A Study on Indian Logistics Network

and Its Impact on Economic Growth

Nagendra Kumar Sharma* and Gyaneshwar Singh Kushwaha**

The purpose of this study is to investigate the Indian logistics network and verify the economic growth led
by logistics performance. The paper views the logistics network as a unified entity comprising four sub-networks:
Information and Communications Technology (ICT), transportation, warehousing, and institutional framework,
within which service providers carry out functions of movement, storage and delivery. The hypotheses have
been formed on the basis of existing literature and further verified with the help of in-depth discussion on the
information. The study finds that the Indian logistics network has a positive relationship with Indian economic
growth led by Indian logistics performance.

Introduction
While the center of gravity of the world economy shifts to Asia, India plays a diminishing
role in this move as its economic growth has tapered down from a high of 10% in 2010
to under 5% in the last two years, especially in the aftermath of the global crisis (World
Bank, 2016). After a hiatus, the new government in India is busy in formulating plans for
the country’s economic revival. The policy planners understand that only an increase in
trade, i.e., regional, national and especially international, can translate into a high rate of
growth. Beyond this, they fail to appreciate that trade is about moving goods and providing
services, and movement, ipso facto, entails logistics. To facilitate trade, the governments
may reduce tariff barriers, join regional trading blocs and manufacture at a lower cost than
their competitors can, but logistical barriers can often negate these attempts (Chandra
and Jain, 2007). The logistics costs in India are almost 13% of the total costs compared
to 9% in the US and reducing these costs would lend a competitive advantage to Indian
exports (Maitra, 2017). A saving of 5% in India’s $1.877 tn economy can lead to savings
of $94 bn (KPMG, 2016). In India, the logistical barriers do not pertain to cost alone but
range from timeliness, visibility, reliability to transparency, which cover the entire gamut
of activities performed in the logistics network (Ramchandran and Nakhava, 2015).
Logistics operations are conducted by service providers while operating in a given logistics
network and they can maximize their performance only up to a point by optimizing the
* Senior Research Fellow, Department of Management Studies, Maulana Azad National Institute of Technology,
Bhopal, Madhya Pradesh, India; and is the corresponding author. E-mail: nagendrasharmag@[Link]
* * Assistant Professor, Department of Management Studies, Maulana Azad National Institute of Technology,
Bhopal, Madhya Pradesh, India. E-mail:gyanbhu@[Link]

38
© 2017 IUP. All Rights Reserved. The IUP Journal of Supply Chain Management, Vol. XIV, No. 4, 2017
constraints imposed by the network (Viswanadham and Gaonkar, 2003). Transportation
is the core of logistics management and it comprises movement of people/products
between any two locations via single or multiple modes of transport, including land, water
and air. It includes transporter, transport infrastructure and vehicles (Short and Kopp,
2005). From a trade logistics perspective, the logistics network will encompass the sub-
networks of transportation, facilities, institutions and Information and Communications
Technology (ICT), all of them distinct but interdependent networks (Viswanadham,
2014). The logistics service providers operate within this network.
The transportation network is the hard infrastructure providing connectivity on
which the movement of goods takes place. The facilities consist primarily of warehouses
and container depots interspersed alongside the transportation network (Newman, 2015).
The institutions comprise the government, regulatory bodies, inspection agencies, banks,
insurers, logistics industry, freight forwarders, shippers, clearance agents and private bodies
such as trade associations (Lakshmanan, 2011). The ICT network underpins the other
three sub-networks ensuring information flow to facilitate higher volumes, velocity and
visibility in the entire logistics network (Rao, 2007). The four components of the logistics
network carry out the functions of movement, storage and delivery in a unified manner.
The developed countries, which feature as top rank holders in the World Bank’s Logistics
Performance Index (LPI) 2014, export and import in larger magnitudes, have a highly
developed trade logistics network that is the cause of their superior logistics performance
and in turn acts as an enabler for further trade (PwC, 2011). Thus, trade and logistics form
a worthy cause and effect cycle in an upward spiral, each reinforcing the other (Arvis
et al., 2012).
World Economic Forum’s ‘Enabling Trade Report, 2013’ finds that reducing supply
chain barriers can increase GDP by nearly 5% and trade by 15% (World Bank, 2013). As
per the report, the gains from a reduction in supply chain barriers are much more than
those from a reduction in tariffs mainly because the reduction in supply chain barriers
leads to recovery of otherwise wasted resources, whereas tax reduction leads to reallocation
of resources (KPMG, 2016b). However, the benefits of these changes occur in discrete
jumps, only when they reach a threshold point in contrast to incremental changes that
are non-beneficial (Doherty et al., 2013)
Therefore, logistics is not an activity secondary to trade but primary to trade, the
edifice on which the entire trade structure rests and moves. This realization has led many
countries like Singapore and Holland to emphasize logistics as their key sector for
economic development (Sheffi, 2013).
In this paper, we have focused on the Indian logistics network within the country. The
objective of this paper is to investigate the linkage between logistics network and its
performance that leads to economic growth in India. The article is based on an in-depth
literature review based on the topic. To accomplish the objective of the study, we have

A Study on Indian Logistics Network and Its Impact on Economic Growth 39

further developed five hypotheses and verified them with the help of existing studies.
Here, the nature of the study is qualitative rather than quantitative. It is seen that there
are still less number of research papers focusing on this issue. The paper makes its best
endeavor to gather quality studies on one platform for better understanding the subject
matter.

Literature Review
To bring meaningful output of the study, we have done an extensive literature review. We
have reviewed more than 70 literature works including research papers, official reports of
government and other agencies. Web-based articles and reports have also been chosen to
strengthen our study. Further, we have classified these in the following sections.

Economic Growth in India

It has been noticed that Indian economy is taking upward growth in the recent years
because of various reasons such as sound government policies, agriculture growth, and
growth in the service sector (Dun and Bradstreet, 2016). Regarding Purchasing Power
Parity (PPP), India’s 2002 Gross National Income (GNI) was $2.8 tn which made India
the fourth largest economy in the world (Asher and Sen, 2005).
The key ingredient of the Indian economy is agricultural production, but there are
various other allied sectors which are playing a crucial role in the economic growth of
India such as the service industry (Banga, 2006). The Chief of Asian Development Bank
(ADB) has said that the Indian economy will remain the fastest growing economy in the
world (Mishra, 2016). According to different estimates used for economic growth study,
it is found that India’s potential growth had increased gradually from 5% in the 1980s to
approx. 6% during 1992-2002 and speeded up to around 8% during 2003-2008, but growth
also fell significantly after the global crisis which was around 7% during 2009-2015 (Bhoi
and Behera, 2016). Increasing population and expansion of cities are also a leading cause
of the significant increase in the consumption rate which has affected the economy of the
country (CIIIL, 2013). Though Indian economic growth is moving in a positive direction,
there are various challenges ahead (Dun and Bradstreet, 2016). The Government of India
is taking many decisive steps for the development of the economy in collaboration with
the private sector and other international agencies (McKinsey, 2010). In India, there is so
much buzz around the development of smart cities and business hubs in the country which
is also a great opportunity for the Indian economy (KPMG, 2016b). On the other hand,
India is still faced with infrastructural challenges that hamper its trade. Indian logistics
is facing obstacles related to the smooth movement of material inside and outside the
country (Knight, 2014). These trade barriers are not only affecting the economy but also
restricting the various opportunities which can be fruitful in the economic development
of the nation in many ways (Virmani, 2002).

40 The IUP Journal of Supply Chain Management, Vol. XIV, No. 4, 2017
 Despite all these challenges, Indian economy is the world’s fastest growing economy
(IMF, 2015) (Figure 1). There is a lot more expectation from the Indian economy in the
coming years. The production function analysis further confirms that the potential growth
has fallen in the last few years, mainly due to decline in the growth of capital stocks and
total factor productivity (Bhoi and Behera, 2016). The rise in the area of agriculture
growth could also be achieved through improvement in total factor productivity while
maintaining a relatively lower agricultural investment rate (Joshi et al., 2009). Total factor
productivity in the agricultural sector can be enhanced through funding in irrigation,
infrastructure development and research and development activities in agriculture and
agro-processing and efficient use of water and fertilizers (Dun and Bradstreet, 2016).
Investment in physical infrastructure can give a positive change to the economic growth
(Virmani, 2002).

Figure 1: India – World’s Fastest-Growing Largest Economy

2.8
US
2.6 2016
1.6 2015
Euro-Zone
1.5
1.0
Japan
0.6
2.2
UK
2.5
–0.6
Russia
–3.8
6.3
China
6.8
7.5
India
7.3
–1.0
Brazil
–3.0

–5.0 0.0 5.0 10.0

Source: IMF World Economic Outlook, October 2015

Logistics Infrastructure and Indian Economy

“India’s economic growth is directly proportional to logistics efficiency” (Shrivastava,
2015). Indian logistics infrastructure has not yet achieved its level in the current period;
it can be seen as a threat and also as an opportunity (Ramchandran et al., 2015). The role
of Indian logistics infrastructure including various transportation modes such as rail, road

A Study on Indian Logistics Network and Its Impact on Economic Growth 41

and ports are crucial for the economy of the country, and that needs to be addressed
sincerely (Basu and Maertens, 2007). Logistics sector is essential because the cost of the
trading highly depends on it—the lower the logistics cost, the lower the price of the
commodity (Doherty et al., 2013). In fact, logistics is the most important among the three
sectors, namely, agriculture, manufacturing and the service industry (Viswanadham, 2006).
It is assumed that good logistics network facilitates reducing the inventory, increase in
market share and delivering the products to the consumers which further help in a healthy
relationship with the customers (Viswanadham, 2014). Infrastructure development is
imperative to the economic growth of a country like India and the logistics infrastructure
such as the road, rail, waterways, and air network of a country is the foundation for a
country’s economy (McKinsey, 2010). In any modern economy, infrastructure plays a
critical role that determines the productivity at large and development of a nation’s
economy (Mody, 1997). But it is also true that whatever growth in the GDP and
manufacturing sector has been seen was because of the rise in the service sector and liberal
trade policies and not because of the infrastructure sector which is an essential ingredient
of the economy (Sharma and Vohara, 2009). Indian logistics market was valued at 5.6
trillion which has been forecasted to grow at a Composite Annual Growth Rate (CAGR)
of above 8% in the next five years (PwC, 2011).

Transportation Infrastructure in the Indian Economy

There is substantial evidence available that highlights that the transportation
infrastructure and economic growth are closely linked to each other (Canning and Fay,
1993; Gillen, 1996; Sanchez, 1998; Wang, 2002; Phang, 2003; Pradhan, 2010;
Lakshmanan, 2011; Banerjee et al., 2012; and Pradhan and Bagchi, 2013). Therefore it is
important to maintain favorable transport policy to stimulate the transportation
infrastructure (Pradhan and Bagchi, 2013). Transportation infrastructure is not only
crucial for the development of a nation but also established as an important indicator for
the economic growth (Bagler, 2008). Indian logistics, which is mainly inclined towards the
transportation infrastructure, plays a pivotal role in the development of the economy
(Sreenivas and Srinivas, 2008). According to Inter-American Development Bank (IDB),
transport costs are responsible for approx. two-thirds of the total costs of logistics
operations which are estimated around 15% of the final value of the goods (Viswanadham,
2014). The smooth functioning of the logistics system can play a significant role in
supporting higher rates of economic growth throughout the world (Short and Kopp, 2005).
A study conducted by Canning and Fay (1993) found that transportation infrastructure
seems to have a higher rate of return in those countries that are based on industrialization,
medium rate of performance in underdeveloped countries and standard rates of return in
developed countries. Aschauer (1989) found in her study on the US that there is a definite
link between productivity growth and infrastructure status in any economy. US generated
considerable economic output and attracted more private investment by investing more

42 The IUP Journal of Supply Chain Management, Vol. XIV, No. 4, 2017
in building infrastructure (Sharma and Vohara, 2009). In India, transportation infrastructure
has still not fully reached its potential, quality and quantity-wise (Pradhan, 2010). The
cost of logistics infrastructure increased by three times from $10 bn to
$30 bn in 2010. But the freight mobilization within the country’s network of roads, rail
and waterways are not up to the expected level, and these shortfalls in logistics network
are not a significant indicator of India’s economic growth (McKinsey, 2010). The
development of the transportation infrastructure is one of the key agendas for the
government as it directly affects India’s economic growth (Pradhan, 2010). The findings
of the study say that transportation infrastructure supports greater price convergence
(Banerjee et al., 2012).

The Indian Rail Network

The Indian railways is the pride of our nation as it has the largest network in the world
which is also one of the cheapest means of transportation (Vaidyanathan, 2007). The
Indian railway network runs 19,000 trains in a day which includes transportation of 2.9
million tons of cargo and around 23 million passengers (IBEF, 2013). The Indian railways
is ranked as the world’s largest passenger carrier and the fourth largest in cargo shipping
(McKinsey, 2010). The contribution of rail freight was over 60% in the total rail income
and the cargo freight has also grown tremendously at a CAGR of around 5.1% (IBEF,
2013). The role of the Indian railways is crucial to business, trade and economy as the
railways connects the industries to the market, providing bulk materials to the various
sectors like power, agriculture, energy, etc. Quick transportation of coal to the power plants
is also one of the important tasks of the railways leading to power generation for the whole
nation (KPMG, 2016). The maximum movement of the freight is tackled by the container
rail and it is found that there is consistent growth of these containers (Vaidyanathan,
2007). The development of the rail network is possible with the help of public-private
partnership in an effective way such as the development of logistics hubs, high-speed
corridors and dedicated corridors, etc. (Gupta, 2002). Still there is a lot of gap in the
smooth delivery of the material and the government is focusing on these issues. To
improve the efficient functioning of the rail freight, the government has allowed 15
private sector containers and also encouraged the private players to participate in this
process (KPMG, 2016). There are various schemes introduced by the government such as
Special Freight Train Operator (SFTO). Under this scheme, the railways will facilitate its
non-conventional freights related to fertilizers and alumina in bulk, fly ash, etc. There are
a few other schemes such as Private Freight Terminal (PFT), which help in enabling the
rapid growth and development of freight in the context of supply chain so that efficient
logistics to the end-users can be maintained (PwC, 2011). To strengthen the rail network,
the government has already started working on Dedicated Freight Corridor (DFC) which
will boost the industrial development significantly by delivering the material in a faster
and efficient manner (KPMG, 2016b).

A Study on Indian Logistics Network and Its Impact on Economic Growth 43

Indian Road Network
India’s road network is ranked second, which constitutes 4.7 million km. Indian roads are
the core of the economy and account for 60% of the total movement of materials and 85%
of passengers in the country (KPMG, 2016). According to a study, the share of cargo
movement by road in India has seen a significant growth (Deloitte Consulting, 2003). On
the other hand, statistics reveal that the Indian road network is not sufficient to handle
the pressure as per the growth rate in freight traffic (McKinsey, 2010). To improve the road
network in India, there is a need for investment to the tune of 2.5 trillion to 3 trillion
in the next five years, where the National Highway Development Program (NHDP) has
the highest requirement (PwC, 2011). Apart from developing new networks there is a
need for maintaining the pace as well. India’s cargo transport is mainly dependent on
the road which is comparatively more than three times of China (McKinsey, 2010).
Maximum losses are recorded due to poor road infrastructure and its operations such as
poorly managed toll booths, traffic congestion and other faulty policies (Pradhan and
Bagchi, 2013).

Indian Water Network

Indian waterways is one of the conventional means of transport (IBEF, 2013). Shipment
of goods on waterways is mainly useful for international freights and for those materials
which are in large quantities such as food grains, oil and other sensitive items such as
uranium etc. (Janakiraman, 2011). Indian coastal regions have been expanded and have
the right capacity of freight movement with various prime ports. India is surrounded
by the Bay of Bengal, the Arabian Sea and the Indian Ocean with a wide coastline of
7,600 km comprising 187 minor ports and 12 key ports such as Kolkata, Haldia, Paradip,
Visakhapatnam, Ennore, Chennai, Tuticorin, Cochin, New Mangalore, JNPT, Mormugao,
Kandla and Mumbai (Tungtaker, 2011). The shipping paths through coasts and inland
waterways are majorly used for transportation of bulk cargo and India holds 14,400 km of
inland waterways (IBEF, 2013). The coastal shipping industry in India is valued at 46.4 bn
and was expected to grow at 69.3 bn in 2013-14 (Tungtaker, 2011). The estimated freight
movement via waterways was around 89 million tons in 2012-2013 and to strengthen the
efficient flow of cargo, six national waterways have been developed out of which three are
operational (IBEF, 2013). According to Brijesh Lohia, managing director, Global Ocean
Group, India’s waterways has still not achieved what it can and therefore it carries
tremendous opportunities (Hellenic Shipping News, 2016). The economic growth of India
is directly proportional to its logistics sector such as inland waterways. According to the
Inland Waterways Authority of India (IWAI), inland waterways is one of the important
indicators of economic development (Shrivastava, 2015).

India’s Air Network

Air networks are mainly preferred for those cargos which need speedy delivery
(Janakiraman, 2011). According to an earlier Planning Commission report, the freight

44 The IUP Journal of Supply Chain Management, Vol. XIV, No. 4, 2017
movement by air would grow due to attractive Foreign Direct Investment (FDI) and
increasing attention of the international players towards this industry (Tungtaker, 2011).
International traffic constitutes around 64% of the total air freight transport with
domestic traffic share at 36%. It is also seen that the domestic and international air cargo
grew at a CAGR of 10.4% in the year 1998-99 and 7.6% in the year 2012-13 (IBEF, 2013).
Indian air network has immense scope as it is still not so excessively in use for cargo
movement due to several reasons such as limited network, expensive freight charges and
other basic infrastructural limitations (Bagler, 2008).

Warehousing Network in India

A warehousing is a facility in the supply chain to unite products so that it can be helpful
in reducing transportation cost, achieve economies of scale in manufacturing, value
addition procedures, shorten response time and provide customized services to the
customers to gain competitive advantage (Rama et al., 2012). The warehousing sector is
one of the significant shareholders in the supply chain and logistics’ overall infrastructure
and contributes 15% to 30% in the total logistics costs but it has not been researched
extensively till now (Knight, 2014). Warehousing includes industrial and agricultural
storage where 86% is for industries and remaining 14% for agricultural purpose (IBEF,
2013). The warehousing industry is growing rapidly and it is expected that it will grow at
a rate of 35% to 40% yearly (PwC, 2011). The warehousing sector is also suffering from
various hurdles such as integrated and shorter supply chain, globalized business functions,
the different demand of the customers and rapid technological changes (Rama et al., 2012).
If we look into the agriculture sector, we can find that due to lack of proper warehousing
infrastructure, there is significant loss especially in the perishable products category (Joshi
et al., 2009). India is the second largest producer of fruits and vegetables with an annual
production of 46.8 metric tons and 92 metric tons respectively where fruit is 10% of the
total world output and 14% of the vegetables. India occupies the fifth position in egg
production and sixth largest producer of fish (Viswanadham, 2006). According to a study
by Khan (2005), it is found that 30 to 40% of the fruits and vegetables are wasted in India
every year because of the inefficient storage facility and this waste is the total production
of great Britain (Joshi et al., 2009). Also, $1400 mn valued farm produce is lost annually
due to poor logistics infrastructure in the country (Viswanadham, 2006). There are a few
major organizations which are engaged in warehousing in India and these are the Food
Corporation of India (FCI), Central Warehousing Corporation (CWC) and State
Warehousing Corporations (SWC). It also includes cold storages—around 5,300 units of
cold storages in India—and most of them are situated in Uttar Pradesh (IBEF, 2013). Major
challenges in the warehousing sectors are fewer numbers of warehouses, lack of skilled
labor, inefficient tools and equipment for material handling, lack of standardization and
specification and limited access to technology and innovation (PwC, 2011). To overcome
these challenges related to warehousing infrastructure, organizations have started
practising innovative methods such as storage management (Rama et al., 2012). The

A Study on Indian Logistics Network and Its Impact on Economic Growth 45

modern warehousing is a new hope in the economic development and it is growing rapidly;
it is estimated that the growth in this sector will take place at a CAGR of 25% to 30%
in the coming five years (CIIIL, 2013).

ICT Infrastructure in India

ICT is essential for the economic development as it helps in bringing all the resources on
one platform. The global market cannot be captured without the proper flow of
information and ICT does that (Kirkman et al., 2002; and Nath, 2014). It has been proved
that there is a significant connect between the economy and the ICT and India’s ICT
sector has the most opportunities (Chandrasekhar, 2001). India’s ICT is one of the critical
components of the Gross Domestic Product (GDP). It includes exports, private
consumption, private investment and public investment and has tremendous opportunity
in the future (Gnanasambandam et al., 2012). India is not only the fastest growing ICT
sector in the world, it is also the country where maximum civil society practices take place
with the help of ICT to strengthen weaker sections (Vijaybaskar and Gayathri, 2003). ICT
plays a crucial role in the development of the agriculture sector in a modernized way which
also impacts the economy at large (Rao, 2007). Supply chain activity encompasses various
elements such as creation, processing and ICT to achieve the desired outcomes (Ghosh
and Ghosh, 2009). There is hope since India is leading in the field of information and
technology sector as many Indian students are pursuing education in this area and making
a significant contribution to the growth of the Indian economy (Srinivasan and Kurunegar,
2005). India is also one of the global leaders in information technology and also sends IT
professionals to other countries. India can be a knowledge-led economy by investing more
in the education sector, skill upgradation, innovation and the IT sector (Ghosh and
Ghosh, 2009). The proper implementation of the ICT practices makes a positive impact
on the whole supply chain and logistics network. It gives the information related to the
material flow, helps in inventory management system which in turn helps in taking
immediate decisions and this results in good response time which is the demand of the
industry (Joshi et al., 2009).

Institutional Framework for Indian Logistics

Institutional framework refers to the administrative bodies such as the government,
private agencies and organizations, etc. that are making policies and other framework to
carry out the logistics tasks in an efficient manner (Bajapai and Sachs, 1998). In India,
most of the policy-led decisions are taken by the Government of India and their respective
ministries. The government is continuously putting in efforts to strengthen the logistics
industry. The logistics services are provided by the private players and the logistics
infrastructure is taken care of by the government (Viswanadham, 2014). But it is also true
that to make a strong logistics infrastructure, private sector support in various ways is also
necessary, for example, in funding and other assistance (Sharma and Vohra, 2009).
Logistics infrastructure in India still needs a significant amount of investment to fill the

46 The IUP Journal of Supply Chain Management, Vol. XIV, No. 4, 2017
gap between the demand and supply of the logistics framework (PwC, 2011). Out of the
total investment in the infrastructure, the Government of India has planned 33% from
the private players. The government has also made attractive schemes to attract the
private investors in the form of tax exemptions, duty-free imports, etc. (IBEF, 2013). In
the transportation sector, the government has allowed full private funding (NTDPC,
2013). Although it is true that investment is required in infrastructure development to
boost the economy, the outcome of this investment can be seen in the future (Sharma and
Vohra, 2009). The government is actively engaged in setting up logistics parks,
warehousing infrastructure, packaging facilities, distribution networking and door-to-door
delivery system (KPMG, 2016). The government has introduced participative policy for
rail connectivity and model development. In this model, private players can make their
rail lines connecting the ports, mines, logistics parks and other important stations (IBEF,
2013). The structured institutional framework is crucial to the logistics industry as its
success leads to the economic development of the country (CIIL, 2013). A survey
conducted by PwC on 1200 chief executives from 69 countries found that the leadership
of the government in building infrastructure is imperative to maintain the competitiveness
of countries (PwC, 2011). The Public-Private Partnership (PPP) model has achieved great
success in India as it has brought about a significant impact on the economic development
through the development of logistics network in the country (KPMG, 2016b). The
increasing focus on FDI has also opened up new avenues in the logistics sectors and India
is becoming a great place to invest for the overseas investors and it is also a good indicator
of the economic development of India (IBEF, 2013). There are various organizations
established for logistics development and regulation in the country, which act as
monitoring and controlling bodies. To strengthen the logistics network by reducing the
waste and increasing the efficiency, a National Integrated Logistics Policy (NILP) is
required (KPMG, 2016b).

Logistics Performance and Economic Growth

The performance of the logistics sector primarily depends on various factors such as
infrastructure, skilled manpower, government policies, locations and connections, service
providers, insurance, research, etc. (Viswanadham, 2014). According to the World Bank’s
global logistics report (2007), India stood at 39th and in 2010 it held 47th position among
150 countries in terms of its logistics performance and future potential (PwC, 2011; and
Tungatkar, 2011). Various studies have shown that logistics performance is found to be
statistically significant with regard to the volume of bilateral trade (Hausman et al., 2013).
Improvements in transportation opens new market opportunities and creates favorable
conditions and this leads to economic development (Lakshmanan, 2011). The
performance is affected due to the poor quality of the infrastructure and services by the
various modes of transportation, i.e., rail, road, waterways and other services (Subramanian
and Arnold, 2001; and Hausman et al., 2005). It is expected in forecasts that the logistics-

A Study on Indian Logistics Network and Its Impact on Economic Growth 47

driven economy in India grows annually at a rate of 15 to 20% to achieve 17 trillion by
the end of 2015 (PwC, 2011). The logistics performance is primarily influenced by
infrastructural framework, but there are several other operational activities which affect
the performance of delivery time, demand and supply factors, skilled manpower,
unfavorable climatic conditions, etc. (Rama et al., 2012). Reduction in waste, increasing
efficiency, and optimum utilization of scarce resources can improve the performance of the
logistics sector significantly (KPMG, 2016). An efficient infrastructure is the basis for
efficient logistics performance which leads to economic growth in the long term
(McKinsey, 2010).
To make the extensively reviewed literature more understandable, we have tabulated
the important outcomes of the findings based on the study of the selected literature which
can be seen in Table 1.

Table 1: Key Ingredients of the Study and Their Key Findings

Significant
Selected Contributors Ingredients Key Findings
of the Study

Virmani (2002), Asher and Sen (2005), Indian India’s economic growth mainly
Banga (2006), IMF (2015), Bhoi and economic depends on agriculture and service
Behera (2016), Dun and Bradstreet growth sectors. Though Indian economy has
(2016), and Mishra (2016) several challenges, it is the fastest
growing economy in the world.

Mody (1997), Basu and Maertens (2007), Logistics Logistics infrastructure is one of the
Sharma and Vohara (2009), McKinsey infrastructure crucial elements among others in
(2010), PwC (2011), Doherty et al. and the development of Indian economy.
(2013), Viswanadham (2014), Gupta economy But India has poor infrastructure,
et al. (2015), Shrivastava (2015) which is a big threat to the economic
development of the country.

Aschauer (1989), Canning and Fay Transportation There is a definite link found between
(1993), Gupta (2002), Deloitte infrastructure economy and transportation.
Consulting (2003), Vaidyanathan and economy Increasing transportation by various
(2007), Bagler (2008), Sreenivas and modes, such as rail, road, waterways
Srinivas (2008), Sharma and Vohara and air infrastructure, makes a real
(2009), McKinsey (2010), Pradhan impact on the logistics network
(2010), Janakiraman (2011), Tungtaker which leads to the economic
(2011), Banerjee et al. (2012), IBEF development of the country.
(2013), Pradhan and Bagchi (2013),
Viswanadham (2014), Gupta et al.
(2015), KPMG (2016) and World Bank
(2016).

48 The IUP Journal of Supply Chain Management, Vol. XIV, No. 4, 2017
 Table 1 (Cont.)

Significant
Selected Contributors Ingredients Key Findings
of the Study

Khan (2005), Viswanadham (2006), Warehousing Warehousing facility is also weak in

Joshi et al. (2009), Rama et al. (2012) network India which leads to wastage and
and (2012); PwC (2011), CIIIL (2013), results in huge loss. There is a need
IBEF (2013), and Knight (2014) to make warehousing management
stronger to avoid loss and for
strengthening the Indian economy.

Chandrashekhar (2001); Kirkman et al. ICT ICT infrastructure is one of the

(2002); Vijaybaskar and Gayathri (2003); infrastructure critical inputs to make the logistics
Joshi et al. (2009), Srinivasan and network more efficient by managing
Kurunegar (2005), Rao (2007), Ghosh the rapid flow of information in the
and Ghosh (2009), Gnanasambandam entire network. India has potential
et al. (2012), and Nath (2014) opportunities in the ICT sectors.

Bajapai and Sachs (1998), Sharma and Institutional Institutional framework is one of the
Vohra (2009), CIIIL (2013), PwC (2011), framework essential elements which provide a
IBEF (2013), NTDPC (2013), and Indian healthy climate for the smooth
Viswanadham (2014) and KPMG logistics functioning of the logistics network.
(2016b) All the major institutions are handled
by the government. The government
has also allowed private participation
in the logistics network with the help
of the PPP model.

Subramanian and Arnold (2001), Logistics In India the logistics performance is

Hausman et al. (2005), Lakshmanan performance one of the significant predictors of
(2011), PwC (2011), Tungatkar (2011), the economy.
Hausman et al. (2013); Viswanadham
(2014), Rama et al. (2012), Gupta et al.
(2015) and KPMG (2016)

Development of a Conceptual Model

Based on the extensive literature review on the logistics network and its impact on
the Indian economy, we have proposed a model that can be seen in Figure 2.
The conceptual model is required to understand the framework of the elements found
in the study. The items in the model are identified after the study of said literature
and established connections according to their relationships based on the findings of
the existing studies. This model helps in understanding the concept which we have
developed in this paper.

A Study on Indian Logistics Network and Its Impact on Economic Growth 49

 Figure 2: A Conceptual Model Showing the Nexus Among Logistics Networks
and Logistics Performance Leading to Economic Growth

Logistics
Network

ICT Transportation Warehousing Institutional

Framework

H1 H2 H3 H4

Logistics
Performance

H5

Economic
Growth

Hypotheses Development
The conceptual model we have developed has five theoretical hypotheses which can best
achieve the objective of the study.
H1: ICT has a positive impact on logistics performance.
H2: Transportation and logistics performance are strongly associated.
H3: Warehousing and logistics performance have a significant relationship.
H4: Institutional framework facilitates attaining logistics performance.
H5: Logistics performance leads to economic growth.

Discussion
We have theoretically tested and verified the developed hypotheses and analyzed the
outcomes of the study. In this process, we have discussed the findings of the literature and

50 The IUP Journal of Supply Chain Management, Vol. XIV, No. 4, 2017
identified the evidence which is most successful in providing support to the said
hypotheses.
H1: ICT has a positive impact on logistics performance.
ICT is one of the most important catalysts for various business processes in the global
market and in the same way it plays a critical role in enabling logistics performance
(Vaidaynathan, 2014). ICT practices are bringing positive outcomes in various fields
including supply chain (Chandrasekhar, 2001). Though the developing countries are not
getting the desired results even after investing handsome amount of capital, the developed
countries on the other hand are reaping huge returns (Lee et al., 2005). The role of ICT
in agriculture development has been seen in a positive direction and it is expected that
it would give agriculture a new avenue in the future (Rao, 2007). ICT bolsters the logistics
networks for ensuring faster flow of goods, information and payments. A trend arising out
of ICT utilization is the digital circulation of information for tracking and tracing features
and data transfer by EDI among all the stakeholders. The transition towards paperless
system by a single window filing of minimum or only one electronic document in the
logistics network is shaping the global logistics landscape. The electronic trade
documentation is processed by myriad governments, semi-government and private
agencies, thereby reducing the time and cost due to the logistics network (CIIIL, 2013).
ICT improves and makes efficient the logistics system by providing valuable information
to different sources. Hence, based on the current findings of the literature and discussion,
it can be said that ICT has a positive impact on logistics performance. Thus we can accept
hypothesis number one.
H2: Transportation and logistics performance are strongly associated.
Even though the logistics framework is very broad and contains various elements,
transportation activity is the core of the logistics network. The logistics performance is
majorly based on transportation efficiency. Transportation plays a significant role in the
development of a nation’s economy as it helps in determining the overall productivity and
quality of the life of the public and helps in accessing goods and services (NTDPC, 2013).
There are various modes of transportation as discussed earlier in the paper. The challenges
in the logistics management are selection of the best mode of transportation, reduction
of cost, delivery of the product in time and other safety issues. The performance of the
logistics gets affected due to poor infrastructure of the transportation facilities such as
traffic congestion, lack of ports and so on. The road transport and economic growth led
by logistics are bidirectional as the roadtrip sort of leads to economic growth and vice
versa. There are many causes for that, as road transport is the core input of the production
process and an increase in the road transportation would have a positive impact on the
logistics performance and this would have a favorable impact on economic growth (Llanto,
2007). The increasing investment by the government and private sectors will lead to

A Study on Indian Logistics Network and Its Impact on Economic Growth 51

greater logistics performance (Pradhan and Bagchi, 2013). This shows that transportation
is one of the important factors in logistics performance. Therefore, hypothesis number two
that transportation and logistics performance are strongly associated is accepted.
H3: Warehousing and logistics performance have a significant relationship.
Warehousing is one of the necessary links in the entire logistics value chain and it
contributes 20% of the total logistics market (PwC, 2011). Proper warehousing facility
leads to the efficient functioning of the logistics system in the country. But it is seen that
there is a crisis of storage in India, due to which the logistics infrastructure collapses. The
Indian warehousing sector is constrained by lack of capacity, poor quality and regional
imbalance. A majority of the warehouses are no more than traditional standalone godowns
(a storage place) for storage instead of smart modern warehouses integrated with other
elements of the logistics network. In the literature, we found that efficient warehousing
management could save precious agricultural output, specifically the perishable items such
as vegetables and dairy products. These savings can make a significant impact on the
logistics performance and can further contribute to a prosperous economy. An efficient
warehousing helps in maintaining the demand and supply of the products, continuous
response time and managing the network with distribution nodes and that enables smooth
functioning of the logistics operations. In this way it can be summarized that warehousing
influences the performance of the entire supply chain (Rama et al., 2012). The government
is also taking strong initiatives to strengthen the warehousing management system in
various ways like encouraging FDI. Hence, hypothesis number three, i.e., warehousing and
logistics performance have a significant relationship, can be accepted.
H4: Institutional framework facilitates attaining logistics performance.
It is true that the proper functioning of any system cannot be maintained for long
without the support and controlling system of the logistics network. The institutional
framework consists of various bodies such as the government, legal and regulatory
structure of the country, private agencies and associations. The logistics operation cannot
be performed without proper infrastructure and regulations in the country. The
government is the leading institution that provides a decent track for the logistics
operation in the form of infrastructure by investing hugely. The investment is needed to
increase the logistics efficiency in India in the coming years and it is only possible when
the government and the private players come together on a single platform. Various bodies
have been formed such as the Confederation of Indian Industry-Institute of Logistics
(CIIIL, 2013), Central Logistics Development Council (CLDC) and many more to
promote and make a sound policy towards efficient logistics system. In a way we can say
that the institutional framework is the backbone of the entire logistics system and it is
hard to make any assumptions without it. In this way we can accept hypothesis number
four that institutional framework facilitates attaining logistics performance.

52 The IUP Journal of Supply Chain Management, Vol. XIV, No. 4, 2017
 H5: Logistics performance leads to economic growth.
The role of logistics in the Indian economy is significant. The developed countries,
which feature as top rank holders in the World Bank’s Logistics Performance Index (LPI),
2014, and export and import in larger magnitudes, have a highly developed trade logistics
network, which is the cause of their superior logistics performance and which in turn acts
as an enabler for further trade. Thus, trade and logistics form a noble cause and effect cycle
in an upward spiral, each reinforcing the other (Arvis et al., 2012). Manufacturing has
been horizontally dispersed the world over in contrast to the earlier vertically integrated
production within a country and the intermediate products move in and out of the
country multiple times before finished products are shipped out for exports (Marel, 2014).
These many movements of semi-finished goods across the borders increase the complexity
of the supply networks, thereby raising the importance of getting integrated with
international logistics network. Those countries that cannot integrate themselves with
the international logistics network cannot be a part of global economic activity and trade.
The developed countries with a high logistics performance think and function for
international trade. For example, countries like Singapore and the Netherlands list
logistics as a high priority area. The logistics are important for the economy of a country
and it mainly depends on the size of the logistics industry and the capacity to transform
by influencing the fundamental pillars of the economy, i.e., agriculture, manufacturing and
services (Viswanadham, 2014). There is substantial evidence to show that efficient
logistics or better logistics performance would indeed lead to the economic growth of the
country like India (Pradhan, 2010). It is essential to incorporate modern infrastructure
network for the Indian economy to gain future growth and an efficient transportation has
various positive impacts on the economy, whereas lack of this can cause massive losses
(Infrastructure Statistics, 2014). Logistics system is a set of different sub-systems and
activities and we have discussed a few of these, as far as this study is concerned. Thus, the
logistics performance of the country will lead to economic growth. Here we can accept
hypothesis number five, i.e., logistics performance leads to economic growth.

Conclusion
The results of the study show that logistics performance is one of the crucial factors for
the economic growth of a country. But in the current scenario, the Indian logistics system
is suffering from various challenges especially poor infrastructure. According to an
estimate, India suffers losses of around $45 bn due to poor logistics network, whereas India
spends 13% of its GDP on logistics network, that is, more than the US and Germany
(McKinsey, 2010). Though the Government of India has taken several initiatives to
strengthen the Indian logistics network, there is still scope for improvement. Even now,
the search for solutions for furthering trade is through the prism of general infrastructure
and not through the lens of logistics. Moreover, the emphasis has been on catching up
with the quantitative deficiencies of infrastructure as opposed to providing support

A Study on Indian Logistics Network and Its Impact on Economic Growth 53

beforehand for enabling growth. The inefficiency in managing the logistics network
(which currently stands at $45 bn, that is, 4.3% of the GDP) will create additional burden
on the economy (McKinsey, 2010). A distorted perspective towards trade logistics in the
absence of right institutions would result in fragmented designing of trade logistics
network incapable of functioning in a unified manner. The output from such system, a fait
accompli, an agglomeration of various uncoordinated elements despite high standards of
individual elements, would be sub-optimal.
India needs to increase the investment from $500 bn to $700 bn to reduce the losses
and it can have a positive impact on the economy (McKinsey, 2010). The increasing
number of various projects due to smart city plans in the country will increase
consumption. This phenomenon will directly affect the Indian logistics network (Knight,
2014). The expansion of logistic network can also bring lots of opportunity such as
employment, industrial development and increasing productivity, and all this will lead to
better economic growth of India. The Government of India has come up with several
initiatives like the National Skill Development Program, Make in India project, Digital
India, Start-up India, etc. These programs can certainly give an advantage to the Indian
logistics network to reach new heights. Despite various challenges to the Indian logistics
network, there are ample opportunities which can be advantageous to this industry. India
still needs to work on the road network, rail route expansion to the last mile, building
of ports for profitable international trade, development of skilled human resource,
standardization, tax regulations and cost controlling (PwC, 2011). Indian logistics
network renders its exit and entry points to international logistics network. But,
qualitative and quantitative deficiencies of Indian logistic network lead to sclerotic
movement within the network, and these barriers create connectivity issues to the
outbound network. Despite everything else being favorable, unless India surmounts these
logistical obstacles, its sustained high growth rate in the coming decades will remain a
mirage.
Limitations: This study is a qualitative one and there is a lack of empirical work which
leaves scope for further work in this area, particularly in the Indian context. The study
contains a conceptual model which needs to be modified and tested. The paper brings
together a variety of information related to the Indian logistics network including ICT,
transportation, warehousing and institutional framework and their relationship with the
logistics performance and economic growth. As the concept is emerging, there is a lack
of literature directly focusing on the issue, and therefore, it is also one of the limitations
which we have experienced. Therefore, it seems that it is one of the thrust areas and needs
more attention by the researchers. The paper outlines a concept in the Indian logistics
network and is open to discussion. The paper can be useful for the academicians, industries
and researchers. The outcome of the discussion of the study can also be useful for the

54 The IUP Journal of Supply Chain Management, Vol. XIV, No. 4, 2017
policy makers in the industry in understanding the importance of the logistics network
for the economy. In this way they can focus on the weak areas of the logistics function
and can strengthen it with practical strategies for enhancing the logistics performance in
the country. India still needs to work on capacity building in the transportation sector
especially in airways and waterways which has a huge gap. Warehousing needs to be
stronger so that valuable outputs can contribute fully to the Indian economy. 

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