Confidence in India’s logistics cost

The logistics cost in India for decades was treated as a dysfunctional economic reality, estimated at a staggering 13-14 percent of gross domestic product (GDP), far above that of its global peers. This aspect was often cited as the “hidden tax”, which made Indian manufacturing uncompetitive. On September 20, that belief was quietly but decisively shattered. The government, after a detailed nationwide study by the National Council of Applied Economic Research (NCAER) and Department for Promotion of Industry and Internal Trade (DPIT), released the first credible, data-driven estimate of logistics cost at 7.97 per cent of GDP for 2023-24 (FY24).

- INFRATALK VINAYAK CHATTERJEE

This revelation does more than correct a number. It reframes how we think about competitiveness. India’s logistics cost is now firmly within the same band as advanced economies’ — the United States’ at 8.8 per cent, Germany’s at 8 per cent, and Australia’s at 8.6 percent.

The 13-14 per cent figure, recycled endlessly in reports and speeches, lacked methodological grounding. It came from adopting and adapting broad international models, which did not have India-specificity. Policymakers, industry, and the media repeated it ad nauseam, shaping the perception that logistics was India’s Achilles’ heel.

Using a hybrid approach combining macro datasets (National Accounts Statistics, Supply & Use Tables, the Reserve Bank of India’s Balance of Payments et al) with more than 3,500 stakeholder surveys of transporters, warehouses, and service users, the report — “Assessment of Logistics Cost in India” — provides the most robust estimate to date. The number is not only surprisingly low but also more credible and transparent.

What the numbers say is that India’s logistics cost is estimated at ₹24.01 trillion at 2023-24 prices, accounting for 9.09 per cent of non-services output. Road transport dominates the sector, costing ₹3.78 per tonne/km, significantly higher than rail (₹1.96) and waterways (₹2.30), while air freight remains an outlier at ₹72 per tonne/ km. Smaller firms face higher burdens, as businesses with a turnover below %5 crore spend nearly 17 per cent of their turnover on logistics, compared to just 7.6 per cent for large firms.