zones, Coastal Regulation Zone, reserve forest, water resources, rivers, canals, reservoirs dams, soil type seismicity, flood map, power transmission and distribution, mining areas, roads, water pipelines, and sewer lines, among others.

The report said that a majority of states have set up the institutional mechanism on the lines of PM Gati Shakti such as the empowered group of state secretaries and the Network Planning Group (NPG) to oversee the work that is being done.

Under the PM Gati Shakti Mission, right at the top, there is an empowered group of secretaries headed by the cabinet secretary. Next, there is a body called the NPG, which has the planning in-charges of seven infrastructure ministries as members. The body meets once a fortnight to look at all project proposals from a coordination point of view.

So far, 28 states have submitted over 190 projects amounting to Rs 5,000 crore for approval to the Department for Promotion of Industry and Internal Trade under the Ministry of Commerce and Industry. The projects include multimodal logistics parks, modern aggregation centres, critical connectivity infrastructure for providing last and first-mile connectivity to industrial parks, economic zones, development of city logistics plan, setting up of PM Gati Shakti data centres, among others. All these areas could see significant private investment in the coming months.