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Final Report

Methodology for measuring the logistics cost for major manufacturing exports and assessing its impact on their competitiveness

Table of contents
1 Introduction ........................................................................................................................... 9 1.1 Project background ........................................................................................................... 9 1.2 Objectives of the study ................................................................................................... 10 1.3 Scope of the study .......................................................................................................... 11 1.4 Approach ........................................................................................................................ 11 1.5 Purpose of the report ...................................................................................................... 13 1.6 Limitations of the study.................................................................................................. 13 1.7 Structure of this report.................................................................................................... 14 Executive Summary ............................................................................................................. 16 Chemicals ............................................................................................................................. 32 3.1 Present Scenario ............................................................................................................. 32 3.2 Geographical presence ................................................................................................... 33 3.3 Government policies covering exports ........................................................................... 34 3.4 Export potential .............................................................................................................. 36 3.5 SWOT Matrix................................................................................................................. 36 3.6 Factors affecting Competitiveness ................................................................................. 36 3.7 Major bottlenecks identified and recommendations ...................................................... 39 3.8 Feedback from trade bodies ........................................................................................... 41 3.9 Competing countries scenario ........................................................................................ 42 3.10 Other recommendations .............................................................................................. 42 Textiles .................................................................................................................................. 44 4.1 Present Scenario ............................................................................................................. 44 4.2 Geographical presence ................................................................................................... 45 4.3 Government policies covering exports ........................................................................... 46 4.4 Export potential .............................................................................................................. 46 4.5 SWOT matrix ................................................................................................................. 47 4.6 Factors affecting competitiveness .................................................................................. 47 4.7 Major bottlenecks identified and recommendations ...................................................... 48 4.8 Feedback from trade bodies ........................................................................................... 50 4.9 Competing countries' scenario ....................................................................................... 51 4.10 Other recommendations .............................................................................................. 52 Automobiles & auto components ....................................................................................... 53 5.1 Present scenario .............................................................................................................. 53 5.2 Geographical presence ................................................................................................... 56 5.3 Government policies covering exports ........................................................................... 57 5.4 Export potential .............................................................................................................. 58 5.5 SWOT matrix ................................................................................................................. 59 5.6 Factors affecting competitiveness .................................................................................. 60 5.7 Feedback obtained from industry trade bodies .............................................................. 61 5.8 Major bottlenecks identified and recommendations ...................................................... 62 5.9 Competing countries scenario ........................................................................................ 69 5.10 Other recommendations .............................................................................................. 70 Food processing.................................................................................................................... 72 6.1 Present scenario .............................................................................................................. 73

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6.2 Geographical presence ................................................................................................... 73 6.3 Government policies covering exports ........................................................................... 73 6.4 Export potential .............................................................................................................. 75 6.5 SWOT matrix ................................................................................................................. 75 6.6 Factors affecting competitiveness .................................................................................. 76 6.7 Feedback obtained from industry trade bodies .............................................................. 77 6.8 Major bottlenecks identified and recommendations ...................................................... 77 6.9 Competing countries scenario ........................................................................................ 88 6.10 Other recommendations .............................................................................................. 89 7 Policy initiatives by concerned Ministries ......................................................................... 90 7.1 Chemicals ..................................................................................................................... 90 7.2 Textiles & Apparels ....................................................................................................... 91 7.3 Auto & Auto components .............................................................................................. 92 7.4 Food processing.............................................................................................................. 93 8 Issues inflating the logistics costs and leading to time over-runs .................................... 95 9 Mapping of logistics movement and cost analysis West Zone .................................... 100 9.1 Zonal mapping and logistics cost analysis - Maharashtra and adjoining areas ............ 100 9.2 Zonal mapping and logistics cost analysis - Gujarat .................................................... 104 9.3 Major bottlenecks identified and recommendations .................................................... 109 10 Mapping of logistics movement and cost analysis East zone .................................. 113 10.1 East zone overview ................................................................................................... 113 10.2 Zonal mapping and logistics cost analysis ............................................................... 114 10.3 Major bottlenecks identified and recommendations ................................................. 121 11 Mapping of logistics movement and cost analysis North Zone ............................... 124 11.1 North zone overview ................................................................................................ 124 11.2 Zonal mapping and logistics cost analysis ............................................................... 125 11.3 Major bottlenecks identified by the exporters and recommendations ...................... 131 12 Mapping of logistics movement and cost analysis South Zone ............................... 134 12.1 South zone overview ............................................................................................... 134 12.2 Zonal mapping and logistics cost analysis ............................................................... 135 12.3 Major bottlenecks identified and recommendations ................................................. 140 13 Logistic policy framework ............................................................................................. 146 14 Logistics performance and benchmarking .................................................................. 155 15 Recommendations for improvement of exports competitiveness .............................. 165 15.1 Seaports .................................................................................................................... 165 15.2 Rail............................................................................................................................ 171 15.3 Shipping .................................................................................................................... 173 15.4 Roads ........................................................................................................................ 174 15.5 Exports policy ........................................................................................................... 176 15.6 Others........................................................................................................................ 177 15.7 Role of industry in improving competitiveness ........................................................ 178 15.8 Specific issues pertaining to policies ........................................................................ 179 15.9 Suggested action points for the Government ............................................................ 180 Annexure 1: Chemical sector recommendations ........................................................................ 184 Annexure 2: Government policies related to textile exports ....................................................... 188 Annexure 3: Textile sector specific recommendations................................................................ 190

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Annexure 4: Food processing sub sectors .................................................................................. 194 Annexure 5: Recommendations for the FPI ................................................................................ 198 Annexure 6: Food laws ............................................................................................................... 201 Annexure 7: Licensed FPI units in the country .......................................................................... 202 Annexure 8: Competitor countries in food processing ............................................................... 203 Annexure 9: List of respondents ................................................................................................. 206 Annexure 10: Clarifications to the queries on the Final Report indicated by NMCC ............... 210
List of figures

Figure 1 : Study approach....................................................................................................................... 12 Figure 2: Respondents covered under the primary survey ................................................................ 13 Figure 3 : Distribution of manufacturing capacity in Chemicals ........................................................ 33 Figure 4 : Concentration of Chemical industries in Gujarat ............................................................... 33 Figure 5 : Chemical industry competitiveness model ......................................................................... 37 Figure 6 : Distribution of textile capacity ............................................................................................... 45 Figure 7 : Valuation of global textile market ......................................................................................... 46 Figure 8 : Textile Industry competitiveness model .............................................................................. 48 Figure 9 : Export trends for passenger and commercial vehicles segment .................................... 53 Figure 10 : Export trends for two wheeler and three wheeler segment ........................................... 54 Figure 11 : Export turnover of auto-components sector in USD billion ............................................ 55 Figure 12 : Major automotive cluster in India. ...................................................................................... 56 Figure 13 : Projected automotive exports till 2012 .............................................................................. 58 Figure 14 : Projected auto component exports in US$ million till 2012 ........................................... 58 Figure 15 : Automobile and auto-component industry competitiveness model .............................. 60 Figure 16 : Food Processing industry competitiveness model .......................................................... 76 Figure 17 : Logistics cost parameters ................................................................................................. 100 Figure 18 : Recommendations for facilitating seamless export movement from Gujarat region 108 Figure 19 Recommendations for facilitating seamless export movement from Maharashtra & South Gujarat .......................................................................................................................................... 108 Figure 20 : Major CONCOR - NCR Export Cargo Movement (April 2006-07).............................. 124 Figure 21 : Recommendations for facilitating seamless export movement from the NCR ......... 128 Figure 22: Recommendations for facilitating seamless export from Indore Pithampur region .................................................................................................................................................................. 130 Figure 23 : Southern India region ........................................................................................................ 134 Figure 24 : Hinterland mapping for Cochin Port ................................................................................ 135 Figure 25 : Efficiency of the clearance process by customs and other border agencies ............ 155 Figure 26 : Quality of transport and information technology infrastructure for logistics .............. 156 Figure 27 : Ease and affordability of arranging international shipments ....................................... 157 Figure 28 : Competence of the local logistics industry ..................................................................... 157 Figure 29 : Ability to track and trace international shipments .......................................................... 158 Figure 30 : Domestics logistics costs .................................................................................................. 159 Figure 31 : Timeliness of shipments in reaching destinations......................................................... 159 Figure 32 : LPI score of India and other countries ............................................................................ 160 Figure 33: Global Logistic Best Practices........................................................................................... 161 Figure 34 : Hinterland based classification of ports in India ............................................................ 165 Figure 35: Port connectivity model ...................................................................................................... 167 Figure 36 : Port road connectivity ........................................................................................................ 168 Figure 37: Conceptual diagram of barging operations ..................................................................... 169 Figure 38: Proposed linkage with DFC ............................................................................................... 172

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Figure 39: Reorganization model for unorganized SSI units development (proposed).............. 192

List of tables
Table 1: Valuation of Indian chemical market segment ...................................................................................... 32 Table 2: SWOT analysis of the Indian Chemical industry ................................................................................... 36 Table 3: Logistics cost associated with chemical exports ................................................................................... 37 Table 4: Export of Indian Textile segments in value terms during April to February (2006-07 & 2007-08). 44 Table 5: Export value of Indian Textile post MFA ................................................................................................ 45 Table 6: SWOT analysis of the Indian textile and apparel industry ................................................................... 47 Table 7: Major auto/ ancillary export destinations ................................................................................................ 55 Table 8: SWOT analysis of the Indian automobile and auto-component industry .......................................... 59 Table 9: Vehicle registrations in 2007 across the leading Asian automobile manufacturing nations ........... 70 Table 10: SWOT analysis of the Indian food processing industry ..................................................................... 75 Table 11 : Inland freight cost by road from factory unit to JN Port .................................................................. 103 Table 12 : Break-up of total logistics cost for the movement of a TEU from Kolhapur to JNPT ................ 103 Table 13 : TEU rail tariff charges from Sabarmati to JNPT/NSICT/GTIL ports ............................................. 105 Table 14 : Break-up of total logistics cost ex Sabarmati to JNPT port ............................................................ 105 Table 15 : TEU rail tariff charges from Baroda to JNPT/NSICT/GTIL ports ................................................ 106 Table 16: Comparison between ICD of Ahmedabad, Baroda and Indore ...................................................... 106 Table 17 : Terminal Handling Charges for FCL at Kolkata , Haldia and ICD ................................................. 118 Table 18 : Terminal Handling Charges for LCL at Kolkata , Haldia and ICD ................................................ 119 Table 19 : Movement of a 20 container (TEU) from Hugli to Kolkata (excludes sea-freight) ..................... 119 Table 20 : Movement of a 10 ton truck load from Kolkata to Bangladesh ...................................................... 119 Table 21 : Movement of a rake (40 wagons) from Barauni at Bihar to Bangladesh ..................................... 120 Table 22 : Movement of a 20 container (TEU) from Assam to Kolkata (excludes sea-freight) .................. 120 Table 23: TEU & FEU rail tariff charges ex Ludhiana to western region ports .............................................. 127 Table 24: TEU & FEU rail tariff charges ex Tughlakabad to western region ports ....................................... 127 Table 25: Break-up of total logistics cost ex NCR to JNPT port ...................................................................... 128 Table 26: TEU rail tariff charges ex Pithampur to JNPT/ NSICT / GTIL ports .............................................. 129 Table 27 : Break-up of total logistics cost for movement of a TEU from Pithampur to JNPT ...................... 130 Table 28 : Comparative cost of rail freight v/s inland road transportation in % ............................................. 131 Table 29 : Road freight charges ........................................................................................................................... 137 Table 30 : Rail freight charges In INR (excluding the applicable taxes) ......................................................... 137 Table 31 : Movement of a 20 container (TEU) from Hyderabad to various ports by road .......................... 137 Table 32 : Movement of a 20 container (TEU) from Hyderabad to various ports by rail ............................. 138 Table 33 : Movement of a 20 container (TEU) from Chennai and adjoining areas to Chennai Port by road ................................................................................................................................................................................... 138 Table 34 : Movement of a 20 container (TEU) from Coimbatore to various ports by road ......................... 138 Table 35 : Movement of a 20 container (TEU) from Bangalore to various ports by road & rail ................. 139 Table 36 : Movement of a 20 container (TEU) from Cochin and adjoining areas to Cochin Port .............. 139 Table 37 : Movement of a 20 container (TEU) from Palakkad and adjoining areas to Cochin Port .......... 140 Table 38 : Comparison of load capacities in various countries ........................................................................ 158 Table 39 : Country specific logistics performance data..................................................................................... 160 Table 40 : Comparison between container traffic at all India ports and North West ports ........................... 166

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3PL 4PL AAI ACMA AEPC AMP APEDA ASEAN ATC ATI AWBC BAF BG BIS BIWA BoI BOOT BRIC C&F CAF CAGR CAPEXIL CBEC CBU CEPC CFS CFTRI CHA CIWTC CKD CMIE CNG CONCOR Cr. CV CWC CY D.G.C.I.& S DEPB DFC DGFT EDI EOU EPCG EPZ ERMIU ETP

Third Party Logistics Fourth Party Logistics Airports Authority of India Automotive Component Manufacturers Association of India Apparel Export Promotion Council Automotive Mission Plan The Agriculture and Processed Food Products Exports Promotion Agency Association of South East Asian Nations Agreement on Textile and Clothing Automotive Training Institute Australian Wine Board Council Bunker Adjustment Factor Broad Gauge Bureau of Indian Standards Bangladesh Inland Waterways Authority Board of Investment Build, Own, Operate and Transfer Brazil, Russia, India, and China Clearing and Forwarding Agent Currency Adjustment Factor Compound Annual Growth Rate Chemical and Allied Export Products Council Central Board of Excise and Customs Completely Built Unit Carpet Export Promotional Council Container Freight Station Central Food Technical Research Institute Customs House Agents Central Inland Water Transport Corporation Complete Knocked Down Centre for Monitoring Indian Economy Compressed Natural Gas Container Corporation of India Ltd. Crore Commercial Vehicles Central Warehousing Corporation Container Yard Directorate General of Commercial Intelligence and Statistics Duty Entitlement Pass Book Dedicated Freight Corridor Director General of Foreign Trade Electronic Data Interchange Export Oriented unit Export Promotion Capital Goods Export Processing Zones Economic Research and Market Intelligence Unit Effluent Treatment Plant

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EU EXIM FDI FEU FICCI FOB FPI FTA FTZ GACL GDP GHS GoI GPS GSFC GSP GTIL ICD INR IPCL IPR IRR ITI JIT Km KoPT LC LCC LCL LCV LDPE LPI LSP M&HCV MFA MIS MOCI MPEDA MPV MSME MSP N/A NATRIP NCR NH NHAI NHDP NMDP

European Union Export Import Foreign Direct Investment Forty-feet Equivalent Unit Federation of Indian Chamber of Commerce and Industry Free on Board Food Processing Industry Free Trade Agreement Free Trade Zones Gujarat Alkalies and Chemicals Ltd Gross Domestic Product Globally Harmonized System Government of India Global Positioning System Gujarat State Financial Corporation Generalized Systems of Preferences Gateway Terminals India Private Ltd. Inland Container Depot Indian Rupee Indian Petrochemicals Corporation Limited Intellectual Property Rights Internal Rate of Return Industrial Training Institute Just in Time Kilo Meter Kolkata Port Trust Letter of Credit Low Cost Countries Less than Container Load Light Commercial Vehicles Low Density Polyethylene Logistic Performance Index Logistics Service Providers Medium & Heavy Commercial Vehicles Multi-Fibre Agreement Management Information System Ministry of Commerce and Industries The Marine Products Export Development Authority Multi-Purpose Vehicles Micro, Small and Medium Enterprises Minimum Support Price Not Applicable National Automotive Testing and R&D Infrastructure Project National Capital Region National Highway National Highway Authority of India National Highway Development Programme National Maritime Development Programme

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NMCC NMPT NSICT NVOCC OEM OPE PC PCPIR PMO PPP PV R&D RBI RCA RCT REACH RTO SAARC SCI SEZ SIAM SKD SME SPV SSI SWOT TAMP TEU TEXPROCIL THC TKD TPM TQM TRAI U.K UNIDO USA VAT VKGUY w.r.t.

National Manufacturing Competitiveness Council New Mangalore Port Trust Nhava Sheva International Container Terminal Non Vessels Owning Container Operator Original Equipment Manufacturer Out of Pocket Expenses Port connectivity Petroleum, Chemicals and Petrochemical Investment Region Prime Minister's Office Public Private Partnership Passenger Vehicles Research and Development Reserve Bank of India Revealed Comparative Advantage Rail Container Terminal Registration on Authorisation, Evaluation, Authorization and Restriction of Chemicals Road Transport Office South Asian Association for Regional Cooperation Shipping Corporation of India Special Economic Zone Society of Indian Automobile Manufacturers Semi Knocked Down Small and Medium Enterprises Special Purpose Vehicle Small Scale Industry Strengths, Weaknesses, Opportunities and Threats Tariff Authority for Major Ports Twenty-Feet Equivalent Unit Cotton Textiles Export Promotion Council Terminal Handling Charges Tughlakabad Total Productive Maintenance Total Quality Management Telecommunications Regulatory Authority of India United Kingdom United Nations Industrial Development Organization United States of America Value Added Tax Vishesh Krishi Gram Udyog Yojana With respect to

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1 Introduction
1.1 Project background
Post-liberalization, India has been consistently recording impressive economic growth rate despite myriad challenges being faced in the global market place. After an average growth rate of 7.7% in the Tenth Plan period (2002-03 to 2006-07) out of which the last four years had an average growth rate of 8.7%, India is targeting a growth rate of 8.5% in the eleventh Five Year Plan. History has shown that export-led growth is crucial for sustaining economic growth. Accordingly India must initiate necessary measures to create an environment conducive for growth in exports in all its major industrial sectors. The figure below illustrates the export performance trends over the past five years

* - ( Apr-Dec average) Source: CSO, PMs economic advisory council, DIPP, Economic Survey 2009-10 Given the high growth rate witnessed in EXIM trade over the past few years, there is concern over the adequacy and efficiency of logistics infrastructure system to support the growing foreign trade at a competitive cost. The need to improve on the existing logistics setup for seamless cargo movements and facilitated by trade-friendly EXIM policies has been long felt. The Union Industry and Commerce Minister, (Government of India) vide a forward note in the foreign trade policy 2004-09 has spelt out the commitment of the Government in facing the challenges to make India a trading superpower. The key to success in a global market would be to add value (to enable command better price and reduce competition) and trim down cost by integrating process and capacity to enjoy economies of scale. Government assistance would be required in improving common infrastructure including logistics and providing impetus by policy incentives.

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Logistics cost in India is comparatively high, and is estimated to be around 13-15% of the national GDP, compared to other developed countries where the logistics cost is restricted to single digit percentage. A 1 reduction in logistics costs by even one percentage point will result in noteworthy savings annually . Besides, significant benefits can also be reaped through the multiplier effect of having a better logistics infrastructure thus accelerating Indias economic growth. It has also been identified that manufacturing and marketing companies spend about 6 to 36% of their expense on sales on logistics activities. In effect, this entails the need for joint involvement of the Government of India (GoI) and the industry to identify the various logistics constraints and to facilitate framing of policy initiatives for the development of necessary logistics infrastructure in order to reduce logistics cost. This will in effect improve competitiveness of the Indian Industry in the global marketplace. Federation of Indian Chamber of Commerce and Industry (FICCI) is one of the premier trade bodies covering a large number of Chambers of Commerce and industry members. FICCI leads as the proactive business solution provider through research, interactions at the highest political level and global networking. It has in the past undertaken various initiatives to study the factors affecting the export potential of Indian Industry. FICCI has now been requested by the National Manufacturing Competitiveness Council (NMCC), Government of India, to conduct a comprehensive study on identifying the total logistics cost attached to the exports logistic transactions of a few identified commodities and to recommend steps needed for improvement in the export logistics transaction and any fiscal initiatives. A few major industry sectors have been identified by NMCC that would act as the sample sectors for assessment of the logistics costs involved in the industries exports and its impact on the industries per se competitiveness. The major industry sectors so identified are: Textiles and Apparels Automobile & Auto-components Processed Food Chemicals This Report contains additional points on the 2009 report titled Logistics Cost Study and have been included based on the request of NMCC. These additional details have been highlighted in bold in the report and are derived from the feedback on the report received by NMCC from some of the key stakeholders

1.2 Objectives of the study


Logistics plays a vital role in facilitating the export import (EXIM) trade. With a view to identify the issues faced by the industries in movement of export-destined goods, and with an objective to reduce time and cost involved, a study to identify the major bottlenecks faced by the various industries was mandated. The study covered the inland logistics mapping of export consignments, problems faced by the exporters in various regions along with the cost and time overrun. This was primarily carried out through interactions with various stakeholders associated with the identified industries. Possible recommendations to address the issues so

World Banks report on LPI suggests that a 0.5% decrease in logistics costs leads to 2% growth in trade

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identified have also been detailed in an endeavor to make the export logistics chain more efficient. This would enable reduction in time and logistics costs. The study seeks to achieve and cover the following objectives:1. To measure the logistics cost (both in terms of time & money) for the major exports of India 2. To analyze the impact of this logistics cost on the competitiveness of these manufactured export items 3. To identify the various parameters that determines the cost of logistics service of these exports 4. To identify the cost at each point of movement and suggest measures to minimize the cost

1.3 Scope of the study


The study would essentially involve interacting and obtaining feedback from a prudent mix of leading manufacturers, Small & Medium Enterprises (SMEs) and other relevant stakeholders across the country, with 100 respondents from each zone. The data / information obtained from the sample groups would reflect the ground reality faced by the manufacturers / exporters on logistics related issues. Secondary research would assist in understanding the various industry sectors and to review the various regulatory aspects / policies impacting export performance. After considering the inputs received from primary survey interactions, the study will suggest suitable recommendations. The following activities list out scope of the study in brief: To understand and map out the various logistics factors and parameters involved in exports of the industries identified by undertaking a pan-India primary survey Analyze and identify the major hurdles / bottlenecks faced by exporters in the referred industry sectors To recommend measures for the reduction of the logistics cost and time over-runs To review various governmental policies and its impact on export performance and to provide implementable recommendations in this regard To outline various influencing factors affecting the growth and potential of exports in each sector in comparison with the international scenario To provide suggestions and recommendations for encouraging exports

1.4 Approach
Sample size and mix Export competitiveness being directly associated with efficient production process, innovative supply chain and cost optimization, manufacturers from the identified industry were included in the panIndia primary survey. In addition to the manufacturers, export houses that outsource their production process were also included. A prudent sample size of manufacturers- exporters, export houses involved in the whole process of sourcing raw material and exporting finished products were selected to provide their opinion based on ground realities. Balance sample size covering major EOU, SME units, logistics service providers, trade bodies, gateway ports etc were also included in the sample to provide a holistic perspective.

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INFORMATION COLLECTED
1. 2. 3. 4. 5. 6. 7. Identification of various parameters that determine the cost of logistics services of the goods. Mapping the entire movement, distribution and warehousing of goods Identification of major hurdles / bottlenecks faced by the exporters vis--vis their competiveness. Various regulatory policies ( Centre & State) impacting export performance. Export scenario & growth forecast in comparison with international scenario. Emerging opportunities vis-a-vis- exports and future challenges. Key factors affecting growth and potential of exports benchmarking with international performance.

RESEARCH ANALYSIS
Measuring the logistics cost ( both in terms of time & money) for the identified sector exports of India. Analysing the impact of this logistics cost on the competitiveness of these manufacturing export items Identifying the various parameters that determine the cost of logistics services of these exports Identifying the cost at each point of movement and suggesting measures to minimise the cost. Providing detailed suggestions and recommendations

PRIMARY SURVEY To obtain first hand data & information on the logistics cost & practices for the identified sectors by undertaking surveys/ interviews covering a minimum of one hundred units in each region i.e North, South, East and West.

SECONDARY RESEARCH Information on industry sectors, various factors & parameters influencing logistics practices and cost to be obtained from sources like the websites, magazines, annual reports, research reports etc

Sectors covered

STUDY REPORT
Chemicals

Textiles & Apparels

Automobile & Auto-components

Processed Food

Figure 1 : Study approach A data base of location, segment and size specific companies was taken as a base and their current operations and export status was ascertained before interacting with them. The sample size was at a pan India level covering the major hubs and industrial locations which was divided into four zones (viz. North, South, East and West) with minimum 100 contacts to be covered in each zone. Sampling Process All four industries were covered in each zone with variation based on the concentration of the same in a particular zone. A questionnaire was chalked out for eliciting suitable responses from the selected stakeholders. Exporter-manufactures were the major stakeholders covered in the sample mix. In addition, trade bodies, Logistics Service Providers (LSP) including Shipping Lines, Port Authorities, rail service providers, Inland Container Depots (ICD), Container Freight Stations (CFS), Customs House Agents (CHA), freight forwarders, road freight operators, transporters in interior cities etc were also some of the key stakeholders whose valuable inputs were sought.. Approach Interviews were undertaken by initially sending questionnaire by email after providing a brief of the study to the stakeholder concerned and later following it up with personal visits to obtain the necessary inputs of the selected respondent. In a few of the cases, where personal visits were not possible, inputs were obtained either over phone or through email interaction. The following has been the overall step by step approach for undertaking the study: 1. Understanding the industry and issues through secondary research and by attending conferences 2. Identifying the sample group and designing questionnaire

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3. 4. 5. 6. 7. 8.

Circulating questionnaire after speaking and explaining objectives to the targeted respondents Visiting and conducting personal interview Tabulating and analyzing the responses Internal brainstorming with focus group sessions Listing key logistics issues and working to find solutions Listing recommendations based on best global trade practices and standards, adapted to Indian scenario

Primary survey contacts covered


NORTH ZONE Chemicals - 28 Processed Food - 27 Textiles & Apparels - 32 Automobile & Auto components - 20 Others (trade bodies, etc) - 11 Total = 118 EAST ZONE Chemicals -22 Processed Food -28 Textiles & Apparels - 31 Automobile & Auto components -15 Others (trade bodies, etc) - 5 Total = 101

WEST ZONE Chemicals - 33 Processed Food - 20 Textiles & Apparels - 17 Automobile & Auto components - 21 Others (trade bodies, etc) - 12 Total = 103

All India Total 422


SOUTH ZONE Chemicals - 18 Processed Food - 25 Textiles & Apparels - 32 Automobile & Auto components -16 Others (trade bodies, etc) - 9 Total = 100

Figure 2: Respondents covered under the primary survey

1.5 Purpose of the report


Prior to this report, an inception report was submitted which covered the overview of various industrial sectors based on secondary research, along with the primary survey questionnaire. Based on the scope of work and approved questionnaire, a primary survey across India covering over 400 contacts i.e. minimum 100 contacts in each zone was undertaken. This final report seeks to document the understanding of the industry and the logistics issues faced by the exporters through interaction and feedback obtained from the major stakeholders. It also seeks to present solutions and recommendations based on the analysis of the information so collected, which possibly the Government can look into for addressing the various issues with an aim to make the logistics chain more efficient and to improve the competitiveness of the Indian industry.

1.6 Limitations of the study


The findings of the study have primarily been obtained from the interaction with various exporters met during the course of the study.

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Some of the sectors were more predominant in a particular zone and accordingly this has been reflected in the sector representation (respondents so contacted) from that zone. However efforts have been made to have a prudent mix of sector representation in each of the zone. During the course of the study, many of the respondents so contacted may not have been in a position to furnish all the information to the questionnaire posed. However it has been the endeavor of the survey team to obtain the maximum relevant information from the respondents All the primary survey findings are based on the feedback obtained from the respondents. Whereas efforts have been made to verify the correctness of the information thus provided to the extent possible with other sources of information, this verification exercise cannot be considered full and complete. This is due to the very subjective nature of the findings sought to be obtained and also the availability of other valid sources for comparison. . The data for logistic benchmarking (India vis--vis foreign countries) was obtained from secondary sources and there was no primary survey carried out for the same. The effect of the recent economic meltdown and global financial crisis on Indias economy and exports has not been captured in this report. .

1.7 Structure of this report


The contents of this report are organized as under:
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 provides the introduction, with objectives, purpose and scope of the study report provides a brief executive summary of the contents of the report provides the overview of the chemical industry scenario, its export potential and specific recommendations for improving its exports provides the overview of the textile and apparel industry scenario, its export potential and specific recommendations for improving its exports provides the overview of the automobile and auto component industry scenario , its export potential and specific recommendations for improving its exports provides the overview of the food processing industry scenario , its export potential and specific recommendations for improving its exports provides the policy initiatives taken by the Ministries concerned to boost the sectors competiveness identifies the various issues that leads to costs and time over-runs incurred by the Shipper / Exporter during an export transaction. details out the mapping of the logistics movement of exports consignment along with the associated costs factor and the various issues and recommendations as suggested by the exporters from the West zone details out the mapping of the logistics movement of exports consignment along with the associated costs factor and the various issues and recommendations as suggested by the exporters from the East zone details out the mapping of the logistics movement of exports consignment along with the associated costs factor and the various issues and recommendations as suggested by the exporters from the North zone details out the mapping of the logistics movement of exports consignment along with the

Chapter 10

Chapter 11

Chapter 12

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associated costs factor and the various issues and recommendations as suggested by the exporters from the South zone Chapter 13 Chapter 14 Chapter 15 Logistics Policy Framework commentary on logistic benchmarking and logistic performance index is given in this chapter indicates the recommendations for improvement in the overall export logistics infrastructure

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2 Executive Summary
Industrial competitiveness of a country, which is the prerequisite for capacity building, depends upon two major dimensions, namely: 1. Internal - covering the process, technology, human resource, systems and management of the industry 2. External - covering the macroeconomic factors which are beyond the control of the industry and affects the export competitiveness of a product. Factors include transportation and utility infrastructure, cost of power, land, incentives, free trade agreement (FTA), exchange rate, import duty (antidumping duty), EXIM and sector specific government policies etc It is for the external factors that the industry looks to the Government for support. The present study, based on interaction with the exporters and related stakeholders from the sample industries has attempted to identify bottlenecks faced during export and recommendations to enable a seamless export transaction based on the inputs as received from the respondents. The issues and the recommendations have been classified on the following parameters: Hard infrastructure Soft infrastructure Policy related Logistics Others Transportation related infrastructure, utility infrastructure, other facilities Labour, R&D, training, EDI Taxation & duties, regulatory issues, EXIM policies and incentives Connectivity (air, road, rail, water), documentation, border management etc Transparency required for doing business, logistic services available in the country, etc

The above classification of the issues and recommendations has been made initially for industry specific (Chemical, Textiles, Automobile and auto-components, Food processing) and later for each zone (North, West, East and South). Chemical industry The Indian Chemical industry during the last decade has moved up the value chain by transitioning from being a basic chemical producer, to development of specialized chemicals and setting up bases outside India. As per the Ministry of Chemicals & Fertilizers, Indian chemicals industry is today worth around US$ 35 billion (For details on the sector, please refer section 3 of the report). Some of the Chemical industry specific issues and recommendations as mentioned by the various stakeholders are indicated below: Hard Infrastructure Area Warehouses Issues No separate storage systems for hazardous chemicals at CFS Suggestions Mandatory ruling for storage and handling of hazardous chemicals by means of a separate stowage system both at the ports and in CFS

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Certification labs

Lack of adequate testing facilities for sample testing for export items

Need to develop common testing facility in chemical clusters. Such shared common facilities will ensure cost reduction.

Soft Infrastructure Area R&D Issues New product manufacturing requires approval which takes up to 3 months for registration, by the time the market may be lost to competitors Suggestions Need for expediting the procedures for registration, approval etc to enable the exporter to maintain his edge over other competitors by reducing the time-to-market

EXIM Policy Area Import duty Issues Bangladesh government imposes a high import duty on Indian exports of polyurethane based adhesives. Usually for some chemical exporters, shipment consists of small sample size of various different chemicals including hazardous chemicals hence creates classification problem Suggestions Engage in bilateral negotiation to reduce the import duty prevalent in Bangladesh Common classification needs to be followed by all customs offices to avoid disparity

Customs

Logistics Area Ports / sea connectivity and freight charges Issues Regular increase in sea freight for container cargo and surcharge on hazardous cargo affecting profit margins Suggestions Effective regulatory mechanism to contain the exorbitant increase in sea freights

Some of the other sector specific recommendations include: Incentives for more R&D in high value segments covering knowledge and specialty chemicals covering bio chemicals, catalysts, adsorbents and sealants, flavors & fragrance, cleaning agents & toiletries, coating and adhesives and substitutes for hazardous chemicals Non availability, increase or variation in price of the feedstock affects the production and export commitment. A separate category in classification listing chemicals used as feedstock should be developed, regularly upgraded so that special policy focus and incentives can be given to this category as and when required Clusters having EOU and other units especially for chemicals should be assisted by external agency to plan and develop common supporting infrastructure which would help them in better logistics, operations and exports. Textiles Indias total textile industry is estimated at US$ 49 billion, with exports accounting for 39% share. The world market is estimated at US$ 450 billion and is expected to grow to US$ $ 700 billion by 2010. Indian textile export basket consists of wide range of items containing cotton yarn, fabrics, man-made yarn and fabrics, wool and silk fabrics, and variety of garments. Indias textile products, including handlooms and

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handicrafts, are exported to more than hundred countries (for details, refer section 4). Some of the reasons for the Indian textile exports being uncompetitive include: Higher production costs on account of power and capital costs Infrastructure bottlenecks causing delays Under developed supply chain management and 3PL logistics service providers Outdated and inflexible labour laws Fluctuation in the currency exchange rate Lack of capacity and value addition EU has granted the status of Generalized Systems of Preferences to Sri Lanka, while Bangladesh has got the Least Developed Country status from EU. Pakistan, meanwhile, has got a zero duty tariff level from both EU and US. The non-tariff barriers, such as anti-dumping and countervailing duties, quota restrictions, packaging, labeling, testing and quarantine requirements are affecting Indian exporters. Some of the other Textile industry specific issues and recommendations as mentioned by the various stakeholders are indicated below: Hard Infrastructure Area Support infrastructure Issues Lack of support infrastructure in the unorganized sectors Suggestions Reorganization Model for development of unorganized clusters into co-operatives, assisted by a nodal government agency

Soft Infrastructure Area Research & Development Issues Expenses incurred in R&D equipment should be exempted from tax Suggestions List of such equipment needs to be extended to cover all equipments rather than selected ones for textiles industry

EXIM Policy Area Anti-dumping duty Issues Indian Textile readymade garments face the highest anti dumping duty in the European Union compared to other countries Various studies conducted by DGFT and Export Promotion Council shows that the present state duties amount to 6% of FOB value. This is presently not refunded resulting in export of these levies in the form of increased price of exports, reducing the competitiveness of textile exports. Suggestions The Government shall negotiate with EU to ensure that India is treated at par with other countries that undertake textile exports to EU Suitable policy intervention is required to improve the export competitiveness of Indian textile products

Duty refunds / drawback

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Some of the other sector specific recommendations include: Policy should aim at gradually reducing and discouraging export of raw cotton. A minimum support purchase (MSP) price is fixed for domestic cotton to ensure that farmers get a fair price. A value addition scheme should be launched by the government to especially target Export Oriented Units (EOU) and cotton processing units by offering them assistance in the form of soft financial loan and consultancy advise to identify value added products and segment. The Cotton Textiles Export Promotion Council (TEXPROCIL) can be given a bigger role of covering the various clusters across India to build, develop capacity especially in garmenting and value addition. Automobile and auto-components The automotive industry provides direct and indirect employment to 10.1 million people (2% of the labour force) and accounts for around 5% of India's industrial output. In terms of number of units sold, the two wheeler segment garners a dominant 77% share followed by passenger vehicles at 14%. Commercial vehicles and the three wheeler segment have a market share of 5% and 4% respectively. The key destinations for automotive exports are the SAARC countries and the European Union (Germany, U.K, Belgium, Netherlands and Italy). The Government has undertaken a lot of initiatives to further facilitate the growth of the sector. Some of the policy initiatives include: Automatic approval for foreign equity investment up to 100% No minimum investment criteria Weighted tax deduction up to 150% for in-house research and R&D activities Governments intention on harmonizing the regulatory standards with the rest of world The Automotive Mission Plan 2006-16 While the Indian automobile industry grew at more than 15 per cent in the past five years, it is presently facing numerous challenges due to shrinking of demand, mostly driven by inadequate consumer finance, high interest rates and high cost of fuel. Some of the other Automobile and Automotive industry specific issues and recommendations as mentioned by the various stakeholders are indicated below: Hard Infrastructure Area Port Infrastructure Issues International ports like Nagoya in Japan and in South Korea have a capacity to handle more than a million vehicles annually whereas India lacks dedicated facilities at ports to handle automobile exports. Suggestions India needs to develop at least two major car terminals one near Chennai / Ennore (to serve the southern hubs) and other in South Gujarat to link the northern (NCR region) and western (Pune) hubs

Soft Infrastructure Area Training Issues Some of the auto-clusters in the western part of the country have difficulty in obtaining trained labour Suggestions The 11 Five year Plan Working Commission has recommended setting up of a National Level Automotive Institute which will run training courses in the automobile sector.
th

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EXIM Policy Area Taxation Issues Currently taxes are levied at the city level (octroi), state level (sales tax, registration) and at the central level (excise). Suggestions There is a need to streamline the tax structure and accordingly reduce the cost of ownership. Both the Central and State Governments to initiate steps for tax rationalization

Logistics Area Local, regional and national regulations Issues There is no uniform specification for car carriers, with each state having different rules and RTO procedures. This causes difficulties in inert-state movements. Suggestions Common traffic rules should be formulated and applied at an all India level to save procedural time, expenses and harassment for Interstate cargo movement

Food processing Food processing involves any type of value addition to agricultural or horticultural produce and also includes processes such as grading, sorting, and packaging which enhance the shelf life of food products. In India, processing level is very low i.e. around 2% for fruits & vegetables, 26% for marine, 6% for poultry and 20% for buffalo meat, as against an average of 60 -70% in developed countries. Despite a huge raw material base, India accounts for only 1.5% of the international food trade. This shows the huge potential available for both investors and exporters in this sector. Government has initiated several schemes in order to give fillip to the sector (please see section 6 for details). However, to improve the industry competitiveness, the industry needs to have a supply chain that is efficient, agile and adaptable and that can handle larger volumes, expand reach, balance costs and address the demographic variations while providing scalability. Some of the other Food processing industry specific issues and recommendations as mentioned below: Hard Infrastructure Area Road Issues The fruits and vegetables and other perishables takes a lot of time to reach the factory from the various destinations. The time traveled by the trucks in a day in India is very less (250-300 km) when compared to the international standards (600-800 km). There is a shortage of cold chain infrastructure in India. Companies are forced to have their own cold chain infrastructure facility. Suggestions Improve road conditions Clear the check post issues for hassle free movement of trucks

Warehouses & Cold chain

Government of India should take up projects under PPP in providing temperature controlled warehouses, refrigerated transport vehicles and other auxiliary facilities.

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Reefer trucks

There are about 25000 reefer vehicles involved in perishable products transportation of which dairy (wet milk) constitutes about 80% thereby leaving only about a fleet of 5000 refrigerated transport vehicles for all other categories put together.

Government should consider setting up an authority that can oversee the demand-supply scenario of the containers amongst the various ports and ICD and coordinate the same with the exporters so that they can get the reefer and empty containers from the nearest locations in the shortest possible time.

Soft Infrastructure Area Research & Development Issues The Indian black tiger shrimp (Pennious Monodone) is prone to disease due to the pollution and contamination of water. Other S.E Asian countries have come out with a hybrid species called Pennious Mannami., which is more resistant to diseases, has a better production rate (almost 3 times more) and has a much superior taste than the Indian black tiger. While the EU has accepted this hybrid variety for exports, the production of this shrimp does not take place in India. Suggestions The GoI should explore accepting the new hybrid species of shrimp so that the Indian seafood exporter can capitalize on this export opportunity. Ministry of Agriculture shall initiate steps in this regard.

EXIM Policy Area Market intelligence Issues Farmers are not aware of the supply demand scenario of various products in the international market. Suggestions Market intelligence reports (symmetric information on demand of items at specific point of time in the international market) should be disseminated to the farmers through some credible networks on a real time basis.

Others Area Packaging Issues Cost of packaging is the other major constraint for this sector. Cost of packaging ranges anywhere from 10 to 60% of production cost. Suggestions Incentives to promote packaging sector and training of concerned personnel

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Issues inflating the logistics cost and leading to time over-runs To understand the constraints and bottlenecks faced by exporters due to various factors, feedback from primary survey covering the four zones; namely north, south, east, west were analyzed to understand and identify the root cause of various logistics related constraints which in turn affects the export competitiveness. For the purpose of detailing out the issues / constraints faced by the Shippers during each activity / sub-activity of the logistics transaction, the same has been broken down into the following three heads. A Factory premises formalities which includes the following 1. Central excise clearance 2. Transfer of cargo into container in presence of Central Excise Inspector 3. Stowage of cargo in container 4. Central excise sealing 5. Loading of container on truck B - Inland movement and customs clearance formalities, which includes the following sub-activities 6. Road journey 7. Unloading of container from truck and storage/stacking of container in buffer yard in CFS. 8. Customs clearance/sealing of container C Port related logistics formalities, which includes the following sub-activities 9. Loading of container on truck 10. Transportation of loaded container to container yard in port 11. Unloading of container in Container Yard in Port 12. Stacking of container in Container Yard in Port 13. Loading of container on truck to move container alongside ship 14. Truck journey from Container Yard to alongside ship i.e., Quay. 15. Loading of container from truck to cellular hold of ship 16. Sea voyage The issues raised by the Shippers / Exporters across each of the heads reflect a certain uniformity in the factors that cause a time and cost over-runs across all zones and the same has been enumerated in the section 8.1 of this report Mapping of logistics movement and cost analysis West Zone Maharashtra Amongst the shippers contacted in Maharashtra and adjoining areas of Gujarat and Karnataka, most of the shippers preferred to move their cargo by road to the gateway JN Port. This included exporters from the districts of Nashik, Pune, Kolhapur, Ratnagiri, Nagpur, Aurangabad, North Karnataka and Southern Gujarat. The break-up of the indicated logistics costs involved in the movement of a TEU from Kolhapur to JNPT is mentioned below:

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Segment Break - up of export cost excluding sea freight Road freight movement CHA Charges / customs clearance Terminal Handling Charges Documentation charges Others ( Detention charges due to congestion for three days @ INR 1000 / day) Total

Cost (INR)

Cost %

Time (days) 60.53 13.16 15.79 2.63 7.89 100 1.0 0.5 0.5 3.0 5.0

23,000 5,000 6,000 1,000 3,000 38,000

Gujarat The major share of the commodities exported from ICD Sabarmati (Ahmedabad) consists of raw cotton, synthetic organic dyes, stainless steel coils, pharmaceuticals, marble stones and blocks, cotton dyed denims, foodstuff, machineries, assembly lines and agricultural products. The break-up of the indicated logistics costs involved in the movement of a TEU from the ICD Sabarmati to JNPT is mentioned below: Segment Break - up of export cost excluding sea freight Transportation by road (50 km radius from ICD Sabarmati & back) Rail movement to port (average) Custom clearance Terminal handling Documentation Others Total
2

Cost (INR) 3,500

Cost %

Time (days) 1.0

13.91

11,160 2,500 6,000 1,000 1,000 25,160

44.36 9.94 23.85 3.97 3.97 100

2.0 0.5 0.5 1.0 5.0

Some of the West zone specific issues and recommendations are mentioned below: Hard Infrastructure Area Road infrastructure Issues Poor road conditions between: o Nashik and JN Port o Silvassa to JN Port o The patch of road in NH4 B from Phalava phatak to JN port Suggestions Need for a synergy between the Road Developer, the transporter, cargo industry etc. The roads so constructed, the materials so used are woefully inadequate to cater the axle load of the container carriers. Hence whenever the tenders for road development are floated by

The detailed findings of the issues and recommendation for each of the zone is provided in the respective chapters of this report

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the Developer, the views and opinion of the trade must also be taken into consideration and the design criteria needs to be technically strengthened. Port infrastructure The perpetual congestion at the ports, which gets even severe during every quarter end. The severe congestion follows a certain pattern. The officials concerned can at least make their planning in advance to nullify such a congestion scenario The development of other ports in the western region shall lessen the load on JNPT.

Soft Infrastructure Area EDI Issues There are occurrences of breakdown of the ICEGATE (EDI system) once or twice a month. During the breakdown of EDI, the Customs have no fall back arrangement for getting the shippers file their shipping bills, as a result of which the shipper often misses out the intended vessel. Suggestions The exporters have requested that the Customs should make necessary arrangements to have an alternate method of having the shipping bills filed in the event of the tripping of the ICEGATE. Need to revamp the system into a more reliable version

EXIM Policy Area VAT Issues VAT is applied on the packaging material thereby increasing the overall FOB value of the product Suggestions Since the packaging material is used for goods meant for exports, VAT should not be levied on it.

Logistics Area Check post / road connectivity Issues Lot of shipments are caught up in the octroi naka for want of a customs noted shipping bill, which is required to be submitted for the Octroi waiver. The shipper has to make arrangements to have a representative pick up the customs notified shipping bill and hand it over the octroi naka to make the shipment pass without the payment of the octroi There are additional charges levied by the shipping lines: o BAF Bunker adjustment Suggestions Suggestion to include Octroi as part of the proposed Port Connectivity System Alternatively, Octroi system shall be abolished by the respective local self-government. They may seek alternative revenue generating mechanism to compensate for the revenue losses on account of Octroi abolition. Need for a regulator to monitor the operations of CFS / Shipping lines This may done on the lines of

Ports / Sea connectivity / Additional

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shipping charges o o o

charges (due to hike in price of fuel) US$ 250 / container CAF Currency Adjustment Factor Hazardous charges US$ 150 / container And Off season charges

TAMP for major ports or TRAI for telecom etc.

Mapping of logistics movement and cost analysis East Zone The companies surveyed in the Eastern region were predominantly from in and around West Bengal which access Kolkata / Haldia port as their gateway for exports. Apart from the exports from the ports, there is also substantial cargo movement from West Bengal to Bangladesh. Petrapole (in West Bengal) in the road sector and Gede (in West Bengal) in the railway sector are the two noted ones, which together share over 70% of the IndiaBangladesh border trade. Another gateway is through the Amingaon ICD near Guwahati, which is a seasonal ICD and is active during the tea shipment season. Even during the season, traffic is available only for one direction, that is, the Amingaon-Kolkata port leg. The costs associated with the movement of a 20 container (TEU) from Hugli to Kolkata (includes sea-freight) is illustrated below: Segment Transportation by road 60 km Customs clearance Terminal handling charges Documentation charges Congestion surcharge @ US$ 150 per TEU Bunker surcharge @ US$ 110 per TEU Other costs ( detention charges for 3 days / other OPEs) Total Cost (INR) 5,000.00 3,500.00 5,000.00 1,500.00 6,750.00 4,950.00 5,500.00 32,200.00 Cost % 15.53 10.87 15.53 4.66 20.96 15.37 17.08 Time (days) 1 1

3 5

The costs associated with the movement of a 10 ton truck load from Kolkata to Bangladesh are indicated below: Segment Cost (INR) Cost % Time (days) Transportation by road 12,000.00 55.05 2 Customs clearance 2,000.00 9.17 1 Documentation 1,500.00 6.88 Coolie charges 2,000.00 9.17 Detention costs due to delays 2,800.00 12.84 4 Other OPEs including speed money 1,500.00 6.88 Total 21,800.00 7

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During the course of interaction with the exporters, there were various observations / recommendations mentioned by the exporters from the East zone, some of which are indicated below: Hard Infrastructure Area Road Infrastructure Issues The roads leading to the port are in a bad condition The roads to Haldia port are also in a bad state, same is the case with the roads from Jharkhand to Haldia. The road from Falta to Kolkatta is also not good. For the type and quality of services provided, the port has been increasing its port related charges which the exporters feel is unfair, since it adds to their cost of shipment, without obtaining any value added services. Suggestions The 4 laning of Kolaghat Haldia port connectivity section needs to expedited

Port infrastructure

The improvement should be in terms of material handling system, labour productivity, development of additional berths, increase of draft, proper and a reliable EDI system at KoPT.

Soft Infrastructure Area Labour Issues KoPT is plagued with strikes and goslow agitation by the workers Suggestions Need to introduce productivity linked incentives for the workers (having a variable pay component)

Logistics Area Ports / Sea connectivity Issues There are no regular services to Chittagong from Kolkata; it is transshipped through Singapore. The cost of shipment through Singapore is around US$ 1500 and the time taken is around 10-15 days, while the shipment from Kolkata to Chittagong is around US$ 300 to US$ 400 per TEU. Suggestions Need for a regular weekly service from Kolkata to Chittagong

Mapping of logistics movement and cost analysis North Zone Delhi and the adjoining states form the major industrial clusters in the northern region. Inland container depots in the North connect to the container handling ports of Mundra, Kandla, Pipavav and JN Port / NSICT, through which most of the cargo movement takes place. The ICD serves the areas of Tughlakabad, Moradabad, Panipat, Dhandarikalan, Ballabhgarh, Jodhpur, Jaipur, Rewari, Dadri, Agra, Gwalior, Kanpur, Ravtha Road etc The break-up of the total logistics costs involved in the movement of a TEU from the NCR to JNPT is indicated below:

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Segment Transportation by road (30 km radius in NCR from ICD) Rail movement to port (average) Note The time includes the dwell time of the loaded export container which is usually less than 24 hours and transit time of 46 hours Custom Terminal Handling Documentation Others Total

Cost (INR) 5,000 23,120

Cost % 12.78 59.10

Time (days) 1.0 2.5

Break - up of export cost excluding sea freight

3,000 6,000 1,000 1,000 39,120

7.67 15.34 2.56 2.56 100

0.5 0.5 1.0 5.5

The break-up of the total logistics costs involved in the movement of a TEU from the Pithambur to JNPT is indicated below: Segment Cost (INR) Cost % Time (days)

Break up of export logistic cost, excluding sea freight Road Transportation (100 kms - ICD Pithampur - Ratlam) Rail movement to port (average) Custom clearance Terminal handling Documentation Others Total 8,300 25.61 1.0

13,115 3,000 6,000 1,000 1,000 32,415

40.46 9.25 18.51 3.08 3.08 100

10.0 0.5 0.5 1.0 13.0

Some of the North zone specific issues and recommendations are indicated below: Hard Infrastructure Area Infrastructure Issues The overall infrastructure (roads, power, warehousing facilities etc) covering the industrial region surrounding New Delhi (NCR) is inadequate, considering the volume of Suggestions Need for a better infrastructure and planning to cover the industrial region surrounding New Delhi which extends up to 150 km.

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exports being catered to. Area Rail connectivity Issues Lack of last mile rail connectivity of ICD Pithampur with Ratlam has limited the export growth, compelling the exporters to either bear the delay of 10 -15 days for movement to JN Port by rail, or move containers directly by road on the already busy NH 3 adding to the traffic congestion Suggestions Need for a feasibility study to understand the cost-benefit analysis for extension of rail from Ratlam to ICD Pithampur Ministry of Railways shall conduct the feasibility for the proposed route / project and take necessary follow up actions

Mapping of logistics movement and cost analysis South Zone South zone is an important region involved in the export of textile, auto & auto components, chemicals and food processing. The companies in the southern region export the commodities mainly through five major ports; Chennai, JNPT, Vizag, Cochin and Tuticorin The break-up of logistics cost for the movement of a 20 container (TEU) from Hyderabad to various ports by road is as follows: Hyderabad to various ports (road) Logistics cost parameters Inland transportation charges road Inland transportation charges rail Inland transportation charges water Transit facility (ICD / CFS / ware housing / etc) Custom House Agent /Clearance Terminal Handling Charges Documentation Charges Other Logistic costs Total logistic costs JNPT Cost 22000 0 0 5000 2500 6000 800 200 36500 Cost % 60.27% 0% 0% 13.70% 6.85% 16.44% 2.19% 0.55% 100% 1 5 Time (days) 2 0 0 2 Chennai Port Trust Cost 22000 0 0 2800 2500 6000 500 500 34300 Cost % 64.14% 0.00% 0.00% 8.16% 7.29% 17.49% 1.46% 1.46% 100% 1 4 Time (days) 2 0 0 1

The break-up of logistics cost for the Movement of a 20 container (TEU) from Coimbatore to various ports by road is given below: Coimbatore to various ports (road) Logistics cost parameters Inland transportation charges road Inland transportation charges rail Cochin Port Trust Cost 14000 0 Cost % 56% 0% Time 1 0 Chennai Port Trust Cost 18000 0 Cost % 65% 0% Time 1.5 Tuticorin Port Trust Cost 14500 0 Cost % 61% 0% Time 1

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Coimbatore to various ports (road) Logistics cost parameters Inland transportation charges water Transit facility (ICD / CFS / ware housing / etc) Custom House Agent /Clearance Terminal Handling Charges Documentation Charges Other Logistic costs Total logistic costs

Cochin Port Trust Cost 0 4500 Cost % 0% 18% Time 0 2

Chennai Port Trust Cost 0 2000 Cost % 0% 7% 1 Time

Tuticorin Port Trust Cost 0 1500 Cost % 0% 6% 1 Time

1200 4000 600 500 24800

5% 16% 2% 2% 100% 0.5 3.5

1200 5800 500 0 27500

4% 21% 2% 0% 100% 2.5

2000 4800 800 0 23600

8% 20% 3% 0% 100% 2

Some of the observations / recommendations for the South zone are indicated below: Hard Infrastructure Area Rail Issues The container and goods trains are made to wait for the passenger trains to pass by. This increases the transit time for movement by rail. There are no scanning machines available for scanning bigger pallets (over 1200 mm length) at Coimbatore airport. Suggestions Railways should initiate steps to have dedicated lines for the containers and goods trains. Airport infrastructure should be improved and steps should be taken for handling bigger pallets.

Airport

Logistics Area Rail connectivity Issues Poor rail connectivity between the following regions o Hyderabad to Chennai o Hyderabad to JNPT o Bangalore to Chennai o Bangalore to Mangalore Less cargo flights connectivity in the following southern region airports o Chennai o Coimbatore Suggestions CONCOR and private container operators should improve their services in these regions. This shall reduce the inland logistics cost to a great extent. Indian Railways to improve the rail connectivity in these routes. More cargo flights to be introduced at Chennai and Coimbatore, which are high cargo potential regions.

Air connectivity

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Recommendations for improvement in the exports logistics infrastructure Sea-ports With a growth rate of 19%, Indias container cargo traffic is estimated to reach 21 million TEUs by 2016, and the north western ports which handle the bulk of the containerized traffic would require creation of additional facilities and improving efficiency. Ports should also facilitate hinterland connectivity projects to ensure seamless cargo flow. As the cargo from the north moves through the western ports, a new Greenfield port which can handle fourth and fifth generation vessels with overall length exceeding 305 m and capacity of carrying 4,000 5,000 TEUs with a draught of 14 m needs to be developed. IPA can consider including private ports (like Gujarat Pipavav Port Limited, Mundra Port Limited, etc) as its members thereby covering a larger canvas and fulfilling its objectives of increasing efficiency for Indian ports as a whole. All sea ports especially those handling major container cargo, should have rail link which can handle double stack trains Indian Railways are working to reduce the ratio of payload to tare weight load i.e. for every 1 mt of freight carried, the dead tare weight of the wagons should be ideally around 200 kg (presently it is around 333 kg). Thus, a rake of 58 wagons will be able to haul an additional freight of 673 tonnes, which works out to about 16.6% more than the existing payload of a rake. State governments having sea coast line shall be asked to conduct pre- feasibility studies and identify ports or locations which can be developed exclusively for coastal shipping (This may be considered under the existing NMDP) Under the Shipping Trade Practices Bill, committees can also look into the issues of sea freight increase and other charges with service standards by interacting and inviting improvement suggestions from the trade. As suggested by the Committee of Secretaries under the Planning Commission, the port connectivity classification can be considered on certain sections which link the port with the industrial hubs To ensure exports getting due attention, priority and resources, a dedicated cell under the Prime Ministers Office (PMO) can be setup As testing is not the core function of the Central Excise & Customs, a dedicated facility / authority shall be set up to test the samples of EXIM items. The government shall take initiatives in devising a Logistic Policy framework aimed at providing broader policy guidelines to various state governments, trade bodies, exporters, customs and other stakeholders (please see chapter 11 for details)

Railways

Shipping

Roads

Exports policy related

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Logistics best practices A recent report prepared by the World Bank suggests that India is ranked only 39 in terms of the logistic performance index (LPI). LPI is an indicator of how well the country is placed in terms of its logistic efficiency and service quality. Singapore stands first in the global LPI rankings followed by the Netherlands (Rank 2), Germany (Rank 3), Japan (Rank 6) and USA (Rank 14). Mainland China ranks thirty whereas India is placed at 39th position. The countries that are top performers are mainly the logistic hubs and they have adopted a comprehensive approach in improving logistic performance. This includes bringing in synergies in infrastructure, transport regulations, investment, customs, foreign trade and better border management. It is also important to adopt logistic best practices by companies and logistic service providers, some of them are highlighted below: Design the network (route planning, mode of transport etc.) Companies shall partner with Logistic Service Providers and outsource the operations in which they do not have competence (outsource non-core areas) The manufacturer-exporter needs to have a proper risk and contingency plan in place It is important for a country like India to devise a National Logistic Policy that encompasses various components of logistics as illustrated in chapter 13 of this report (Logistic policy framework). Apart from doing a facilitation agenda, the government needs to take steps to bring in better infrastructure (roads, rail, sea ports, warehouses, airports, etc), efficient fleet management, and overall market reforms for logistic services. What the government and its various agencies can do to help improving the logistic competitiveness of Indian industry is spelt out in sub section 15.9 of this report. However the action points mentioned under different ministries, departments and independent agencies of the Government in the above section are only indicative.

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3 Chemicals
The chemical industry covers more than 70,000 commercial products offering ample opportunity for research, growth, innovation and integration with other products. The Chemical industry broadly constitutes petrochemicals, dyes and dyestuff, pharmaceutical, paints, agrochemical, special chemical and fertilizers industry. The global market is estimated at US$ 1.8 to 2.0 trillion and Western Europe, US and Asia together contributes to 90% of the total production.

3.1 Present Scenario


As per the Ministry of Chemicals & Fertilizers, Indian chemicals industry is worth around US$ 35 billion or about 3% of India's GDP. Indian Chemical industry during the last decade has moved up the value chain from being a basic chemical producer to the developer of specialized and knowledge chemicals. The Industry consists of both small and large scale units with the average size of Chlor-alkali industry (which contributes nearly 45% of building blocks for the industry), at around 175 MT per day against the required 500 MT capacity. Some of the major markets for Indian chemicals are North America, Western Europe, Japan and emerging economies in Asia and Latin America. The valuation of the Indian chemical market segment wise is indicated in Table 1 Table 1: Valuation of Indian chemical market segment Segment Basic Chemicals Specialty Chemicals High End / Knowledge Segment Total Source: Ministry of Chemicals & Fertilizers

Market Value (Billion, US$) 20 9 6 35

Following are some of the salient points of the Indian chemical industry: The total investment in the sector is approx. US$ 60 billion and total employment generated is about 1 million The sector accounts for 13-14% of total exports and 8-9% of total imports of the country in value terms In terms of volume, the Indian chemical industry is the 12th largest in the world and 3rd largest in Asia Currently, per capita consumption of products of chemical industry in India is about 1/10th of the world average China has emerged as the second largest partner for India in international trade during April-October 2007. Gujarat contributes to nearly 51% of the countrys total manufacturing capacity in chemicals (200607) India has emerged from a net importer till year 1990 to an exporter from year 2000 onwards

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Petrochemical sector This sector includes upstream petrochemicals consisting of naphtha / natural gas crackers along with downstream plants to manufacture polymers, synthetic fibre, intermediate and other intermediate chemicals derived from hydrocarbons. These are integrated complexes manufacturing bulk products (liquid / solid products) and are generally of global scale of operations. These projects are both capital intensive and technology intensive

3.2 Geographical presence


The Indian Chemical industry, to a large extent, is concentrated geographically in the western region of Gujarat and Maharashtra. The cluster approach with shared common infrastructure, R&D and knowledge source helps in cost optimization and better input-output linkages and has been responsible for such geographical concentration.

Others, 23% Gujarat, 51% Punjab, 4%

Tamil Nadu, 6% Uttar Pradesh, 8% Maharashtra, 8%

Figure 3 : Distribution of manufacturing capacity in Chemicals Source: Ministry of Chemicals The concentration of chemical industries in Gujarat is located on the 300 km long corridor referred to as the golden corridor starting from Vapi to Ahmedabad. It covers various industrial estates like Vilayat, Jhagadia, Dahej, Nandesari, and Vatva. With heavy concentration in the western region, the movement of cargo (both raw material and EXIM trade) is through JNPT (which handles around 60% of the countrys container traffic) followed by Mundra / Kandla and Pipavav in Gujarat. The national highway NH8 passes through the coastal region of South Gujarat up to Ahmedabad, covering the chemical industries located along this belt. This makes it one of the busiest traffic routes as traffic to NCR also passes through this industrial belt.

Figure 4 : Concentration of Chemical industries in Gujarat Source: Deloitte Research

This paragraph contains additional points on the 2009 report titled Logistics Cost Study and have been included based on the request of NMCC . These additional details have been derived from the feedback on the report received by NMCC from some of the key stakeholders
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Similarly the rail network from Mumbai moving to western region and northern states also passes via Gujarat making the route between Mumbai up to Vadodara as the one with the highest rail traffic movement. In the absence of any port in South Gujarat, cargo from this industrial region from Ahmedabad (up to 500 km) is being moved to JNPT, thereby adding to the traffic from NCR and Maharashtra, which also uses JNPT port. Movement to Pipavav port and Kandla / Mundra from Central Gujarat and NCR has still not picked up, due to the limited choice of shipping lines and frequency of trains to these ports.

3.3 Government policies covering exports


Following are some of the policies initiated by the Government for facilitating Chemical exports: 1. Promotion of a Petroleum, Chemical, and Petrochemical Investment Regions (PCPIR) covering a processing area of 100 km, with a mother plant to provide basic raw material and feedstock to the surrounding units enabling vertical integration and value addition. Under this scheme, an investment region with an area of around 250 square kilometers is planned for the establishment of manufacturing facilities for domestic and export led production in petroleum, chemicals & petrochemicals, along with the associated services and infrastructure. The PCPIR may include one or more Special Economic Zones, Industrial Parks, Free Trade & Warehousing Zones, Export Oriented Units, or growth centers. 2. REACH (Regulation on Registration, Evaluation, Authorization and Restriction of Chemicals) is the new European Union Chemical Regulatory Legislation, which has come into force from 1st June 2007 and units exporting to European Countries are required to take registration by 30th November, 2008. As per REACH, substances and preparations or articles can only be exported to EU market after manufacturer / importers have knowledge about the full impact of their products on human health and the environment. Further, such manufacturers have to assure the EU Member Country and Chemical Agency that downstream risk arising through exposure of the hazardous substances is contained. If this condition of pre registration is not complied, it will not be possible to make exports to European Countries for the next 11 Years. All chemicals, dye and dye intermediates, textiles, garments, paper, soaps and detergents, inks, pharmaceuticals, packaging Industry and industries related to chemicals etc. will have to comply with this new REACH norm. As per REACH guidelines only manufacturers and importers based in EU come under the purview of REACH and need to register themselves and chemical to be produced/ sold by them. Only if a concern is directly selling its product in EU markets need to appoint an Only Representative in EU to comply with REACH guidelines. However there is indirect impact on exporters, if the importers in EU do not pre-register. Importers in EU may also ask exporters to furnish technical data to be provided for REACH registration. If pre-registration deadline of 1st December 2008 is missed, then concerned company can still register will not get benefit of extended deadlines. Polymers are exempted from REACH regulations, but monomers are not exempted.

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3. Department of Chemicals & Petrochemicals is part of a joint committee with Ministry of Commerce, Ministry of Environment & Forest, CHEMEXCIL and various industry associations to ensure adequate preparedness of Indian Chemical Industry to comply with obligations under REACH legislation. Various awareness workshops have been held to address specific issues of concern to the Indian industry. A helpdesk on REACH has been established in CHEMEXCIL for helping the exporters of Chemicals to the EU. 4. In order to strengthen Indian R&D effort in general and the industries preparedness to comply with REACH in particular, Department of Chemicals & Petrochemicals has been pursuing upgradation of selected Indian labs to GLP standards. In collaboration with Department of Science & Technology, the issue of recognition of data from GLP recognized labs in India is also being regularly taken up. The issue of extending financial assistance to the labs concerned is also under consultation with Ministry of Commerce.

5. SEZ policies offer benefits to firms located in the Special Economic Zones, in the form of Income Tax incentives covering 100% tax holiday for a period of any 10 consecutive years out of 15 years, 10 years corporate tax holiday on export profits, exemption from dividend distribution tax, tax exemption on interest of long term finance and long-term capital gains arising on transfer of shares in developer company, indirect tax incentives including nil customs and excise duty. 6. Free Trade Agreement (FTA) with the 10-member Association of Southeast Asian Nations (ASEAN) was signed in Singapore, which aims at reducing tariffs in a phased manner to zero for over 4,000 goods out of 5,000 that are traded. 7. Extension of the Duty Entitlement Pass Book (DEPB) scheme till December 2010 and tax exemption to 100 per cent Export Oriented Units till 2012. 8. Allowing FDI units in SSI units by removing the 24% FDI limit. A total of 79 manufacturing activitiesincluding a part of food products, chemicals, plastics and drugs are reserved for the SSI sector. According to government data, there are about 12.8 million small & medium enterprises in India, which produce goods worth over US$140 billion. These companies also export goods worth US$ 33 billion, accounting for around a third of India's total exports. 9. The Ministry of Micro, Small and Medium Enterprises (MSME) is planning to bring down the number of items reserved for the small scale industry (SSI) to 35 from 100. MSM Enterprises account for over 90 per cent of the total number of industrial enterprises providing employment to more than 31.25 million people in 2006-07. Major MSME export products include readymade garments, chemicals, pharmaceuticals, engineering goods, processed foods, leather products and marine products.

The bullet points 3 and 4 contains additional points on the 2009 report titled Logistics Cost Study and have been included based on the request of NMCC . These additional details have been derived from the feedback on the report received by NMCC from some of the key stakeholders

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3.4 Export potential


Indian chemical industry ranks 12th in the world in terms of volume and is poised to grow at an average 3 rate of 9.2%. Presently valued at US$ 35 billion , it is expected to reach US$ 50 billion by the year 2010. The promising segments are knowledge (Biotechnology based chemicals, pigments and dyes) and specialty segments (catalysts, adsorbents, sealants, adhesives and industrial gases).

3.5 SWOT Matrix


The SWOT analysis of the Indian Chemical industry is furnished in the table below: Table 2: SWOT analysis of the Indian Chemical industry Strengths Availability of skilled human resource Matured industry with proficiency in understanding specification and requirement of foreign buyers Flexibility in developing specialized chemicals with low capacity plants (small batch production) Strong IT base amenable for application in chemicals processing Opportunities Development of Special Economic Zones and PCPIR Gas discovery at the KG basin by state PSU and private players Raw materials availability with skilled human resource enables tie-up for technological products Source: Deloitte Research.

Weaknesses Relatively weak R & D base Lack of common logistics supporting infrastructure Chlor-alkali industry depends upon imported membrane in processes Lack of global marketing set-up

Threats Large capacity and government support enjoyed by Chinese companies Large capacity creation in Gulf countries Patents and Research and Development advancement in EU and USA Stringent environmental norms and regulations

3.6 Factors affecting Competitiveness


India can leverage upon its huge talent pool for the knowledge based Chemical industry. The competitiveness of the industry hinges upon factors as outlined below and the figure depicted immediately thereafter: Size and economies of scale Market reach Adaptability and flexibility for change Innovation and strong R & D base Cost and differentiation Efficient and rapid supply chain to cater to global markets

iNDEXTb

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In short, the logistics cost also plays a direct role in the export competitiveness of the product. The logistics cost is directly proportional to the distance and handling incurred while transporting the goods from one destination to the other. As per the Working Group on Logistics for the 11th Plan, the cost of a moving container by rail between Delhi and Nhava Sheva is around INR 0.87 (1.9 cents per km) for an average TEU container of 15 tonnes capacity. However, exporters have to bear costs of a minimum of 4 INR1.5 per tonne km (3.3 cents) after taking into account costs such as charges at ICDs / Terminal Handling Charges / rail - road costs of empty container repositioning etc.

Competitiveness - Internal and External factors


Chemical Industry Production
Consolidation in basic and knowledge segment Collaboration and cost reduction Competitive interest, power tariff and labour laws Domestic demand Availability of quality raw material at competitive prices

Market Access
Supporting logistics & industrial infrastructure Competitive export cost Reduction in time and low transaction cost Research in high value and specialty products Marketing and Process technology

Figure 5 : Chemical industry competitiveness model Source: Deloitte Research. Some of the reasons for the delay in time and cost incurred during various stages of export cargo movement (For e.g.: container from Gurgaon - NCR region) are listed below: 1. Allotment of empty container (subject to availability) would take 2 to 3 days. Obtaining permission from shipping lines for hazardous cargo would take more than a week. 2. As movement in the NCR region is only during night hours, it takes around two days for stuffing of empty container and the movement of the stuffed container from the exporters factory to ICD (distance of around 30 km), incurring additional time and cost. 3. At the ICD the cargo may wait for another 3 days for sufficient train inducement (collection of 80 / 90 TEUs) to run a train to JNPT. 4. On arrival at the port, the container may be loaded on the scheduled vessels or would have to wait for another 7 days to connect the next vessel. In case of direct road movement from the exporters factory to port, buffer yard charges are applicable for storage of export loaded containers (outside port) till the scheduled vessels arrival. Table 3: Logistics cost associated with chemical exports

FIEO

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Logistics factors affecting the chemical industry Pre - shipment Obtaining approval from the shipping lines for hazardous chemicals (Additional hazardous surcharge on sea freight charges) Allotment of empty container at the ICD Stuffing and movement of export loaded container to port Buffer yard charges applicable for road movement arrivals Post - shipment Absence of certification and testing lab Source: Deloitte Research

Time delay (days) 7-10

Additional Cost US$ 150

2-3 4-5 INR 5000

5-7

INR 2000

Just in Time (JIT) concept is followed by many chemical companies globally to avoid any delay and additional charges by way of storage and multiple handling. JIT enables the system to work in coordination with the process requirement on which basis cargo has to move .Just in Time requires a scheduled system in place with known time and cost to enable cargo to be delivered accordingly. Chemicals products are used for processing and manufacturing products, hence delay in the Import or availability of raw material due to logistics or issuance of import license etc affects the production and the business. Importers abroad prefer cargo just in time so that it can be mechanically offloaded and directly used in the plant process without incurring any storage cost. Petrochemicals The logistics cost are basically transportation of the feed stocks for the complex by pipelines infrastructure or by tankers by road to the plant site and finished products from the plant site to the market / port for domestic / export market. Petrochemical products prices are cyclic in nature and to an extent depend on the crude oil price movements. Effective road infrastructure with optimum cost of transportation will help in increasing the competitiveness. Most of the complexes have their own power generation facility. Fuel cost for power generation is an important factor in the cost of the finished products. Maintaining a duty structure comparable to the existing structure in the region, will promote investment in value added products as well as s make the industry more competitive. Downstream plastic processing industry is widely spread throughout the country. Plastic processing industry is a power intensive industry and plastic processing operation basically depends on polymer raw material availability and quality power at affordable price. The logistic cost basically include availability of polymer at as stable price and quality, power availability at a reasonable price, transportation cost of the finished articles to the market/ export, port handling facility quality testing facility to develop brand India, waste / scrap recycling facility, common utilities etc.

The highlighted para on Petrochemicals contains additional points on the 2009 report titled Logistics Cost Study and have been included based on the request of NMCC . These additional details have been derived from the feedback on the report received by NMCC from some of the key stakeholders

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3.7 Major bottlenecks identified and recommendations


Some of the specific issues faced by the exporters during the shipment of chemical consignments and suitable suggestions for improvement are mentioned below: Hard Infrastructure Area Warehouses Issues There are no separate storage systems for storing hazardous chemicals. An example given was that one of the containers of hazardous chemicals was not handled properly in the CFS and was kept along with the normal containers. The chemicals started leaking and started eating out the containers. The exporter had to rush in a fire brigade and a special team to take necessary actions Non availability of testing facility at Nandesari, Vadodara Suggestions Mandatory ruling for storage and handling of hazardous chemicals by means of a separate stowage system both at the ports and CFS

Certification labs

There is a need to develop common testing facility in chemicals clusters certified by a reputed agency

Soft Infrastructure Area Research & Development Issues New product manufacturing requires approval which takes up to 3 months for registration, by the time the market is already lost to competitors More thrust required for NPD (New Product Development), and to encourage original research, etc. Suggestions Need for expediting the procedures for registration, approval etc to enable the exporter to maintain his edge over other competitors (international / domestic) Assistance in developing fire retardant product and material and adding value. Policy required to encourage original research Government policies to encourage R & D for specialty chemicals Tie-up in high value segments can be encouraged

EXIM Policy Area Import duty Issues Bangladesh government imposes a high Suggestions Need for the Indian government to

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EXIM Policy Area Issues import duty on Indian exports of polyurethane based adhesives. This makes the Indian exports uncompetitive Customs Different offices of customs follow different classifications for same type of cargo Customs dept. is not the competent authority to conduct the sample tests and certify items Export of laboratory chemicals faces problems in classification and obtaining approval from shipping lines Other issues Ambiguity in DFIA license scheme (duty paid on raw material) covering the central excise part needs to be addressed Import license is valid for 18 months only, and the short duration affecting the raw material imports Ambiguity regarding to classification of chemicals leading to application of different rates on duty drawback The validity period of import license can be increased to 3 years or so A more comprehensive classification would help in solving difficulties faced due to difference in rate of duty drawback. Suggestions address the issue through bilateral discussions with its Bangladesh counterpart. Common classification needs to be followed by all customs offices to avoid disparity An independent agency with all India laboratory facility should process and issue reports on behalf of Customs to avoid delays There should be clear guidelines on classification norms meant for all laboratory chemicals.

Logistics Area Sea Connectivity Issues For Linear Alkyl Benzene (LAB) ,nonavailability of small tankers which can carry 1000 MT causes delay and increases logistics cost Regular increase in sea freight for container cargo and surcharge on hazardous cargo affects profit margins Limited slot for hazardous chemicals on vessels calling Chennai induces exporters to move cargo to JNPT incurring high transportation cost Suggestions Ensure availability of custom-built tankers for LAB manufacturing facilities Regulation of freights through Shipping Practices Trade Bill, which can exercise controls over undue hike if the shipping freights and surcharges Negotiate with shipping lines calling at Chennai to accommodate more hazardous chemicals

Others Area Issues Suggestions

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Others Area Raw Material Issues Increase in raw material prices should be notified in advance through a credible mechanism. This will enable exporters renegotiate their export orders accordingly. Shortage of Aniline based raw material affects manufacturing. Domestic demand of raw material should be covered first before export Raw material controlled by major companies who dictate the prices High cost of raw material like Ethylene Alcohol, Chlorine, Sulphuric acid etc makes downstream products unprofitable China dominates phosphorous raw material market and has a considerable monopoly in the raw material pricing thereby affecting the export pricing of the Indian exporters final product. Suggestions Better market intelligence mechanism (with the Government as the facilitator) to provide advance information to exportmanufacturers Suitable policies to protect domestic industries shall be put in place Develop or use mechanisms to prevent monopolistic situations The respective industries / management have to take prudent decisions to survive in the market and the Consultants cannot offer any specific suggestions here. Beat the competition through differentiation (by producing value added, superior products that can command a premium in the market) Government shall incentivize R&D

3.8 Feedback from trade bodies


The Chemicals and Allied Products Export Promotion Council (CAPEXIL) Anti dumping duties on raw material and products should be discouraged Import duties on raw materials should be lower than intermediate and finished goods Benefits under target plus scheme must be restored specifically for status holders who account for nearly 70% of exports More chemical products and countries to be covered under the Focus Market & Products Schemes EPCG scheme should be imposed with zero percent duty Conversion of shipping bills from one scheme to the other should be considered Service tax rebate mechanism should be addressed immediately Exporters must be exempted from VAT Levy of CST on deemed exports should be exempted DEPB scheme should be continued by extending the time line beyond the specified date of expiry To provide railway freight concessions from bulk movement of consignment from factory to port for exports The cost of containers for export shipment is in the range of US$ 10,000 to 15,000; whereas in China the costs for containers are only US$ 3,000. Therefore the container cost should be reduced.

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3.9 Competing countries scenario


The Asia Pacific region is seen as the fastest growing region in the global chemical sector and it is predicted that by 2010 Asia will be one of the major markets for chemicals in the world with 40% of the world's chemical manufacturing capacity situated in the region. Chinese economic growth is forecast to reach 10.5%, off slightly from the 11.4% expansion seen in 2007-08. Chemical manufacturers in China are confident that earnings will continue to grow with China's demand for cosmetic chemicals growing at a fast pace in the past decade. In the next five years, both production and demand will continue to grow with the country remaining a large importer of cosmetic chemicals through the next century. In Japan, chemical makers are confident about the countries short-term growth. The American Chemistry Council forecasts 2.1% growth for the U.S. industry in 2008, better than the 1.3% it projected for 2007, with Plastic resins segment accounting for a growth of 2.5%, which is due to the fact that basic chemicals are derived from ethylene, which is manufactured in the U.S. mostly from natural gas. Because price of natural gas hasn't risen nearly as much as oil, many U.S. chemical producers can sell their products overseas cheaper than their foreign rivals, who typically use ethylene feedstock derived from oil. The European Chemical Industry Council is expecting 1.9% chemical industry growth, down from 2.6% in 2007, due to the impact of the U.S. financial crisis on the global economic environment. While most of the Indian exporters indicated that the major competition was from China, the comparative advantages of certain Asian countries are as given below: China Large scale capacity leading to economies of scale Heavy subsidy in power Low labour costs Better logistic infrastructure (ahead of India in Logistic Performance Index) Large scale capacity is being added in the Middle East for light olefins projects Abundant availability of feed stocks such as Natural Gas, Naphtha and Olefins at cheaper costs

Middle East

3.10 Other recommendations


The sector-specific recommendations aimed at improving the overall competitiveness of the chemicals industry is given as annexure 1. However, the more relevant suggestions from the list are reproduced below: Pesticides export requires registration in the country to which the item is to be exported. The SAARC countries have evolved a common registration procedure by which any exporter from SAARC country can register in the SAARC office which would be valid and approved for all member countries. This would save multiple registrations and facilitate more trade between members countries. A similar kind of set up may be thought of between India and its major trade blocks, which will save time and cost. More than 65 countries under the United Nations Globally Harmonized System (GHS) are amending their present system of Classification and Labeling of Chemicals, by types of hazards and is co-

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coordinating to have a common harmonized hazard communication element, including labels and safety data sheets. The REACH legislation in EU has a wide-ranging impact on all companies that manufacture, import or use chemicals. A joint committee with the industry and government can be constituted to involve the industry and develop strategy for meeting the challenges poised by GHS and REACH. Clusters having EOU and other units especially for chemicals should be assisted by external agency to plan and develop common supporting infrastructure which would help them in better logistics, operations and exports. All custom offices should be EDI / EDP enabled. A common information centre at the highest level should be setup, which can process enquiries and provide clarifications covering classification of goods and duty drawbacks etc. This is to enable ensure application of rules and classification across the country in an identical manner to solve issues arising out of different interpretation of customs rules and guidelines.

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4 Textiles
Indias total textile industry is estimated at US$ 49 billion, with exports accounting for 39% share. The world market is estimated at US$ 450 billion and is expected to grow to US$ 700 billion by 2010. Indian textile export basket consists of wide range of items containing cotton yarn, fabrics, man-made yarn and fabrics, wool and silk fabrics, made-ups and variety of garments. Indias textile products, including handlooms and handicrafts, are exported to more than hundred countries. The EU is the top destination of Indias exports followed by US

4.1 Present Scenario


The value of total textile exports up to April- February 2007-08 [P] were INR 77867.11 Crore as against INR 78690.09 Crore during the corresponding period in 2006-07. This decline of 1.05% in Rupee terms could be attributed to the appreciation of the rupee against the US Dollar. Table 4: Export of Indian Textile segments in value terms during April to February (2006-07 & 2007-08)
TEXTILES Period RMG Cotton Textiles 32459.99 23079.46 Wool and Woolens 1688.04 Manmade textiles 11427.65 2301.75 Silk Total Textiles 70956.89 Handicraf ts, coir, jute etc. 6910.22 Grand Total Value

Apr- Feb 2007-08 {p}

77867.1

INR Crore US$ Million INR Crore US$ Million

8064.19

5733.74

419.37

2839.03

571.83

17628.17

1716.73

19344.9

33928.47 Apr-Feb 2006-07 7494.72 Growth % (INR) Growth % (US$) Total Share 2007-08 {p}

22760.3

1812.05

9828.97

2965.87

71295.66

7394.43

78690.1

5027.7

400.28

2171.2

655.15

15749.06

1633.41

17382.5

-4.33

1.4

-6.84

16.26

-22.39

-0.48

-2.9

-1.05

INR Crore US$ Million

7.6

14.04

4.77

30.76

-12.72

11.93

34.13

11.29

41.69

29.64

2.17

14.68

2.96

91.13

8.87

100

Source: D.G.C.I.& S. (Provisional),

Indias exports share for carpets in the world market is 35% with more than 3 million workers involved in this handspun, handmade carpet trade mostly from unorganized sector. Carpet exports have increased from INR 2583.62 crores in 2004-05 to INR 3524.73 crores in 2007-08.

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Table 5: Export value of Indian Textile post MFA Growth in exports post MFA ( Calendar year January 1 2005 ) 2005 European Union 18.68% United States of America 25.92% Source: D.G.C.I. & S. (MOCI)

Calendar year 2006 14.73% 8.15%

Calendar year 2007 13.10% 1.39%

4.2 Geographical presence


The Indian textile and apparel industry operates largely in the form of regional clusters. There are over 70 clusters producing 80% of the countrys total textile output.
Cluster Location
Guntur Nagari Ahmedabad Surat Panipat Ludhiana Jodhpur Jaipur/ Sangner Kanpur Ichalkaranji Solapur Kannur Agartala Kolkata Bhubaneshwar Salem Tirupur Karur SuramPatti

State
Andhra Pradesh Andhra Pradesh Gujarat Gujarat Haryana Punjab Rajasthan Rajasthan Uttar Pradesh Maharashtra Maharashtra Kerala Tripura West Bengal Orissa Tamil Nadu Tamil Nadu Tamil Nadu Tamil Nadu

Product Specialization
Power loom & Ginning Power looms Weaving process Ready Made Garments Power looms weaving Process Hand loom & Made-ups Woolen Knitwear Hand Processing Apparel Manufacturing Defense related Textiles Power looms weaving- Process Power looms & Chaddars Hand looms Hand looms Cotton Hosiery Hand looms Power looms Cotton Knitwear Home Textile Power looms

Figure 6 : Distribution of textile capacity Source: UNIDO The map above gives details for 20 key clusters. The Government of Indias cluster development initiative, involving technical assistance, subsidies for technology up gradation and marketing support, has strengthened the competitiveness of the clusters and consolidated their position in the global value chain. Gujarat, Maharashtra, Rajasthan, Haryana, Punjab, Andhra Pradesh, Madhya Pradesh, Karnataka and Tamil Nadu are main cotton producing states in India. There are approximately 1200 medium to large scale textile mills in India. 20% of these mills are located in Coimbatore (Tamil Nadu).Availability of cotton

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in places south of Hyderabad is affected due to poor logistics, which is impacting the competitiveness of textile industry in these regions (Coimbatore etc.). The domestic consumption of cotton in the year 200708 was 241 lakh bales whereas the domestic availability was 369 lakh bales. Nearly 85 lakh bales of cotton were exported during the above period. India has 34 million cotton textile spindles for manufacturing cotton yarn. Cotton yarns account for 70% of India's textile exports. The domestic knitting industry is characterized by small scale units which lack adequate facilities for dyeing, processing and finishing. The industry is concentrated in Tirupur (Tamil Nadu) and Ludhiana (Punjab).

4.3 Government policies covering exports


The agreement on textile and clothing (ATC) came into effect in 1995, under which quotas were phased out in four stages over a ten year period and were eliminated in January 1, 2005. This step, while increasing globalization also eliminated the barriers exposing the domestic market to imports. To enhance the competitiveness of the domestic industry, the government has continued to modify and launch new schemes with the objective of increasing the industrys capacity, reducing its operational costs and encouraging it to move up the value chain. The details of various schemes launched by the government are given in Annexure 2.

4.4 Export potential


The global textile market is expected to be worth more than US$ 400 billion by 2010.
500 400
In USD billion

300 200 100 0 2006 2008 Apparel Textiles 2010

Figure 7 : Valuation of global textile market Source: World Trade Organisation

During the last quarter of the previous century, share of developing countries in world textile exports improved from 15% to 50%. Costs remain the driving factor in the post-quota world with fabric weaving alone using around 28 million tonnes of fiber every year which is expected to reach more than 35 million tonnes by 2010. Asia is slated to be one of the key regions for growth.

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4.5 SWOT matrix


The SWOT analysis of the Indian textile and apparel industry is indicated in the table below: Table 6: SWOT analysis of the Indian textile and apparel industry Strengths Weaknesses Availability of quality raw material Lack of common manufacturing and logistics Presence of skilled labour in all process and supporting infrastructure segments Unfavorable / outdated labour laws Manufacturing flexibility for scaling up Absence of global marketing setup production Highly fragmented industry lacking economics Textile clusters with concentration of 80% units of scale. in cluster form Lack of technological advancement in Presence of supporting training and skill processes, machinery and value addition development institutes Opportunities Threats Raw material availability enables tie-up for Bangladesh and Vietnam with low cost of production of technical textiles labour and favored export status Large domestic market can act as driver for Large capacity of Chinese firms capacity creation supported by growing economy and global market Development of SEZ and Integrated textile units Post quotas regime (large scale value addition and capacity creation made feasible) Source: Deloitte Research

4.6 Factors affecting competitiveness


The competitiveness of textile industry depends on a host of internal as well as external factors as depicted in the figure 8

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Competitiveness Internal and External factors


Textile Industry

Production High production standards per machine Large scale economics to cover export orders Competitive interest and power tariff rates Flexible labor laws Cluster development with segment focus.

Market Access Supporting logistics & industrial infrastructure Competitive export cost Reduction in time and low transaction cost Vertical integration from yarn to made-ups with sales promotion Preferential trade agreement & removal of anti-dumping duty.

Luster development with

Figure 8 : Textile Industry competitiveness model Source: Deloitte Research

4.7 Major bottlenecks identified and recommendations


Hard Infrastructure Area Support infrastructure Issues Lack of support infrastructure in the unorganized sectors Suggestions Reorganization Model for development of unorganized clusters into co-operatives, assisted by nodal government agency. In addition, agencies like Cotton Textiles Export Promotion Council (TEXPROCIL) shall be entrusted with a bigger role in helping to build and develop necessary support infrastructure capacity in various clusters Need to develop common testing , design facilities in the textile clusters certified by a reputed agency

Testing facilities

Laboratory for design with state-of-theart technology should be made available in all zones

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Hard Infrastructure Area Certification labs Issues Testing facility is not available in Indore and the exporters in and around the region have to access the testing facilities at Ahmadabad, leading to delays Suggestions Testing facilities to be created at Indore to facilitate testing and certification for exporters in and around the region

Soft Infrastructure Area Research & Development Issues Import duty on R&D equipments Suggestions The list needs to be extended to cover all equipments rather than selected ones for textiles industry, so that tax exemption shall be availed for procuring these equipments

EXIM Policy Area Anti-dumping duty Issues Indian readymade garments face the highest anti dumping duty in the European Union compared to other countries. This makes Indian exports less competitive as buyer in EU demand lower price to compensate for the antidumping duty paid Imports are usually viewed with suspicion by the Customs authorities at the airport, especially for the textile related items Suggestions The Industry desires that the Government take up this matter with the EU to ensure that there is an equal common import duty for all countries

Customs

Import of textile related items (labels and accessories) should get priority in import clearance at the airports, since the time delay in clearance of these goods adds a cost component which inflates the price of the product for exports Incentives in terms of reimbursement of marketing related expenses are provided for only those trade fairs that are approved by the government. The government may consider the exporters request in this regard.

Other issues

Incentives not provided by the Government to promote exports for attending international trade fairs in Australia and New Zealand.

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Others Area Raw Material exports Issues China and Taiwan which account for about 60% of cotton exports from India, are offering higher prices especially for Shanker - 6 variety which has lead to average cotton prices shooting up from INR 43 - 45 per kg two years back to INR 50 - 52 per kg, affecting Indian industry. European Union is a lucrative market for cotton textiles made from organic farming Indore region has potential for textile clusters Suggestions Cotton and yarn should be converted into value-added products like fabrics before being exported. This may require domestic capacity enhancement and better logistics to transport raw cotton from farm to factory Textile Policy should encourage organic farming New Textile zone should be developed around Indore to exploit the location advantage (enabling easy sourcing of raw material from MP, Punjab, Maharashtra and Gujarat).

Others

4.8 Feedback from trade bodies


Apparel Export Promotion Council (AEPC) AEPC is a nodal agency sponsored by the Ministry of Textiles, Government of India for promoting readymade garment exports from India. APEC indicated that there has been a decline in the exports for the year 2007-08. The reasons articulated were as follows: Rigid labour laws: Issues like restrictions on contract labour, fixed time employment, employment of women in night shift, retrenchment, closure of loss making units, etc. have not only affected production flexibilities, but also discouraged new investment in this sector, leaving it largely decentralized and small scaled. Higher production costs: As per the Gherzi report on cost factors of the textile sector, India's labour cost is 8% higher while power cost is 15% higher than that of China. This translates into higher cost of raw material for the garment industry and affects its competitiveness. Transaction cost: Although foreign trade policy of 2007- 08 has promised to address the issue of high transaction cost; the present state of infrastructure, poor cargo handling facilities, levies, custom handling, etc increases FOB price substantially. Non-Refund of State levies: Various studies conducted by DGFT and Export promotion Council shows that the present state duties amount to 6% of FOB value. This is presently not refunded resulting in these levies being included in the form of increased price of exports. Rupee appreciation against the US Dollar affects the export competitiveness.

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Carpet Export Promotional Council (CEPC) CEPC was set up by the Government of India to promote the exports of hand knotted carpets and other floor coverings. Its main objectives are to support, protect, maintain, increase and promote the exports of hand knotted carpets, woolen druggets and floor covering. CEPC indicated that government intervention would help the industry by: Application of global interest rates for pre and post shipment up to 365 days at interest rate not exceeding 6% to compete against Pakistan, China, Iran & Nepal Exemption from VAT & Sales Tax for export cargo Income Tax Exemption under section 80HHC of Income Tax Act Development of Infrastructure at major clusters covering Bhadoi, Jaipur and Panipat Indian Institute of Carpet Technology at Bhadohi (Uttar Pradesh) under the Ministry of Textile is involved in training and proving technical support. IICT can be assisted to setup and cover other important clusters for skill development.

4.9 Competing countries' scenario


Competition from other low cost countries like China, Bangladesh, Vietnam and Turkey are posing serious threats to industry with their prices being 20% lower than Indian rates. Some reasons for the Indian exports being uncompetitive include: Higher production costs on account of power and capital costs Lower labour productivity Infrastructure bottlenecks causing delays Under developed supply chain management and 3PL logistics service providers Outdated and Inflexible labour laws Fluctuation in the currency exchange rate Lack of capacity and value addition. EU has granted the status of Generalized Systems of Preferences to Sri Lanka, while Bangladesh has got the Least Developed Country status from EU. Pakistan, meanwhile, has got a zero duty tariff level from both EU and US. The non-tariff barriers, such as anti-dumping and countervailing duties, quota restrictions, packaging, labeling, testing and quarantine requirements are affecting Indian exporters. While Vietnams share in exports of textile and clothing has risen from 0.8% in 1995 to 1.6% in 2007, with exports to US increasing from 0.04% to 4.7% in 2007. Bangladesh has improved from sixth position amongst the leading exporters in 2002 to fourth in 2007.The share of China in the US market also soared from 11% to 33.5% in 2007, but has declined in the period January to July 2008 by 4.63%.This decline in export share has spilled over to Vietnam whose exports have surged 23%, Indonesia by 1.37% and Bangladesh by 9% July 2008. Main factors for growth of Vietnam are the July 2000 Bilateral Trade Agreement with the US and the countrys entry into the World Trade Organisation, which helped open the way for foreign companies to enter the country (Gucci, Burberry, Levis and Lacoste all entered Vietnam only after its WTO entry). FDI 5 reached an estimated US$ 6.1bn in 2007, compared with US$ 1.5bn in 2003 .

Economic Intelligence Unit

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Chinas new Labour Contract Law (which went into effect this year) mandates costly social benefits for employees. Along with labour costs, energy and food prices have risen; forcing manufactures to raise their products prices. This is prompting many to look elsewhere for lower-cost suppliers. There are more than 400 Chinese textile companies which have shifted their low-end production to Cambodia, and some 100 others are now setting shop in Bangladesh mainly on account of the prevailing low labour wages there. The main attraction of Cambodia is the countrys preferential trading status with the US and its exemption from the EUs export licenses. Meanwhile, Bangladesh offers various government incentives for investors in its garment industry, such as tax exemption for the first ten years.

4.10 Other recommendations


The sector-specific recommendations and the wish list aimed at improving the overall competitiveness of the textile industry is given in section 4.8. Further details are attached as annexure 3.

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5 Automobiles & auto components


Continuous liberalization since the early 1990s and a large domestic market have made India a prime destination for the global automotive players. The automotive industry provides direct and indirect employment to 10.1 million people (2% of the labour force) and accounts for around 5% of India's industrial output. The Automotive Mission Plan (AMP) 2006-2016 prepared by the Ministry of Heavy Industries & Public Enterprises visualizes India emerging as a destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of US$ 145 billion accounting for more than 10% of the GDP and providing additional employment to 25 million people by 2016. In terms of number of units sold, the two wheeler segment garners a dominant 77% share followed by passenger vehicles at 14%. Commercial Vehicles and the three wheeler segment have a market share of 5% and 4% respectively.

5.1 Present scenario


Passenger/commercial vehicle segment This sector is one of India's largest and fastest-growing manufacturing sectors, with domestic vehicle sales (excluding two- and three-wheelers) more than doubling to 1.9 million units in the five years to fiscal year 2008-09. The passenger vehicle segment consists of passenger cars, utility vehicles and Multi-Purpose Vehicles (MPVs). The commercial vehicle segment consists of Light Commercial Vehicles (LCVs) and Medium & Heavy Commercial Vehicles (M&HCV). On the exports front, there has been a consistent growth over the past six years as depicted below:

Figure 9 : Export trends for passenger and commercial vehicles segment Source: Society of Indian Automobile Manufacturers (SIAM)

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During 2007-08, the growth witnessed in the passenger vehicle and commercial vehicle segment over the previous year was 10.06% and 19.10% respectively. Two/three wheeler segment The two-wheeler industry consists of three segments viz. scooters, motorcycles and mopeds. India is the second largest producer and manufacturer of two-wheelers in the world. However in 2008-09, domestic sales in three wheeler witnessed a decrease to 3,49,719 units from 3,64,781 units in 2007-08. The two wheeler segment performed relatively better registering sales of around 74 lakh units in 2008-09 as compared to around 72 units in 2007-08. The sales volumes of this segment were sluggish during the year 2008-09 primarily due to stringent financing norms and high interest rates. Following the excise duty cut, all major two wheeler manufacturers have reduced the prices of their vehicles in order to pass on the benefit to end customers. However the rising raw material cost could negate the impact of reduction in prices due to excise duty cut.

Figure 10 : Export trends for two wheeler and three wheeler segment Source: Society of Indian Automobile Manufacturers (SIAM) Auto-component segment The auto-components industry is highly fragmented and there are around 5,000 players in the unorganized sector, contributing primarily to replacement market and constituting 23% to the market share. There are around 400 players in the organized sector, contributing to original equipment manufacturers, exports and replacement markets and having a market share of 77%. The component industry has now holistic capability to manufacture the entire range of auto-components e.g. engine parts, transmission parts, suspension & braking parts, electricals, body and chassis parts, equipment etc. The companies in southern region are more specialized in engine and related components, whereas auto component companies in northern region are more specialized in body parts and accessories. Western region specializes more in forging.

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During the past three years, the auto-component industry witnessed a restrained growth due to economic instability and fluctuating business prospects for the automotive industry including rising interest rates, strengthening of the rupee and an unprecedented increase in the cost of raw materials. The overall exports in 2008-09 stood at US$ 3.8 billion as against US$ 3.52 billion in 2007-08l.

* - Estimated Figure 11 : Export turnover of auto-components sector in USD billion Source: Automotive Component Manufacturers Association of India Export destinations The key destinations for automotive exports are the SAARC countries and the European Union as summarized in the table below: Table 7: Major auto/ ancillary export destinations
S No Segment Major Export Destinations

1 2

Passenger Car

Commercial Vehicles 3 Two / Three wheeler 4 Auto-components Source: Various

Developing countries in Asia, Middle East and Africa ( Egypt, Kenya and Nigeria), and Western Europe Developing markets of Asia, Middle East, South Africa and Latin America SAARC nations (Bangladesh, Sri Lanka, Bhutan and Nepal), Columbia and North America Europe, North America, Asia and Africa

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5.2 Geographical presence


The concept of organized auto clusters has started materializing in India. The auto clusters have been established in all the four regions with global and domestic automotive players investing in them along with their component suppliers, mainly tier I. The entities in the automotive industry tend to locate within close proximity in a particular region enabling them to obtain an economic edge in the backward and forward assembly linkages. The below map indicates the geographical presence of the auto clusters in the country.

North
Ludhiana Hardwar Ghaziabad Noida Gurgaon Delhi

Pithampur Rajkot - Halol Jamshedpur

East
Kolkata

West
Mumbai

Nashik Aurangabad

Pune

Hyderabad

Bengaluru Chennai Hosur

South
Figure 12 : Major automotive cluster in India. These clusters are expected to be the prime movers for Indias automotive exports growth. For units located in the western auto cluster, exports are usually undertaken through JN Port. The inland transportation for these units is by roads. Units in North, undertake their exports through either JN Port or Mundra. The inland transport from North to these ports is undertaken through rakes from the ICDs in Dadri, Tughlakabad.

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Units in the auto-clusters in South prefer Chennai Port as their gateway for exports. The Eastern region does not have a very significant presence of auto units. The ones which do exist in East undertake their exports through Kolkatta Port. However the vessels calling in Chennai Port and Kolkatta Port are feeder vessels and the consignment is transshipped either in Singapore or at Colombo.

5.3 Government policies covering exports


Automotive exports have grown by an impressive CAGR of 40% in the last five years. India is also viewed as a manufacturing hub for small cars for the global majors. The Government has undertaken a lot of initiatives to further facilitate the growth of the sector. In 2002, the Indian Government formulated an Auto Policy aimed at promoting an integrated, phased enduring and self-sustained growth of the industry. Some of the policy initiatives include: Automatic approval for foreign equity investment up to 100% No Minimum Investment Criteria Weighted Tax Deduction up to 150% for in-house R&D activities Governments intention on harmonizing the regulatory standards with the rest of world

The Government has also prepared a ten-year (2006-2015) Automotive Mission Plan (AMP) to chalk out a road map for future plan of action and to remove obstacles in the way of competition. The plan envisages a tax holiday for the industry on investments exceeding US$ 225,000, 100% tax deductions of export profits, and deductions of 50% on foreign-exchange earnings. It also calls for a one-stop clearance for foreign direct investment (FDI) proposals in the sector and deductions of 30% of net income for 10 years for new industrial undertakings. To bring down the cost of power and fuel, which accounts for 6% of the manufacturing costs in the auto sector, captive power generation would be encouraged to enable industries to access reliable, quality and cost-effective power. In order to ensure speedy and effective implementation of AMP recommendations, five Inter Ministerial Groups (IMG) were constituted. These groups have been meeting to take forward important issues. In addition, with a view to have greater industry participation, three Joint Working Groups (JWG) under the Development Council for Automobile and Allied Industries (DCAAI) have also been formed. . The Department of Heavy Industries (DHI) is also periodically reviewing the progress of the various AMP recommendations. DHI is mulling over the setting up of a body to coordinate skill development for auto sector. JWG (of DCAAI) on infrastructure, HRD and AMP related matters have been activated to look further into the matter. In addition as per the Foreign Trade Policy 2009-14, following are some of the additional incentives proposed for the Automotive sector o Market Linked Focused Product Scheme (MLFPS) benefits has been extended for export to additional new markets for certain products. These products include auto components, motor cars, bicycle and its parts among others.

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Automobile industry, having their own R&D establishment, would be allowed free import of reference fuels (petrol and diesel), upto a maximum of 5 KL per annum, which are not manufactured in India.

5.4 Export potential


The Automotive Mission Plan (AMP) 2006-16 aims at doubling the contribution of automotive sector in GDP by taking the turnover to somewhere between US$ 122 billion to US$ 159 billion including US$ 35 billion worth exports.

CVs Commercial Vehicles; PVs Passenger Vehicles Figure 13 : Projected automotive exports till 2012 Source: Society of Indian Automobile Manufacturers While export opportunities for the passenger vehicle segment would remain predominantly amongst the small car segment, the exports of two wheeler and three wheelers is expected to become substantial in the years to come.

Figure 14 : Projected auto component exports in US$ million till 2012 Source: Automotive Component Manufacturers Association of India

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5.5 SWOT matrix


The SWOT analysis of the Indian automobile and auto-component industry is indicated in the table below: Table 8: SWOT analysis of the Indian automobile and auto-component industry Strengths Weaknesses Application engineering Multiple tax components in the cost of the Low costs with good technology base vehicle Easy access to raw materials Inadequate R&D facilities Upcoming base for Research and Lack of economies of scale Development (R&D). Supply chain infrastructure bottlenecks Ability to cater to low volumes Proficiency in understanding technical drawings and well conversant in all global automotive standards: American, Japanese, Korean, European Standards etc. Appropriate automation leading to economic production costs Flexibility in small-batch production Growing IT capability for design, development & simulation Respect for intellectual property (IPR) High-skilled manpower Adoption of high quality & productivity initiatives (TQM, TPM, Six Sigma, etc.) Proximity to markets Opportunities Threats MNCs focusing on low cost outsourcing Increase in the fuel prices may lead to opportunity slowdown in the sales Viewed as a global manufacturing hub for small Import of components from ASEAN and China cars will have adverse impact on GDP and Exports projected to grow at over 30% p.a. employment Indias share in world Auto Components is Increased cost of raw materials (steel, etc) expected to grow over 2.5% by 2015 National Automotive Testing and R&D Infrastructure Project (NATRIP), a US$ 400 million initiative, aims to create the state-of-art dedicated Testing, Validation and R&D infrastructure across the country Opportunity to set up R&D centres in India High level of sourcing of auto components from low cost countries (LCC) to act as a growth driver

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5.6 Factors affecting competitiveness


The current ownership of vehicles per capita in India is one of the lowest in the world. Historical trends show an increase in auto ownership as country per capita GDP increases, and there is reason for optimism in Indias case. The BRIC report postulates that over the next few decades Indias rate of GDP growth is bound to exceed the other BRIC countriesnamely Brazil, Russia and China. The logical conclusion is that, if the GDP growth continues in India, and it is stable and sustainable over a period of time, manufacturing output represented by the vehicle output or penetration is bound to grow. However, while the Indian automobile industry grew at more than 15 per cent in the past five years, it is presently facing numerous challenges due to shrinking of demand driven by lack of available consumer finance, high interest rates and high cost of fuel. In addition, the cost of input material has witnessed massive increases. In the last two years, prices of steel, copper and natural rubber have gone up tremendously, affecting various segments of the automobile industry significantly. In addition, following are some of the other factors which are affecting the competitiveness of the industry. These include: Lack of scale in crucial areas of production, distribution, and marketing/saleskey capabilities needed to efficiently access nation-wide and global markets High cost of funding expansion and working capital Lack of managerial talent with international exposure to pursue international expansion opportunities

The factors that affect the competitiveness of auto sector are depicted as follows:

Competitivness Internal and External factors


Automobile & Auto component Industry

Production Application engineering to integrate product with process covering all levels Collaboration, cost reduction and attaining economics of scale Domestic demand Availability of quality raw material at competitive prices

Market Access Supporting logistics & industrial Infrastructure Competitive export cost Reduce time and low transaction cost Research in design, development, innovation and simulation Marketing and Process technology Indian Industry 18 -20% less competitive due to External factors

Figure 15 : Automobile and auto-component industry competitiveness model Source: Deloitte Research

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Strategies for globalization include developing market strength based on unique customer knowledge, and then expanding to take advantage of market adjacencies by expanding into countries with similar segments and in a similar economic development cycle. A company might then develop market niches globally to access additional markets and develop future technologies. Tata Motors plan to develop manufacturing competitiveness follows these strategies. For well over three decades now, the company has invested in a very capable and well staffed R&D organizationtruly state of the art in most of the critical areas of activitybacked up by its optimally automated production facilities. Logistics factors affecting the competitiveness of the auto industry Over the last few years, automobile companies have increasingly realized the importance of logistics as a tool for competitive advantage. Leading automobile companies now rigorously follow the concepts of pull against push and just-in-time to improve the efficiency of their supply chain. Organizations have implemented end-to-end approach integrating functions like purchasing, production planning, order processing and fulfillment, inventory management, transportation, distribution and customer service etc. While organizations have taken up adequate measures within their perimeter to bring down logistics cost, there are several aspects of distribution and supply chain, not entirely under their control, which tends to act as a bottleneck thereby increasing their cost and time period of shipment. Poor infrastructure in terms of poorly maintained and insufficient road network, smaller and congested ports, insufficient warehousing facilities, etc. are seriously impacting the auto logistics industry and causing a significant delay in movement of auto and auto components. In general, the transportation cost alone constitute around 40% of total logistics cost and is increasing; an indicator of ineffectiveness of the transportation system due to multiple factors like delay in customs, ports, inter-state laws, road congestions, lack of infrastructure, etc. All these reasons render the Indian companies less competitive in the global market. From the responses obtained from the primary survey, it was indicated that for export shipments, the respondents from the auto- auto ancillary industry start planning at least 78 days before the consignment is to leave the factory. However even after considerable planning, there is always a delay of 2-3 days and incurrence of additional cost for reasons beyond their control. Some of the factors affecting the logistics movement of export consignments of the auto/auto ancillary industry include port congestion, shortage of containers (both TEUs / FEUs), shortage of trailers / trucks, lack of regular train services to bring the hinterland cargo to the ports, increase in sea freight cost etc.

5.7 Feedback obtained from industry trade bodies


Automotive Component Manufacturers Association of India (ACMA) and Society of Indian Automobile Manufacturers (SIAM) The following were the observations and recommendations made by the trade bodies: External factors (beyond the industries control) make Indian auto sector about 18-20% less competitive Against exports of INR 3.5 billion, imports were recorded at INR 4.9 billion (Imports have remained higher than exports in the last 5 years). Imports are mainly from Europe /Japan where car manufacturers have their bases and China where the cost is 30% cheaper. Chinas advantage is due to lower taxes, cheap power, labour, fixed exchange rate, favourable land cost etc

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To comply with WTO guidelines, the government can assist the industry by providing necessary subsidy in auto / auto ancillary R&D activities and also by stepping up measures for environment protection The Auto policy prepared by Ministry of Heavy Industries & Public Enterprise, Government of India should be implemented without any delay Classification of imports under the category Others should be discouraged in order to have a precise data of different items imported which would help in FTA (WTO) trade negotiation. It would also help the government impose anti-dumping duty where ever required. Disparity in import duty between raw materials and components (duty slab being higher for raw materials import vis--vis the import of auto-components R&D should be encouraged for Automobile sector, which should also cover subcontracting to agencies abroad that have the expertise to design and develop products, subject to patents being held by Indian companies While Original Equipment Manufacturer (OEM) suppliers have to adhere to a very high standard of quality there is some difference in the quality standards for auto parts and components produced for after sales market. For India to develop as a global auto hub there is a need for industry standards including after sales products to be of superior quality. Many automobile units such as Hyundai, Ford India, Mahindra, Mitsuibishi, etc. along with hundreds of automobile ancillaries have recently been set up at Kancheepuram District of Tamil Nadu. The volume of export from this area has been quite significant. Government should declare Kancheepuram District as an Industrial Cluster for automobiles and provide infrastructure facilities of global standards.

5.8 Major bottlenecks identified and recommendations


Some of the issues that impede the seamless movement of the export consignment as identified by the shippers of auto/auto components and their indicative suggestions for the improvement of the same are mentioned below:

Hard Infrastructure Area Port Infrastructure Issues International ports like Nagoya in Japan and in South Korea have a capacity to handle more than a million vehicles annually (Approx. 1.9 million completed automobiles) are shipped from the Port of Nagoya, with about 113,556 motorbikes. It has yards capable of accommodating a total of 38,000 cars, an inspection facility and a test course. India presently does not have such automobile specific infrastructure Suggestions India needs to develop at least two major car terminals - one near Chennai / Ennore (to serve the southern hubs) and other in South Gujarat to link the northern (NCR region) and western (Pune) hubs. The car terminal should be capable of handling two foreign going car carriers simultaneously (700 meters with 12 meters draught) with a multi berth / coastal berth for costal/feeder vessels.

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Hard Infrastructure Area Issues Congestion at JN Port has been identified as the one of the root cause of shipment delays. The total time taken for the handing over the container to the shipping line, once the same enters the port gates should not take more than 3-4 days, However due to congestion, there is always a minimum of three days delay for the same Poor road conditions at some of the auto industrial estates causing marginal increase in the cost of shipment There is a major water scarcity in Shapar (Rajkot district) for industrial estate and surroundings areas It has been indicated that by 2016, the total requirement of power by the auto industry would be 6,760 MW. This would mean an additional 2,500 MW of electricity. It also been given to understand that at present around 4050% power is being generated by the industry in-house, which being a costly affair adversely affects the competitiveness of the Indian auto industry. ACMA has indicated that the Indian auto component industry has lost its competitive advantage due to high costs of power due to a large portion of its requirement being met through expensive self generation Suggestions Promotion of other ports / diversion of cargo to other ports will help reducing the congestion at JNPT

Road infrastructure

A separate corpus fund should be allotted to the maintenance of roads by the respective Industrial Development Corporation The state government shall take necessary measures to mitigate water scarcity It is the responsibility of the government to provide clean, stable and un-interrupted supply of power to the industry. Industry may work out projections for the geographical dispersement of demand for electricity in the future. This is essential to have a better understanding of the additional amount of electricity required at different regions / states. Automobile industry can also explore the possibility of forming a rd 3 party SPV for putting up captive power plant having the minimal economically viable levels of generation

Water

Power

Soft Infrastructure Area Training Issues There is a problem of getting trained labour in the Rajkot Cluster for auto & auto components. In addition, to improve the export competitiveness of the auto sector, there is a need for quantification of Suggestions To meet the growing scarcity of th trained human resources, the 11 Five Year Plan Working Commission has recommended setting up of a National Level Automotive Institute which will run

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Soft Infrastructure Area Issues the future requirement of skilled manpower and also the new skill sets and competencies that would be required in future and the strategies to fill in this gap Suggestions training courses in automobile sector and formulate courses and modules for training in Automobile sector to be imparted by various ITIs and ATIs. The Institute can also work as a repository of data and knowledge for analyzing business trends within the country and globally and making it available to the industry. The Institute can also be resource base for the Department in formulating policies in the auto sector. Accordingly it has been viewed that it is of utmost importance for the industry to keep abreast of the fast changing scenarios and automobile technologies and efforts should be made by Indian industry towards enhancing their R&D investments. DHI has set up an IMG (R&D) with the prime objective of improving coordination amongst the various Ministries / agencies and industry on the automobile related R&D initiatives being undertaken /. supported by them. This initiative will not only help avoid duplication, but also help optimize the use of limited resources and bring about synergy of efforts. This forum would also provide an excellent platform for understanding the efforts being made by different ministries, agencies and industry and help in building consensus on the key priority areas to be focused upon. These efforts should lead to the developing the national recommendations on R&D efforts in the automobile sector

R&D

It has been observed that there is lack of R&D initiatives undertaken by the auto industry. It has also been noted that there is also a lack of proper coordination amongst the various Ministries and agencies who have taken up or sponsored auto sector R&D and that the industry has mainly relied on borrowed technology, which at times is suboptimal.

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EXIM Policy Area DEPB Issues Renewing procedure for DEPB license is a very cumbersome There is no specific definition of DEPB scheme for three wheeler segment. There have been instances when three wheeler companies have faced some problems regarding the claiming of DEPB as their products have front engines Suggestions Hence there is a need to increase the DEPB license validity period The segment requires specific definition of DEPB for SKD, CKD & CBU condition of vehicles. In addition, the industry feels that the DEPB rates should be increased to support the three wheeler industry as it has huge growth potential. Earlier it was 14-16% of the FOB value and presently it has come down to 9% only for the three wheeler sector. The exporters have indicated that the government should continue with the DEPB scheme. The benefit accrued from the DEPB scheme, say at 3% of FOB comes to around INR 30,000 to INR 40,000/- which takes care of inland transportation cost and provides some respite for the exporters This segment has also huge exports potential. Accordingly the government should provide special attention on this segment. As Automobile sector consists of small and medium size manufactures / vendor also, any major changes in the policy should be notified at least 3 to 6 months in advance before implementation, to enable proper understanding of the procedures be developed. This would enable mitigation of many problems faced by the small manufacturers. One month can be given for the documentation procedures to be completed and another two months can be given

The government has been mulling over the plan to discontinue the DEPB scheme

There is no DEPB Rate available for mini tractor segment

Schemes / Policy

Any major policy changes as communicated to the exporters on a very short notice sometimes forcing them to forgo their export commitments

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EXIM Policy Area Issues Suggestions for providing training to the staff members implementing the policies along with the exporters Taxation Currently taxes are levied at the city level (octroi), state level (sales tax, registration) and at the central level (excise). Depending on the location of manufacturing and the suppliers, these taxes total to a substantial figure. Central and state taxes and levies on manufacturing increases the cost of the automobile There is a need to streamline the tax structure and accordingly reduce the cost of ownership.

The government should proceed on internal reforms at an accelerated pace by bringing in full country-wide VAT and at the same time withdrawing all other central and state taxes and levies on manufacturing. The government should also implement a comprehensive GST and reduction of tariffs on raw materials, before further reduction in the automotive tariffs is done. The same should preferably be done in consultation with industry Customs Dept. needs to make arrangements to work on weekends (like in factories in a shift system).

Customs

If public holidays come immediately before / after the weekend then there arises a holiday period of 3-4 days wherein no official work is undertaken. Due to this, the congestion problem at the port is further compounded

Logistics Area Check posts / documentation Issues It has been observed that each state demands a different set of documentation, which usually is not in place during the inter-state movement. In the event of absence of the required set of documents, the truck is made to wait causing delays. Suggestions The Government should consider a uniform single set of documentation valid for the interstate movement across all the states. This would eliminate huge amount of time and money spent in documentation processing. Another element of cost is incurred due to the long queue at check posts which delay shipments and increase logistics

Local, regional

Transportation of auto vehicles is

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Logistics Area and national regulations Issues through car carriers (as they are light cargo) from the manufacturing location to the sea ports and land border posts for exports to neighbouring SAARC countries. There is no uniform specification for car carrier, with each state having different rules and RTO procedures Delays due to octroi collection points / toll tax collection centres - The average distance travelled by a road carrier is just 250 kms a day compared to 650 kms a day in foreign countries due to delays at toll tax collection booths and octroi booths. Rail transport cost works out 15% higher, as rail tariff is based on weight. Due to lack of common standards, car carriers have to pay penalty for violating traffic rules at each state border crossing causing delay and cost overrun. Suggestions costs. Common traffic rules should be formulated and applied at an all India level to save procedural time, expenses and harassment for Interstate cargo movement

A study can be conducted to understand in detail, the routes near the major gateways where major congestion has been taking place with possible solutions that can be beneficial for all. Further the matter can also be discussed with the highway authority for evolving mechanism for speedy and smooth clearance of goods carriers.

Rail connectivity

The Pune Chakan area, despite being a major auto industrial hub, does not have any rail connectivity available at Chakan

SIAM may be mandated to prepare a proposal taking into consideration problem areas, quantity of demand and possible routes available. Proposal can be submitted to all the stakeholders in government to get a viable solution SIAM may consider putting forward relevant grievances faced by the automotive industry in front of Ministry of Shipping Container operators shall seek to address less than 15 MT slab that may boost the rail cargo movement Existing schemes like Industrial

Last mile connectivity

Lack of connectivity to ports, frequent changes to tariff and no proper parking spaces near ports creates problems There is no CONCOR tariff slab for cargo below 15 MT owing to which exporters prefer to send light cargo by trucks Setting up of new auto clusters and

Others

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Logistics Area Issues augmentation of the already existing auto clusters / auto parks Suggestions Infrastructure Upgradation scheme (IIUS) by Department of Industrial Policy and Promotion (DIPP) and schemes of SMEs by Ministry of MSME should be availed to set up new clusters and augment the existing clusters. If gaps continue to prevail then GOI could be approached for new initiatives. Also SIAM and ACMA should hold wider consultations with their members and furnish their views on feasibility and likely contours for development of new auto clusters. To address the various issues, since government intervention in all the areas is not possible, it is felt that there is also a need to create viable business models to solve the present problems and infrastructure deficit in the automobile sector

Others Area Fragmented component industry Raw Material Issues Indian auto industry is highly fragmented. This fragmentation is preventing players to meet large volume demand of global auto majors. There has been a substantial increase in the price of raw materials like steel and rubber over the past few months thereby affecting the profit margins of auto auto component manufacturers The shipment to Dubai usually reaches within a week. If there is any delay from the Indian Bank to forward the LC related documents to its Dubai counterpart, the consignment has to wait at the Dubai port before being released thereby attracting demurrage charges for the buyer Suggestions Industry structure is evolving with more major players entering India. This will lead to consolidation in future The industry requires a more liberal credit facility to meet the working capital requirements

Financial Institutions

The RBI should direct all the banks to act on LC related documents on a priority basis

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Others Area Alternative fuels Issues Increase in fuel costs impacts the sale of automobiles Suggestions Government should assist R & D initiatives for developing alternative automobile fuels. Thrust should be more on environmentally-friendly modes.

5.9 Competing countries scenario


Japan The automotive industry is one of the core industrial sectors of Japanese economy. Japan is the world's largest automobile manufacturer and exporter by number of vehicles manufactured in a year and has three of the world's ten largest automobile manufacturers. In the first quarter of 2008, Toyota surpassed American General Motors to become the world's largest car manufacturer. The Japanese automakers and suppliers over the years have pioneered quality products, aggressive pricing, and unique business practices. Japanese motor vehicle manufacturers are pioneering development and commercialization of fuel cells, hybrid vehicles, and intelligent vehicles. China China has an underlying competitiveness in various factors ranging from human resources, energy costs, cost of the no-exit policy, engineering capability, lower taxes, fixed exchange rate, land cost etc. The auto policy enacted in China is a single-minded document aimed at fostering the creation of large multinationals in the auto sector and has played a large part in making Chinese industries competitive and has enabled them to flourish in the last few years. Thailand Double digit export growth over the past few years has illustrated Thailands rising significance as a regional automotive manufacturer and supplier. Several major auto manufacturers rely on their Thai operations to serve both domestic and regional demand. Thailands extensive supporting network of auto parts manufacturers is also a crucial advantage contributing to the industrys strength while giving Thailand an edge over its competitors. The Board of Investment (BoI), Thailand is attracting high-level parts suppliers by offering priority activity status to investments in identified key components. Priority activity status confers the maximum incentives of eight-year tax holidays, duty-free machinery, and other important rights and benefits such as visa and work permit support and land ownership rights etc. In addition, the BOI has also provided maximum incentives to activities that support development of target sectors such as auto industry. These activities include R&D, design activities and human resources development. South Korea South Korea has emerged as a regional hub for the global auto-parts industry. The Asian financial crisis (1997-98) made Korean assets cheap. In this process, global giants bought out scores of struggling carparts companies. The U.S. and European entrants brought along fresh capital and state-of-the-art manufacturing practices, helping to elevate local quality. Korea's parts makers offer higher quality than their Chinese counterparts at costs that are lower than in Japan.

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The South Korean Government on its part is aiming to position its automotive manufacturing industry among the world's top four by 2010. Accordingly, the government has taken various measures for creating an environment conducive to achieve the referred objective. This includes forming automotive parts clusters, announcing tax holidays for companies operating in these zones. A comparative chart of the referred countries vehicle registration numbers and retail sales of petrol for the year 2007 is depicted in the table below. High registration numbers across all segments of vehicles in China is a reflection of the increased cargo movement, construction material movement for infrastructure development and also the rising income levels leading to an upsurge in the sales of passenger cars. Table 9: Vehicle registrations in 2007 across the leading Asian automobile manufacturing nations Japan S Korea Thailand China India New passenger car registrations ('000) 4,400 986 178 4,701 1,575 Stock of passenger cars (per 1,000 population) New commercial vehicle registrations (000) Light commercial vehicle registrations (000) Heavy & medium truck registration (000) Retail sales of petrol (000 tonnes) Source: Economist Intelligence Unit, U.K 484 938 766 172 47,071 219 233 N.A N.A 9,067 N.A 456 N.A N.A 6,321 14 5,100 2,045 3,055 47,032 10 536 227 309 11,047

5.10 Other recommendations


Need for Innovation R&D should be encouraged for the automobile industry, which should also cover subcontracting to outside agencies abroad who have the expertise to design and develop products, subject to patents being held by Indian companies (provision should be made to allow on selected basis especially for major important components needed by the industry) The Auto policy should encourage Tier 1 companies which are mainly in Product Technology to encourage setting up and developing Tier 2 and 3 companies which are in Process Technology. This would enable development of more indigenous component manufacturing capacity, reducing imports and facilitating innovation based on cost reduction and new material. This can only be possible if all levels of manufacturers are present in India, as any change in the make of the component has to be approved and accepted by all to fit in overall final product design.

Logistics route assessment Society of Indian Automobile Manufacturers (SIAM) can consider conducting a route assessment from various manufacturing plants sites across the country, till the land border with SAARC countries, and identify issues, locations and infrastructure requirement like CNG pumps and repair facility en-route the land border crossing. The study would also identify the problems faced in border crossing. This will help in creation of required infrastructure facility, so that CNG and other exports vehicles can drive down to the border saving time and cost due to trailer charges (PROJECT)

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A transport committee in coordination with the state government and Society of Indian Automobile Manufacturers (SIAM) can evolve a set of rules and guidelines based on the existing state of transport infrastructure available in the country. A separate revised fixed annual charge for National permit vehicles and for car carriers can also be considered which would include one time yearly penalty to stop the state wise fines being imposed on car carriers

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6 Food processing
The food processing industry in India is one of the largest in terms of production, consumption, export and growth prospects. Rapidly rising per capita income levels and renewed corporate interest in the organized retail market shall act as growth drivers for the Indian food industry, which is poised for a quantum jump. It is estimated that the sector is likely to grow over US $ 310 billion by 2015. Food processing involves any type of value addition to agricultural or horticultural produce and also includes processes such as grading, sorting, and packaging which enhance the shelf life of food products. Food processing industry provides vital linkages and synergies between industry and agriculture. India with arable land of 184 million hectares, produces annually 90 million tonnes of milk (the largest), 150 million tonnes of fruits & vegetables (2nd largest), 485 million livestock (the largest), 204 million tonnes of food grain (3rd largest), 6.3 million tonnes of fish (3rd largest), 489 million poultry and 45,200 6 million eggs . Indias agricultural production base is quite strong but at the same time wastage of agricultural produce is massive. Processing level is very low i.e. around 2 % for fruits & vegetables, 26 % for marine, 6 % for poultry and 20 % for buffalo meat, as against an average of 60 -70 % in developed countries. Despite its raw material base, India accounts for only 1.5 % of the international food trade. This shows the huge potential available for both investors and exporters in this sector. High availability of land, low cost of labour and abundant availability of raw materials make India a very favourable location amongst investors. Several global food giants and leading Indian industrial enterprises are already making their presence felt in a big way in the sector. Some of them are Nestle India, Cadbury's India, Kelloggs, Hindustan Unilever, ITC-Agro, Godrej Foods and MTR Foods. It is estimated that the food production in India is likely to grow two-fold in the next ten years. Thus, there are ample opportunities for investments in food and food-processing technologies and equipments; especially in areas of canning, dairy & foodprocessing, specialty processing, packaging, frozen food and thermo processing, cold chains and in the area of food retail. Ministry of food processing in its Vision 2015 document has estimated the size of processed food sector to treble, processing level of perishable to increase from 6 % to 20 %, value addition to increase from 20 % to 35 % and Indias share in global food trade to increase from 1.5 % to 3 %. The governments focus towards food processing industry as a priority sector will ensure policies to support investment in this sector and attract more FDI. India with its vast pool of natural resources and growing technical knowledge base has strong comparative advantages over other nations. According to CII estimates, food-processing sector has the potential of attracting US $33 billion of investment in 10 years and generate employment of 9 million person-days. The food-processing sector in India is clearly an attractive sector for investment and offers significant growth potential to investors.

The numbers given in brackets are world wide rankings

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6.1 Present scenario


The food processing industry consists of fruits & vegetables, dairy, edible oils, meat & poultry, fisheries, non alcoholic beverages, alcoholic beverages, confectionery, grains processing, packaged & convenience food and floriculture. The detailed description of each of these sub sectors is mentioned in Annexure 4 which provides information of export quantity, country of export, etc.

6.2 Geographical presence


The food processing companies / cluster is spread across the country. With large number of retail industry getting organized, the food processing industries are poised to grow exponentially. Government of India is planning to set up 30 mega food parks across the country. GOI also estimates FDI in this sector to further record a three-fold rise to touch US$ 325.93 million by 2009. The details of the licensed FPI units in the country are given in annexure 7. Major multinational companies like Coca-Cola, Pepsi, Britannia, Danone, Nestle, Cadbury, Unilever, Kelloggs, Heinz, International Best Foods, Walls, Perfetti and Van Melle already have presence in India. Many more MNCs are set to enter India in a big way.

6.3 Government policies covering exports


Food processing and agro industries have been given high priority by the government with a number of important incentives and subsidies being made available. Some of the important policy changes are as follows: Regulation and Control FDI up to 100 % is permitted under the automatic route in the food infrastructure (Food Park, cold chain / warehousing) Automatic approval to FDI up to 100 % equity in FPI sector excluding alcoholic beverages and a few reserved items Foreign investments are allowed in SSI reserved items under an export obligation (pickles, chutneys, bread, pastry, hard-boiled sugar candy, rapeseed oil, sesame oil, groundnut oil, sweetened cashew nut products, ground and processed spices other than spice oil and oleoresin, tapioca sago and its flour) FDI up to 100% is permitted on the automatic route for distillation & brewing of alcohol subject to licensing by the appropriate authority No industrial license is required for almost all the food & agro processing industries except for some items like beer, potable alcohol, wines and cane sugar. Animal fats & oils and items reserved for exclusive manufacture in the small-scale sector. Up to a maximum of 24% foreign equity is allowed in SSI sector. Fiscal policy and taxation: Rupee is now fully convertible on current account and convertibility on capital account with unified exchange rate mechanism is foreseen in coming years

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Repatriation of profits is freely permitted in many industries except for some, where there is an additional requirement of balancing the dividend payments through export earnings Liberal corporate tax policy is applicable for export and domestic earnings, income tax rebate allowed (100% of profits for five years and 25% of profits for the next five years) for setting up of new agroprocessing industries to process and package fruits & vegetables Fruits & vegetables, and dairy machineries are completely exempt from central excise duty. Central excise duty on preparation of meat, poultry and fish, pectin and yeast is also completely exempt. Quantity restrictions on all food products have been removed. Peak rate of customs duty has been reduced from 30% to 25% (excluding agricultural and dairy products) and duty structure on designated items has been rationalized. Customs duty on refrigerated goods transport vehicles has been reduced from 20% to 10% Excise Duty of 16% on dairy machinery has been fully waived off and excise duty on meat, poultry and fish products has been reduced from 16% to 8%.

Export promotion Food-processing industry is one of the thrust areas identified for exports. Free Trade Zones (FTZ) and Export Processing Zones (EPZ) have been set up with necessary infrastructure. Also, setting up of 100% Export Oriented Units (EOU) is encouraged in other areas. They may import free of duty all types of goods, including capital foods. Capital goods, including spares up to 20% of the CIF value of the capital goods may be imported at a concessional rate of customs duty subject to certain export obligations under the EPCG scheme. Export linked duty free imports are also allowed. Units in EPZ / FTZ and 100% EOU can retain 50% of foreign exchange receipts in foreign currency accounts 50% of the production from EPZ, FTZ and 100% EOU units, are saleable in domestic tariff area All profits from export sales are completely free from corporate taxes and also exempt from MAT Setting up of 60 agricultural zones for end-to-end development for export of specific product from geographically contiguous areas. 53 food parks were approved to enable small and medium F & B units to set up and use capital intensive common facilities such as cold storage, warehouse, quality control labs, effluent treatment plant, etc. 100% Automatic FDI is allowed for setting up of Industrial parks as well Regulatory framework There are different laws that govern the food-processing sector in India. The prevailing laws and standards adopted by the Government to verify the quality of food and drugs is one of the best in the world. Multiple laws / regulations prescribe varied standards regarding food additives, contaminants, food colours, preservatives and labelling. In order to rationalize the multiplicity of food laws, a Group of Ministers was recently set up to suggest legislative and other changes to formulate a modern, integrated food law, which will be a single reference point in relation to the regulation of food products. The food laws in India are enforced by the Director General of Health Services, Ministry of Health and Family Welfare, Government of India (GOI). The detailed description of the food laws are mentioned in annexure 6.

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6.4 Export potential


With the success of Green and White Revolution, India is now poised for the Food Revolution. Entry of multinationals, low cost of technology and rise in commodity branding has resulted in a change in the Indian food industry. Indian food-processing industry is poised for explosive growth driven by changing demographics, growing population and rapid urbanization along with increased government support. These factors will increase the demand for value added products and thus improve the prospects of foodprocessing industry in India. The governments focus towards food processing industry as a priority sector will ensure policies to support investment in this sector and attract more FDI. India with its vast pool of natural resources and growing technical knowledge base has strong comparative advantages over other nations. According to estimates, food-processing sector has the potential of attracting US$ 33 billion of investment in 10 years and generate employment of 9 million person-days. The food processing sector in India is clearly an attractive sector for investment and offers significant growth potential to investors.

Vision 2015 adopted by this Ministry of Food Processing envisages Trebling the size of the processed food sector Increasing level of processing of perishables from 6% to 20% Value addition to increase from 20% to 35% Share in global food trade to increase from 1.5% to 3%

6.5 SWOT matrix


The SWOT analysis of the Indian food processing industry is indicated in the table below Table 10: SWOT analysis of the Indian food processing industry Strengths Weaknesses Abundant availability of raw materials Poor cold chain infrastructure Relatively young population High transportation costs High availability of irrigated /arable land in India Lack of 3PL / 4PL logistics service provider Vast network of manufacturing facilities all over Fragmented supply chain the country High taxes & regulations Poor lobbying by Indian Government High requirement of working capital Inadequate automation Remuneration is less attractive to lure talent pool Inferior usage of seeds Inefficient farm management High cost of power & other utilities Poor branding & marketing Inadequate linkages between R&D labs and industry

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Opportunities Life style changes and rising income levels of population Vast rural consumer base (potential) New food and food-processing technologies Opening up of global markets will lead to export of our developed technologies and facilitate generation off additional income and employment

Threats Huge competition from global players Loss of trained manpower to other industries and other professions due to better working conditions prevailing there. Technology (food processing) obsolescence.

6.6 Factors affecting competitiveness


The major factors that influence the export competitiveness of textile sector are mentioned below:

Competitiveness Internal and External factors


Processed Food

Production Large scale processing capacity to cover export orders Competitive interest and power tariff rates Flexible labour laws with training standards Supply chain integration

Market Access Supporting logistics & industrial infrastructure Competitive export cost Reduction in time and low transaction cost Collection and transportation network

Figure 16 : Food Processing industry competitiveness model Source: Deloitte Research

Organized and short supply chain Infrastructure

Logistics service

Supply chain need to be efficient, agile and adaptable that can handle larger volumes, expand reach, balance cost and address the demographic variations while providing scalability Faster road and rail movements at cheaper rates Cold chain infrastructure Terminal markets Effluent treatment plants Should have a proper 3PL/ 4PL logistics service provider

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providers Cost & quality of farm produce Packaging Warehousing & transportation Support facilities R&D Branding

Good quality of farm produce at reasonable prices Low packaging cost State of the art warehouses and container handling terminals Power, water and other utilities at a reasonable rates Research on better farm produces and high quality seeds Branding initiatives at international level and tie ups with retailers Marketing campaigns and road shows inviting the food retailers and marketers to the Indian market and pushing for growth of Indian retail industry High reliance on the merchant exporters in the supply of raw materials is leading to price pressure on processors Proper know how of export procedures will increase the competitiveness Proper understanding of destination market is required for developing the new products Poor quality seeds and planting material, lack of advanced harvesting methods, cold chains reduce the productivity of the processed food Proper linkages between farmers, the industry and the R&D institutions are required

Direct access to importers Know how of export procedures Proper understanding of destination market Productivity at farm level Linkages

6.7 Feedback obtained from industry trade bodies


The Agricultural and Processed Food Products Export Development Authority (APEDA) was established by the Government of India in 1985, replacing the Processed Food Export Promotion Council (PFEPC). Processed food culture is still to be developed in India as people prefer fresh fruits due to its availability. Large domestic capacity still not set-up in India which can service the whole market including exports Need for domestic infrastructure development covering cold storage and logistics chain Need to have integrated transportation which can reduce weight of foods by semi processing to avoid damage.(example tomato pulp can be transported instead of whole tomatoes) Meat processing requires high investment in modern abattoir , with supporting cold chain and scientific rearing of livestock to avoid diseases State animal husbandry needs to be developed

Feedback from Tea Association of Coimbatore and Seafood Exporters Association of India has been covered in the section below.

6.8 Major bottlenecks identified and recommendations

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In this section we shall identify the major hurdles / bottlenecks faced by the food processing exporters. The issues related to hard infrastructure, soft infrastructure, policy and other issues are mentioned below:

Hard infrastructure
Area Road Issues Longer transit time for the transportation of fruits and vegetables from various destinations to factory For example, it takes around 5 days to transport 10 tons of fruits from Bihar to Hyderabad which costs over INR 1 lakh. The time traveled by the trucks in a day in India is very less when compared to the international standards. Indian cargo travels 250 to 300 km per day vis--vis 600-800 km as per international norms. Railways do not have a proper cold chain / refrigeration facilities Suggestions Government should initiate steps to improve the road conditions and increase the per day distance covered by the trucks

Rail

There is poor connectivity to specific food producing regions by the railways. This forces the transporters to rely on other modes of transport which are costlier Water seepage inside the containers during the monsoons, leading to spoilage of processed food stored inside the containers Congestion, labour strikes and slow handling of the cargo at the various ports causes huge delays in the export of processed food consignment which has a shorter shelf life There is shortage of warehouses at the airports across the country

Port infrastructure

Railways should come up with projects to create refrigerated storage facilities. These projects can be taken on PPP basis Railways should connect food parks and build storage & handling capacity. This would lead to better connectivity and lesser wastage of food products. Ports should have proper raised platforms for storing the containers during the monsoons Processed food consignments should be given priority at the ports for handling, clearance and export as these items are perishable State-of-the-art warehouse facilities need to be created at the major airports Inland water transport mode should be encouraged for transporting the processed food across the country as IWT mode costs much less than land and rail transportation charges Government should take up this issue on a priority basis and should

Airport

Inland water transport

There is less usage of inland water transport for shipment of processed foods, especially fruits and vegetables in the eastern region to western region. Power supply is a major requirement for food processing and there is a major

Power

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Hard infrastructure
Area Issues problem of power shortages across the country. Exporters end up paying huge amounts of money on generators. This issue was mainly reported from the states of Kerala, Tamil Nadu and Maharashtra There is shortage of supply of potable water for peeling sheds in Kerala Food processing requires potable and adequate water supply. There is a shortage of availability of potable water for the processing units Shortage of cold chain infrastructure in India Refrigerated trucks - There is a need for more refrigerated trucks to cater to the industry. It is estimated that about 25000 vehicles are involved in perishable products transportation of which dairy (wet milk) constitutes about 80% thereby leaving only about a fleet of 5000 refrigerated transport vehicles for all other categories put together Suggestions try to provide reliable electricity for the food processing units.

Water

Steps to ensure adequate supply of potable water to the food processing units

Warehouses & Cold chain

Lack of common cold chain facility is a major cause of concern. This is forcing the companies to have their own cold chain infrastructure facility.

There is a need for cold storage facilities at the airports across the country Availability of reefer containers is a major

Empty / reefer

Government should take up projects in providing temperature controlled warehouses of varied capacities, refrigerated transport vehicles and other auxiliary facilities. The project should have end to end capabilities across the entire supply chain and would cater to the requirement of various industries where controlled atmospheric conditions are necessary for storing raw materials, intermediate and finished goods. There is an urgent need to build the integrated cold chain functions across the country in order to provide advanced environment controlled warehousing and transport solutions, right form the farm till end use consumption. It will assist in storage of significant quantity of commodities to enable uninterrupted supply throughout the year. The presence of these facilities will reduce the fixed costs for the companies. Initiate projects to have state-ofthe-art cold storage facilities across the major and tier I & tier II airports Government should consider

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Hard infrastructure
Area container / trucks Issues issue in Andhra Pradesh & Kerala. This causes a major delay in the transit time for exporting the consignments. Shortage of empty containers is a common problem with the exporters especially in the South. This is forcing the exporters to fetch the empty containers from the ports and thereby incurring huge costs. There is a shortage of common effluent and waste treatment plants across the country. This is a major requirement for the food processing where huge quantities of effluents which gets generated are required to be treated before letting out. There is a shortage of terminal markets across the country Suggestions setting up of authority that can oversee the demand supply scenario of the containers amongst the various ports and ICDs and coordinate the same with the exporters so that they can get the reefer and empty containers from the nearest locations at the shortest possible time. Government shall provide special incentives / grants to FP clusters to help them set up ETPs.

Waste treatment plants

Terminal markets

Certification labs

There is a shortage of quality certification labs across the country Testing charges - Export Inspection agency checks the export sample and the charges varies from US$ 3 to 10 per sample depending on the value of the consignment. Since the tests done are uniform, the agency should have a nominal flat out rate charge instead of charging it as per the value of the consignment of the sample. The agency may charge the same by weight instead of consignment value. Huge time delays in testing of the

Need to have more terminal markets across the country. Government needs to replicate the SAFAL market model across the country. Initiatives should be taken in such a way that these markets are constructed at all the urban cities within a span of 5 years. Smaller replicas of the same can be considered in the suburban and rural places. Government should initiate steps for setting up quality certification labs across the country. The government should direct the testing agencies to charge a flat out rate per sample instead of the testing rate being decided by the value of the consignment.

The government should establish 2

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Hard infrastructure
Area Issues samples of wines meant for exports In case of wine exports around 4 bottles of wines are required to be sent to the Central Food Technical Research institute (CFTRI) at Mysore, which is recognized by the European Union. These samples have to be sent by exporters with a requisite letter from the Excise Department. After testing, the institute is required to issue a certificate indicating that the samples are fit for human consumption. The testing of such samples takes a lot of time (20-25 days), since the institute is the only one in the country. The export consignments are not allowed to be cleared without the certificate. For certain countries Phytho sanitary certificate has to be collected which involves time and money. There is a shortage of food processing zone and food parks across the country Suggestions more CFTRI like institutes to ease the pressure on Mysore CFTRI. This will enable the wine exporters to get their sample testing done in less time. There is also a need for reducing the need for shortening the testing time to around 10 days.

Others

GoI should take up with such countries to have an independent survey certification accepted. Steps should be taken to have food processing zones in each of the states. This can be operated on a PPP basis Government should look into setting up pre-processing centers and pre-cooling facilities near farms & mandis, and upgrade food processing clusters.

Soft infrastructure Area Issues Labour There is a shortage of skilled / unskilled labourers for the marine food processing sector. Research & There is a shortage of advanced Development technology usage in the processed food testing laboratories Indian black tiger shrimp (Pennious Monodone), is prone to disease due to the pollution and contamination of water. The other S.E Asian countries have come out with a hybrid species called

Suggestions Government should initiate actions to start new marine training institutes Government shall try to upgrade the testing labs with the latest technology The GoI should accept the new species of the shrimp for the Indian seafood exporter to capitalize on the export opportunity.

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Soft infrastructure Area Issues Pennious Mannami. This hybrid product is more resistant to diseases, has a better production rate (almost 3 times more) and has a much superior taste than the Indian breed. While the EU has accepted this hybrid variety for exports, the Government of India has not yet accepted the new shrimp species and hence production of this shrimp does not take place in India. Ceramic membrane helps raw milk to be preserved for a longer period and also helps in separating proteins for more casein production. Unfortunately, Ceramic membrane is not available in India and has to be imported from France at a very high cost. The packaging cost are very high in India

Suggestions

Poor cultivation methods adopted in India

India does not have proper R&D for launching new product lines

Training

There is a shortage of qualified trained labour for the food processing sector There is lack of adequate training to farmers which has resulted in wastages and lack of outputs

Export norms in EU countries not very clear about Ghee import hence require assistance from some central agency or association to streamline and develop

There is a need to have proper R&D on ceramic membrane, which will facilitate its development in India at a lower cost. The government can arrange to supply the same to diary industry if required at a subsidized rate. High quality packaging today requires costly machinery as well as costly materials. Research on packaging needs to be stepped up to arrive at cost effective solutions. Govt. should try to invest more money in R&D and try to identify different cultivation methods as adopted by foreign countries which gives them more outputs Government should set up new research and development division to focus on innovation and new product development Government should start training institutions for the encouraging the skilled labour in the sector Policy should promote contract based farming where exporters can develop a regional base, educate the local growers and increase and export output. Government should have a division who can educate the exporters and farmers on various countrys norms (What is prevailing in EU, USA, etc)

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Soft infrastructure Area Issues market in EU The usage of unbranded pesticides by farmers is creating low quality food (raw materials for FPI).

Suggestions Government should also educate the farmers about the ill effects of such unbranded pesticides and launch an awareness program amongst the farmers to use BIS certified pesticides. Government can also try to give some discount on the purchase of the branded pesticides There should be training programs for the employees of the CFS on the LCL stuffing. The Service Level Agreements should be made mandatory by the government and strict actions should be taken against those who do not follow the guidelines

LCL stuffing of food item is not done properly in the country Problem with the Logistics service providers - The logistics service provider in a bid to save cost on diesel, invariably shuts off the DG set of the reefer container after covering some distance from the factory. This leads to the damage of the processed food whose shelf life is short and thereby forcing the exporters to use a vigilance team to keep track on the reefer trucks The shipping bills are required to be filed through the EDI system. Even though the shipper has filed the shipping bill, sometimes the shipping bill does not appear in the EDI system. There is a regular delay for exporters in obtaining necessary incentive benefits from the DGFT. The necessary formalities for incentives should be coordinated between DGFT and customs, however the actual paper formalities occur only when the exporter steps in and follows up with the authorities concerned. Exporters have indicated that obtaining benefits in a timely manner provides them much needed relief and thereby being able to manage their working capital in a much better manner.

EDI

The Customs seriously need to resolve the problems in their EDI system by making it more reliable and robust. There should be proper coordination between DGFT and customs

Policy

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Area Local, regional & national regulations DEPB

VAT & others

Issues There is entry time restriction for trucks and trailers inside the cities which increases the transit time. Eg. Hyderabad, Coimbatore, Gurgaon, Noida etc. DEPB claims have procedural delays Earlier 1% rebate on packing and 2.5 % DEEP was made available to the exporter, which has also been withdrawn. DEPB- The present rate for DEPB on Chilly is 1.2% which needs to be increased. DEPB scheme even though online still require a lot of paper work which needs to be eliminated Different VAT rates in the country

Suggestions The Government needs to come up with alternative routes for the vehicles to move in the city

The office of the DGFT shall consider the merits of the arguments of the exporter community and take steps to reduce the procedural delay, etc.

Market intelligence

Farmers are not aware of the supply demand scenario in the international market. They produce food commodities meant for export which do not have demand during a particular period of time and finally end up wasting the whole produce

Brand Promotion

There is lack of awareness of Indian processed food in the international market Indian tea is usually exported to Kenya and then routed to Pakistan as Kenyan Tea. Absence of strong lobby from India for marine food related exports - The ASEAN countries especially Thailand and China have a strong lobby Indian marine industry has a poor hygiene image amongst the international community

Government should try implementing a common VAT system across the country and try to keep the essentials in the lowest slab Government should come up with a detailed website / magazine wherein the information on international trends and market scenario is readily made available to the farmers. Also there is a need to create a suitable mechanism to pass on this information to farmers on time. Govt. should have promotional campaigns across the globe to popularize Indian processed food Government should look into the issue and try to initiate a dialogue to resolve the issue. India should have a strong lobby to take up the issues faced by the exporters whenever required. Govt. should try to remove the poor sanitary and hygiene image for Indian marine foods products in the international markets by proper branding & seminar participation

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Soft infrastructure Area Issues MPEDA MPEDA scheme: Allowed to import 1% of turnover duty free FOB. Peeling sheds to have a minimum quality

Suggestions Government may have to re-look at the 1% rate and may increase it to 5% Peeling sheds should be MPEDA certified

Subsidy

Financial support

APEDA offers some subsidy through government on reefer inland transportation, but the same is not applicable for food processed exports in normal container transport Lack of adequate and timely funds for the companies

EXIM

Rice variety like PONNI-S India command a higher price than Basmati rice but are not allowed to be exported. In India, exports of the fresh fruits is not looked at seriously, there is no strong support / lobby for the growth of the exports. Sugar exports are decided by GOI. Usually the ban of sugar exports is announced all of a sudden and exporters lose huge amounts of money as they would have already started executing the export orders.

Government should establish a financial institution which can cater to the needs of the entire food processing supply chain and provide credit at the right time. The govt. may allow the export of Ponni variety rice (by studying the pros and cons of export) Need for government facilitation for helping the fresh fruit exports from India Sugar exports being decided by the government, it should provide for adequate time period for the exporters in the event it wants to stop the export of the commodity for a time period for various reasons. In the event the government decides to stop the exports of any commodity say from 1/11/2008, then it should allow transit exports of that commodity i.e. for any order that was executed before 1/11/2008. Policy should also encourage organic food segment Government should devise effective communication modes to disseminate information on all the schemes/ policy to the concerned authorities handling the same

Schemes / policy

Promoting organic food segment in India The government came out with a scheme to encourage product specific exports to the African countries in early 2007. As per the scheme, the exporter would be given certain benefits and incentives. However there was no proper notification provided to the actual ground staff regarding how

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Soft infrastructure Area Issues the incentives and benefits should be provided. The ground staffs were clueless on the type of documents required to avail of the benefits. Some asked for the proof that the product as actually exported to the country in the form of Bill of Entry (which was impossible to obtain, especially for a land locked country) though the shipping bill filed with the Customs actually indicate the country of export. No specific wine policy in India - In India wine exports is not taken seriously unlike countries like Australia, wherein they have specific wine related bodies like the AWBC (Australian Wine Board Council) comprising of wine producers of Australia which assist in wine exports There is a periodic change of various forms by the Government agency and this forces the exporters to adapt to the new forms quite frequently Tea not included in VKGUY - The government should include tea as one of the commodities under Vishesh Krishi Gram Udyog Yojana for the exporters to avail some subsidies. For marine exports to EU, India has to pay a duty of 4.5%. Bangladesh, Indias main competitor, is exempted from this duty on account of its special status Anti dumping duty in US - Indian marine exports face an anti dumping duty which was as high as 26% and now has been reduced to 1.7%, which is not the case for Bangladesh, for which it is practically zero. The ban on certain processed food items are slapped all of a sudden, thereby causing huge losses to the exporters

Suggestions

India should have a specific wine policy in place

Government should try to have the policy and schemes fixed for at least, say, a period of 2 years Steps shall be taken to include tea as one of the commodities under VKGUY scheme

Indian Government shall negotiate with the EU for a similar kind of preferential status Indian government should initiate a discussion with US to remove the anti dumping duty

Government should not implement the ban of commodities overnight or in a short duration and the exporters shall be given reasonable time to this effect.

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Soft infrastructure Area Issues Others Government authorities charging commission on the duty draw back schemes refunds

Indian winery is not branded internationally

Suggestions Government shall put in place a robust corruption prevention mechanism through policy interventions (including punitive measures) and by simplifying the refund procedures The government shall make every efforts to position and brand Indian wines in the world market through campaigns, seminars an and advertisements India shall follow policies on the lines of that of the Australian government.

Other issues Area Intermediaries

Issues Involvement of multiple intermediaries in the supply chain

Lack of best practices Shortage of raw materials

Absence of post harvesting facility and Infrastructure causing loss in post harvest collection There is a shortage of raw materials for food processing

Suggestions Length of the chain of commission agents need to be reduced with an ideal situation of eliminating the commission agents completely. Need to have better post-harvest management systems Government should try to improve availability of appropriate variety of raw materials at reasonable price through increased productivity, focused R&D, procurement and storage Government should try to acquire new improved varieties of seeds Government of India should take actions for banning foreign trawler vessels fishing in Indian waters

Shrimps and fish: There has been irregular supply of shrimps and fish for processing in the recent years which makes the companies impossible to satisfy the order book positions High cost of plastic granules (raw material for packaging material) due to the increased price of naphtha, the feedstock for polymer manufacturing Packing material like cans, glass bottles are subject to excise duty and tax which

Packaging

Duty reduction on petroleum derivatives may be thought of to contain the price of plastic packaging materials Excise duty on packaging material has to be reduced

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Other issues Area

Issues reduces export competitiveness. Cost of packaging is the other major constraint for this sector. Cost of packaging ranges anywhere from 10 to 60% of production cost. The post and pre shipment credits are high in India which makes the finance cost higher for the exporters There is a shortage of contract farming in India. Contract farming is an important factor which appears to have helped the growth of the processing industry as well farmers incomes. Processor-farmer linkages lacking in the country Processed food and fresh food prices are usually within a reasonable comparative range in developed countries. In India, however due to a variety of factors processed food prices are higher than fresh food.

Suggestions Reduce the higher level of intermediation in the Indian food chain Improve the credit and lending facilities to promote exports Take necessary steps to encourage contract farming

Others

Need for development of relationship between farmers and processors for productivity increase Try to achieve scale economies, with cost effective processing will bring down the price of processed food in the market.

6.9 Competing countries scenario


During the interaction with various exporters, the respondents indicated specific competitive countries depending on their product and the USP the competitive country possessed. The table below indicates the competitive countries feedback as obtained from the exporters. Product Mango pulp, gherkins, jams, squashes & sauces Competitor Brazil Thailand China USP These countries have an advantage of a superior infrastructure which guarantees their products reaching the destination as per the promised schedule. The Indian exporters cannot assure timely delivery for circumstances beyond his control. Chiles economy runs on the grapes exports and hence there is tremendous support from the respective government The quality of grapes is superior Better quality grapes Higher amount of production

Grapes

Chile

South Africa

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Product

Competitor

Mango drink beverages

Brazil and other South East Asian countries where mango and other tropical fruits are obtained.

Wine

France & Italy

Sugar

The port infrastructure at Brazil is excellent resulting excellent turn around time and reliable delivery schedules unlike India, where the exporter ends up committing a delivery schedule, which he cant commit for reasons not under his control Biscuits China China quality is not good, however their ports are very efficient and hence the freight charges are less thus giving them a cost advantage. In addition, the labour is very cost effective Tea Sri Lanka / Kenya / Sri Lanka being a major transshipment port Nepal has an intrinsic freight cost advantage than over Kolkata, wherein the shipment is brought in feeder vessels to Colombo thus adding the cost Kenya Climate conducive for tea plantation and growth Nepal is emerging as a competitor owing to its low price relatively new plantations Marine shrimps Bangladesh The exports from Bangladesh to EU are not imposed any import duty on their products , while the Indian shrimp exporters are required to pay import duties Further details of some of our competitor countries are given as annexure 8

Australia and South Africa Thailand and Brazil

USP Less domestic consumption leading to more exports Some of the developed countries in Europe obtain raw material in pulp format from Brazil or other countries where mango is available. The import duty levied is very low, since it is treated as raw materials. The counties then process the pulp and sell it at a very competitive price. Adequate and quality grape cultivation The enormous brand equity and mind share they enjoy all over the world Due to the strong co-operative set up

6.10 Other recommendations


The sector-specific recommendations and the wish list aimed at improving the overall competitiveness are attached as annexure 5.

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7 Policy initiatives by concerned Ministries


As detailed in the report, the export competitiveness of products depends on a host of factors such as: The international trade policies and tariffs Preferential trade agreements and treaties Government policies Industry per se competitiveness Logistic and supply chain factors The business operates in an ecosystem which consists of all these factors, which are often intermingled and intertwined. The initiatives by respective ministries and departments to provide fillip to the concerned sectors are summarized as below:

7.1 Chemicals
The various initiatives (both direct and with the involvement of other departments) by the Ministry of Chemicals & Fertilizers in order to improve the industry competitiveness (both domestic and export related competitiveness) are mentioned below: Promotion of a Petroleum, Chemical, and Petrochemical Investment Regions (PCPIR) covering a processing area of 100 km, with a mother plant to provide basic raw material and feedstock to the surrounding units enabling vertical integration and value addition. Under this scheme, an investment region with an area of around 250 square kilometers is planned for the establishment of manufacturing facilities for domestic and export led production in petroleum, chemicals & petrochemicals, along with the associated services and infrastructure. The PCPIR may include one or more Special Economic Zones, Industrial Parks, Free Trade & Warehousing Zones, ports, etc. The PCPIR would ensure better input-output linkages thereby reducing the logistic costs to be incurred for transporting feedstock, raw materials, etc. Government will evolve the feasibility of setting up of dedicated Plastic Parks to promote a cluster approach in the areas of development of plastic applications and plastic recycling. These would mainly benefit the downstream petrochemical sector in the areas of technology development, best practices, market development and recycling of plastic waste. The feasibility report has been prepared. The Chemicals and Fertilisers Ministry will soon approach the Planning Commission and the Finance Ministry with a proposal to provide various fiscal incentives for the development of such parks. The sops include tax holidays, exemption in sales tax, octroi, excise, as well as subsidy. The government has provided a number of fiscal incentives and other support measures for promoting R&D in industry and increased utilization of locally available R&D options for industrial development. These include the following: i. Write off of revenue expenditure on R&D; vide (Section 35 (1) (i) of Income-tax Act).

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ii. Write off of capital expenditure on R&D in the year the expenditure is incurred; (vide Sec.35 (1) (iv) of Income Tax Act). iii. Weighted tax deduction of 125% for sponsored research programmes in approved national laboratories, Universities functioning under the aegis of the Indian Council of Agricultural Research (ICAR), Indian Council of Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR), Defence Research & Development organization (DRDO), Department of Electronics, Department of Biotechnology, Department of Atomic Energy, Universities and IITs is available to the sponsor. iv. Weighted tax deduction @ 125% (raised to 150% by the Finance Act 2000) on R&D expenditure to companies engaged in the business of bio-technology or in the business of manufacture or production of drugs, pharmaceuticals, electronic equipment, computers, telecommunication equipment, automobile and its components, chemicals, manufacture of aircraft's and helicopters in government approved in-house R&D centres. The Export Promotion Council of India (Mumbai), a government body, has pledged to cover 50% of the REACH pre-registration costs of small- and medium-sized enterprises. CHEMEXCIL, with the help of Government of India, is working out concessional rates for the benefit of member exporters for Pre-registration and Registration.

7.2 Textiles & Apparels


The Ministry of Textiles had launched several initiatives in order to provide new impetus to the sector. These policy initiatives are aimed at not only improving the industry per se competitiveness but the export competitiveness of the sub segments covered under these schemes also. The Scheme for Integrated Textile Parks (SITP) was launched in the year 2005 with the primary objective of providing the industry with world class infrastructure facilities for establishing textile units (under PPP) and to neutralize the weakness of fragmentation. The scheme would facilitate textile units to meet international environment and social standards (covering sectors of weaving, knitting, processing and garmenting) at potential growth centres. The National textile Policy (NTP 2000) aims at increasing exports through productivity enhancements and through innovative marketing strategies Development of mega cluster schemes for powerloom, handloom and handicrafts are initiated already by the Ministry. o CPCDS will be initially implemented in two clusters - Bhiwandi and Erode. Nature and level of assistance to each of the said clusters will be need based and would include the components that are necessary for meeting the objectives. Illustrative list of permissible activities include - Technology Upgradation, Product Diversification, Raw Material Bank, Credit, Market Development, Forward & Backward Linkages, Human Resource & Skill Development, Social Security, Physical Infrastructure, Export & Marketing, Margin Money for Working Capital, Corpus Fund for Yarn Depot. o Comprehensive Handloom Cluster Development Scheme (CHCDS) - comprehensive Handloom Cluster Development Scheme will be implemented for development of 2 Handloom Clusters (Varanasi & Sibsagar), each covering over 25,000 looms at a cost of

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Rs.70.00 Crore per cluster. The scheme would be implemented as a Central Sector Plan Scheme. The objective is to develop 2 Mega Clusters that are located in clearly identifiable geographical locations that specialize in specific products, with close linkages and inter dependents amongst the key players in the cluster by improving the infrastructure facilities, with better storage facilities, technology up-gradation in preloom/on-loom/post-loom operations, weaving shed, skill up-gradation, design inputs, health facilities etc. which would eventually be able to meet the discerning and changing market demands both at domestic and at the international level and raise living standards of the millions of weavers engaged in the handloom industry. o Comprehensive Handicrafts Cluster Development Scheme ( CHDS) - It is proposed to scale up infrastructure and production facility of large clusters with artisans more than 20000 in a cluster with geographical area such as a district, by adopting two as mega clusters i.e Moradabad (Uttar Pradesh) and Narasapur (Andhra Pradesh), for which comprehensive development plans would be drawn up and implemented by way of dovetailing various schemes on a PPP basis Handloom sector - The important schemes being implemented for the holistic growth and development of the sector are: (i) Integrated Handlooms Development Scheme, (ii) Marketing & Export Promotion Scheme, (iii) Handloom Weavers Comprehensive Welfare Scheme, (iv) Mill Gate Price Scheme, (v) Diversified Handloom Development Scheme, and (vi) the 10% Rebate on the sale of handloom fabrics(Non-Plan Scheme)

1. Technology Mission on Cotton - In order to consolidate the strength in raw material especially the cotton sector and to remove contamination, the Government had set up the Technology Mission on Cotton (TMC) on 20th February 2000. The Mission, consisting of four Mini-Missions, was intended to run for a 5-year term, commencing from 1999-2000. It has since been extended by 3 years to cover the entire Tenth Plan period, ending with 2006-07 (31.03.2007). Mini Mission III and IV were extended up to 31 March 2010 and there is likelihood that these schemes will be continued beyond the year 2010.

7.3 Auto & Auto components


Similar to the policy initiatives of other Ministries and Departments, the Ministry of Heavy Industries and Public Enterprises had come up with several schemes to improve the auto and auto component sector in India; some of which are highlighted below: The Automotive Mission Plan (AMP) unveiled by Prime Minister in January 2007 lays down the collective Vision of the industry and the Government for 2016 for the automotive industry. The Automotive Mission Plan (AMP) envisages increase in production of automotive industry to reach Rs. 600000 crore by 2016. Government has already developed the blueprint for the industry through Automotive Mission Plan, which lays down some of the policies that need to be strategized and put into play for promotion of the industry. National Automotive Testing and R&D Infrastructure Project (NATRIP) would be providing stateof-the-art facilities for testing and homologation by 2009. One of the biggest tracks in the world is being built at Indore for the auto sector. The stimulus package announced recently has taken several measures for boosting exports in the auto sector. This includes -

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DEPB rates The GoI has decided to restore DEPB rates to those prevailing prior to November 2008. In order to predictability and to provide stability of regime in short term for future contracts, it has also been decided that the DEPB scheme would be extended till 31.12.2010 o In order to sort out the procedural issues and other similar problems facing exporters, the GoI has decided to constitute a Committee under the chairmanship of the Finance Secretary including Secretaries of the Departments of Revenue and Commerce to look into and resolve these issues on a fast-track basis. Automotive Research Association of India (ARAI), Pune - In line with ARAIs vision to increase contribution from R&D work and to strengthen competence, Technology gaps were identified. Based on their relevance and current need, following 6 R&D projects have been taken up. o Design & Development of High Performance 3 Cylinder CRDI Euro 4 Diesel Engine. o Development of Diesel Engine using HCCI Combustion Concept to meet EURO IV & EURO V Norms. o Development of Electronic Fuel Injection System for 4-stroke, Single Cylinder Gasoline Engine. o Development of 6 Cylinder HCNG (H2+CNG) Engine Compliant to Euro-V Norms. o Measurement of nanoparticle Emissions of Automobiles. o Measurement of road profile on Indian roads and Study its effect on Vehicle Durability and Ride o

7.4 Food processing


The Government of India has identified food processing industries as a major thrust area for exports. The Ministry of Food Processing (MoFP) has launched the following programmes / initiatives to achieve these objectives. Food-processing industry is one of the thrust areas identified for exports. Free Trade Zones (FTZ) and Export Processing Zones (EPZ) have been set up with necessary infrastructure. Also, setting up of 100% Export Oriented Units (EOU) is encouraged in other areas. They may import free of duty all types of goods, including capital foods. All profits from export sales are completely free from corporate taxes and also exempt from MAT Setting up of 60 agricultural zones for end-to-end development for export of specific product from geographically contiguous areas. 56 food parks were approved to enable small and medium F & B units to set up and use capital intensive common facilities such as cold storage, warehouse, quality control labs, effluent treatment plant, etc. There are different laws that govern the food-processing sector in India. The prevailing laws and standards adopted by the Government to verify the quality of food and drugs is one of the best in the world. Multiple laws / regulations prescribe varied standards regarding food additives, contaminants, food colours, preservatives and labelling. In order to rationalize the multiplicity of food laws, a Group of Ministers was recently set up to suggest legislative and other changes to formulate a modern, integrated food law, which will be a single reference point in relation to the regulation of food products. The food laws in India are enforced by the Director General of Health Services, Ministry of Health and Family Welfare, Government of India (GOI).

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Total outlay of Rs. 2,631 Crores is expected in 11th plan on Mega Food Parks, Setting up of cold 7 chain facilities and setting up and modernization of abattoirs . The Cabinet in its meeting held on 11.09.08 had approved establishment of 30 Mega Food Park (MFP) under the Infrastructure Development Scheme for Mega Food Parks during 11th Plan Period out of which 10 Mega Food Parks have been approved for being taken up in the 1st phase. In-principle approval for these 10 Mega Food parks was accorded on 16/12/08 out of which Detailed Project Reports (DPR) for five MFPs have been accepted. DPRs from remaining five are expected soon. During 11th plan, this Ministry has launched a comprehensive scheme for modernisation of abattoirs across the country. Based on detailed discussion with stakeholders, industries and State Government, the Scheme has now been modified to induct private capital, better technology, backward and forward linkages. The financial assistance will be provided, subject to necessary approval, 50% and 75% of the cost of plant & machineries and technical civil work in general and difficult areas respectively subject to a maximum of Rs. 15 Crores for each project. The scheme will be implemented preferably under PPP mode with the involvement of local bodies (Municipal Corporations and Panchayats) and will have flexibility for involvement of private investors / Exporters / FDI on a BOO / BOT / JV basis. Regulatory functions will continue to be discharged through local bodies. This will enable the local bodies to participate in the venture and also be assured of a stream of income. To encourage setting up of cold chain facilities and backward linkages in the country and to provide integrated and complete cold chain and preservation infrastructure facilities without any break, from the farm gate to the consumer, Ministry of Food Processing Industries (MFPI) has launched a Plan Scheme during 11th Plan to provide financial assistance to project proposals received from public / private organisations for integrated cold chain infrastructure development. The initiatives are aimed at filling the gaps in the supply chain, strengthening of cold chain infrastructure, establishing value addition with infrastructural facilities like sorting, grading, packaging and processing for horticulture including organic produce, marine, dairy, poultry, etc. The scheme envisages financial assistance in the form of grant-in-aid @ 50% of the total cost of plant and machinery and technical civil works in general areas and 75% for North Eastern Region and difficult areas subject to a maximum of Rs.10.00 Crore. 11th Plan outlay for the MFPI is Rs. 4031 Crore. Of this, integrated cold chain infrastructure is Rs. 210 Crore for setting up of 30 units during 11th Five Year Plan

77

Annual report MOFPI 2008-09

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8 Issues inflating the logistics costs and leading to time over-runs


To understand the constraints and bottlenecks faced by exporters due to various factors, feedback from primary survey covering the four zones; namely north, south, east, west were analyzed to identify the root cause of various logistics related constraints affecting the exporters, which in turn affects the export competitiveness. These logistics related issues and other policy related problems encountered by the exporters specific to a particular zone is indicated in the subsequent sections. However before spelling out the specific zonal logistics related issues including the time and cost factor involved in the export transaction of a particular zone, overview of some of the major common issues / bottlenecks faced by the exporters / shippers across all the zones has been indicated below. For the purpose of detailing out the issues / constrains faced by the Shippers during each activity / sub-activity of the logistics transaction, the same has been broken down into the following three heads. A Factory premises formalities which includes the following 1. Central excise clearance 2. Transfer of cargo into container in presence of Central Excise Inspector 3. Stowage of cargo in container 4. Central excise sealing 5. Loading of container on truck B - Inland movement and customs clearance formalities, which includes the following sub-activities 6. Road journey 7. Unloading of container from truck and storage/stacking of container in buffer yard in CFS. 8. Customs clearance/sealing of container C Port related logistics formalities, which includes the following sub-activities 9. Loading of container on truck 10. Transportation of loaded container to container yard in port 11. Unloading of container in Container Yard in Port 12. Stacking of container in Container Yard in Port 13. Loading of container on truck to move container alongside ship 14. Truck journey from Container Yard to alongside ship i.e., Quay. 15. Loading of container from truck to cellular hold of ship 16. Sea voyage Majority of the Shippers who were interviewed for the purpose of this survey dispatched their cargo by FCL mode. The issues raised by them reflect a certain commonality in the factors that cause a time and cost over-runs across all zones thus affecting the competitiveness of Indian exports.

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A. Factory premises formalities 1. Difficulties in obtaining refunds from Excise - The shippers are supposed to obtain their excise refund after not more than 7 days from the date of submitting the relevant documents. However the actual time taken is around 30-35 days. In addition, the excise department does not provide any refund payments for the month of January, February and March citing year end closing. Shippers have indicated that the excise refund for the shipments undertaken for the referred three months adds up to a significant amount, In addition to compound to the Shippers problems, the time taken for obtaining the export incentives is also around 3 months. The above factors create a very tight working capital and cash flow situation . The shipper, to meet his shortfall in funds, is forced to obtain loans at a higher interest rates, thus affecting the competitiveness of his exports. The respondents indicated that the practice of Excise Dept not providing refunds in the month of January, February and March under the pretext of year ending should be stopped and if required the matter should be taken up with the necessary higher authorities. 2. Banking related - The shipment to Dubai from JNPT usually reaches within a week. If there is any delay from the Indian Bank to forward the LC related documents to its Dubai counterpart, the consignment has to wait at the Dubai port before being released thereby attracting demurrage charges. 3. Availability of empty containers Obtaining empty containers, especially reefer containers on time is a major issue which upsets the entire logistics planning exercise.

B. Inland movement and customs clearance formalities 1. Export documentation - For completing an export transaction a minimum of 23 sets of documents are required catering to customs, excise, ports authorities, shipping lines, banks and various other agencies involved. There is a need for reduction in documents and designing standardized documents acceptable to all the agencies. The excess documentation results in increase in the effort of resources both time and money ( transaction cost) 2. Issue of holidays - If the public holidays come immediately before / after the weekend there are three-four consecutive holidays, which aggravates the congestion problem . The Govt. may hence request the Customs to work on one of the weekend days to decongest the logistics movement 3. Hardware system deployed in Customs - The hardware systems used by the Customs are slow, with an occurrence of a mandatory breakdown once in a while. Though it might be perceived as a very minor issue, shippers have indicated that the important hardware should be reliable, dependant and sturdy so as not to break down. Any delays in the clearance may result in the shipper missing the vessels and having to wait for the next call which might be in a weeks time. 4. Abysmal record keeping procedures - The record keeping of the customs is very poor. Due to documents or soft copies not being properly managed, sometime the shippers are called to prove that they have actually exported the goods.

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5. Errors in documentation -. The entry of the documents has been outsourced by Customs to a third party. Mistakes do happen while typing and the exporter has to face problems because of the typographical errors. Amendments to these documents take a lot of time and are hassle prone. This results in delay of 1 week to 10 days.. In addition, the Customs have made it a habit of finding loopholes / discrepancies in the documents. They would point at one discrepancy and after correcting the one discrepancy, the officer would then point out another discrepancy. This leads to time over-runs, which sometimes results in missing the vessel. Delays in obtaining the customs clearance results in delay in obtaining the required documents for obtaining the payment from the bank 6. Lack of qualified staff in CFS There is an urgent need for more qualified staff, especially in the CFS so that damage of goods can be reduced . The personnel that handle the goods are not professionals and sometimes unskilled resources handle the cargo. This ends up damaging the consignment in many cases. 7. Difficulties in obtaining export benefits The shipper has to pay the import duty to get his raw material cleared and he obtains the benefits only after he has exported the required quantity under the advanced license scheme. The shippers are supposed to obtain their Export Promotion (E.P) certificate after the 3rd to 4th week of the shipment. But the actual time period may take around 3 months. To avail the benefits, the shipper has to approach the DGFT, based on the E.P certificate issued by the customs. DGFT does not check the physical copy of the E.P certificate. The EP certificate issued by the customs is uploaded on the main server, from where the DGFT accesses and views the certificate. Similarly the Advanced license issued by the DGFT is again uploaded on the server for the Customs to view and take the necessary steps with the shipper concerned. However the uploading of the E.P certificate and / or the advanced license never happens in a timely manner, thus delaying the shipper in obtaining his incentives dues. In addition, the shipper also has to invest in time and other resources to follow up with the customs / DGFT in ensuring the uploading of the necessary documents. 8. Inspection of LCL cargo and free shipping bill Shipping bills that do not accrue any duty drawback need not have any customs inspection. For drawback shipping bills, the norm is that around 2% of the shipping bills would be inspected. The senior custom officials have informed the CHAs that in the event of inspection of any free shipping bills, the same may be reported to the senior custom officials concerned. However during the actual operational procedure, the CHA representative hardly has the time to call the customs senior officials when he undertakes the inspection of the free shipping bill. Because of the above, customs insist on checking even the free shipping bills. The CHA representative has to open the carton, show it to the official who has insisted on the inspection and again repack it. Though there are facilities for re-packing, the packing is not done in the same way as the first time. .

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9. Constrains in LCL cargo movement For urgent LCL shipments it has been observed that the shipper sends his cargo by booking an entire TEU even if his load is just about 3-4 tons. It has been given to understand that this is because the CHA agent tries to obtain three-four LCL shipments before transferring it to the shipping line thereby causing a delay of 2-3 days. If an urgent shipment misses a vessel, it would require him to wait for a further period of around 7 days. In addition, for LCL shipments, the shipper has to pay speed money over and above the normal port charges he pays to get the bare minimal of work done. No work is done unless this extra amounts are paid, right from unloading the LCL cargo at the CFS, filing and getting a shipping bill approved by the customs, stuffing of the LCL in the container; obtaining the necessary forklifts or material handling equipments etc to move his container from buffer yard to the shipping line. 10. Policy related issues - The Government is thinking of phasing out the DEPB Scheme. Right now the DEPB value availed by the shippers (based on the % availed for the commodity) comes to Rs.30,000/- Rs.40,000/- which takes care of the inland transportation costs and provides some relief in terms of cost competitiveness Shippers therefore, are of the opinion that the Government should continue with the DEPB scheme. There are various item categories which entail different rates of DEPB, accordingly the rates may vary from 3 to 4% of the FOB value. If the exporter claims DEPB under a particular category, the excise takes objection on the classification indicating that it should come under a different classification, though the exporter may be right. This leads to lot of un-necessary hassles. 11. Infrastructure at CFSs There is a need for more CFSs around JN Port. The existing CFSs are already working more than the actual capacity especially in the second half of the year. In addition, infrastructure is woefully inadequate to cater to the growing exports scenario C. Port related logistics formalities 1. Port / Congestion issues - The total time for the container to be handed over to the shipping line should not take more than 4 days (from the commencement of journey from the factory). However there may be a delay of three days due to the congestion faced at JN Port. The congestion issue is at its peak during the month of Feb-March, when one can safely assume that the consignment would definitely be delayed by a minimum of three days Shippers have indicated that the officials concerned should realize that due to the port congestion, the exporters have to bear expenses due to the delays, which cannot be passed on to the buyer. These expenses (buffer yard charges, payments to the transporters for holding on to the consignment, time of the resource etc) eventually add up to a significant amount. In addition, the intangible cost associated with the delays dents the organizations reputation of timely delivery service and in a way harms the countrys image. These factors cant be quantified; however the impact on the export competitiveness is definitely felt. The other constraints seem secondary as compared to congestion at ports which delays the handing over of the consignment to the shipping line and has a ripple effect on the shipment costs in terms of truck detention charges, inability to catch the planned vessel, loss in terms of the re-order value from Clients etc.

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When a shipper misses his vessel and he keeps his consignment at the Buffer yard to dispatch the said consignment by the next vessel, he pays the port authorities a charge of Rs. 2,000 / day / container as the buffer yard usage charges. The transfer of the container from the buffer yard to the shipping line is the responsibility of the port authorities after the same has been approved by the Customs. However Shippers have indicated that it is usually the shipper himself through his CHA who has to make the necessary arrangements for the transfer of the container from the buffer yard to the shipping line. For these arrangements, the shipper has to shell out extra money to the CHA which is never reimbursed by the buyer. Shippers have indicated that for a particular shipment they start the planning at least 7 days before the consignment is to leave the factory, but even after considerable planning, there is always a delay of 2-3 days for reasons beyond their control 2. Hidden costs - There are a lot of hidden charges (OPEs) caused due to corruption, demurrage charges due to delays caused by congestion and other charges for which receipts or bills cannot be obtained ranging from Rs. 5,000 to Rs. 15,000 per TEU. 3. Shipping Lines related issues - The Shipping lines should not be charging Service tax, but they are charging the same from the exporters. It has also been observed that the vessels overbook orders to an extent of 20-25%. The vessels undertake this step to hedge in the eventuality of any cancelled orders. It may occur that the shipper may be forced to miss the vessel and would be required to wait for the second vessel of the same liner. Here the shipper cannot ship through an alternate liner, since he would again be required to take it to the factory, re-stuff and undertake all the other related hassles. Hence the shippers prefer to pay the additional charges as shut out charges to the shipping line for keeping the consignment at its yard. The cost per day per container is around 2,500- Rs.3,000 / day , which the shipper cant bill to the client. For imports, the shipping line has a pre-decided CFS where it is unloaded. The importer does not have the option to choose his own Logistics Service Provider LSP. Accordingly undesirable practices are observed due to the restriction posed by the Shipping Line and CFS. This is a peculiar position only in India, where the importer is not allowed to select the CFS where the cargo will be de-stuffed. If one has to take the initiative of reducing the logistics cost then the importer needs to select his own service provider to move the goods from the port (Container Yard) to (CFS). The LSP as decided by the shipping line and the CFS charges an exorbitant rate to the tune of Rs.3,850 to Rs. 7,000 just to cover a distance of 10 kms from the port ( CY) to the CFS

Further to understand the cost factors and the time associated with the logistics movement of export consignment, a zonal wise analysis was undertaken. The subsequent chapters indicates the zone wise findings of the primary survey and details out the time , cost factor involved in the relevant zonal export transaction. The zone wise specific issues encountered by the shipper and the possible solutions have also been elucidated.

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9 Mapping of logistics movement and cost analysis West Zone


9.1 Zonal mapping and logistics cost analysis - Maharashtra and adjoining areas
The major logistics cost parameters have been identified based on the following factors:

Inland road transportation Other logistics cost Inland rail transportation

Documentation charges

Logistics cost

Inland water transportation

Shipping cost

Transit facility ICD / CFS/ warehouse Custom house agent charges

Figure 17 : Logistics cost parameters Amongst the shippers contacted in Maharashtra and adjoining areas of Gujarat and Karnataka, most of the shippers preferred to move their cargo by road to the gateway JN Port. This included exporters from the districts of Nashik, Pune, Kolhapur, Ratnagiri, Nagpur, Aurangabad, North Karnataka and Southern Gujarat. Movement of consignment by rail was reported for sugar from ICD Miraj to JN Port. The cargo volume growth witnessed at JN Port over the past one year has been an impressive 24.41% with around 4.05 million TEUs handled in the year 2007-08. Amongst the industries so identified in the survey, the Chemical industries have its pre-dominant base in Southern Gujarat (Vapi, Surat and Ankleshwar) and in Ratnagiri (Lote Parshuram), Thane Belapur belt.

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The automobile / auto components have a strong cluster presence in the districts of Pune and Kolhapur, with the latter known for its casting components industry. The textile units are spread across the western region with a strong base in Silvassa, Vapi, KaradIchalkaranji, Nashik and in and around Mumbai. The food processing industry had its presence in the NashikPune belt, Sangli and standalone units spread across the state. The mapping of the inland logistics movement and cost break-up for shipment of export consignment from different parts of Maharashtra is indicated below: Sr No Parameter Description 1 Inland road The road freight charges from Vapi / Silvassa to JN Port (around 220 km) transportation by road has been reported at INR17, 000 per FEU and INR 12,000 per TEU. The rates so mentioned are the to & fro charges incurred by the transporters i.e the empty container movement from container yard at JN Port to Vapi / Silvassa and the loaded container movement from the factory at Vapi / Silvassa to JN Port. From Karad to JN Port , for a distance of around 300 km, the inland freight charge reported for the movement of a TEU was INR 18,000 / - and for the movement of a FEU , it was INR 23,500/- (inclusive of service tax). For the inland transport a reefer FEU from Nashik to JN Port (around 200km), the transport cost has been reported at INR 19,000/- . From Kolhapur to JN Port (around 360 km), the inland freight cost has been stated as INR 22,000 to INR 23,000 per TEU The total weight stuffed inside a container depends on the product. For e.g. in case of home textiles, around 3,500 pieces can be stuffed inside a TEU and double the quantity in a FEU. For polyester yarn, whose shipments are done in 40 High Cube container, around 25 tonnes can be stuffed. For knitted fabric around 7 to 10 tonnes of material can be stuffed depending on its GSM and for woven fabrics around 11 tonnes can be shipped in a TEU. For export of chemicals, the tonnage capacity that can be stuffed increases, for e.g. in a TEU, the total parcel size ranges from 13 to 18 tonnes depending on the chemical product. For auto components, the quantity that can be stuffed in a TEU again varies from 13 to 18 tonnes depending on the product characteristics. For export of fruit pulp, etc around 15-20 tonnes can be stuffed in a TEU, while for a milk flavoured powder which is packed in PET bottles, only 7.5 tonnes can be accommodated in a TEU. Movement of cargo by rail was observed for the heavy shipment of sugar through the Miraj ICD which is dominantly by sugar belt within a radius of 125 km. Exports of sugar is primarily dependant on government policies. Miraj ICD has been estimated to handle around 1,800 TEU per annum. The ICD has a siding of 13,000 sq m, which can accommodate a single rake of 40 to 45 wagons with storage space of 1,000 sq m for stuffing. As per a circular issued by the Customs; the Miraj ICD can provide export

Inland rail transportation

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Sr No

Parameter

Description consignment only to terminals at JN Port. During the off-season (when sugar exports were banned), the ICD had handled around 80-90 containers of second hand imported capital goods machinery for Forbes Gokak. The transportation cost per 20 ft container to JN Port is INR 21, 000 and around 27 MT of sugar is stuffed in one TEU (540 bags of 50 kg for bulk sugar, whereas break bulk sugar cargo is allowed to be packed in 100 kg.) Due to restriction of allowing maximum 16 mt via road transport sugar exporters prefer dispatching their cargo by rail. It was reported that Miraj ICD has the business potential given the presence of sugarcane belt. The priority for allotment of rakes is first given to North India by CONCOR, leading to shortage of rakes for Miraj. For exporters from Vapi, the nearest ICD facility is available at Ankleshwar. However the facilities are not adequate and the train service is not regular, thus taking more time than the road transportation. Though shippers would prefer dispatching their container by rail rakes, they do not want to take a gamble and miss their vessels. Ankleshwar being home to many exporters, the government should properly equip the ICD and regularize train services to JN Port thereby saving costs by means of fuel charges. More than 40% of up-country cargo is being transported to Container Freight Stations (CFSs) for carting; It is containerized at CFS and transported to JNPT for loading on the vessels at JNPT, NSICT and GTI. Some of the CFS near JN Port includes that of Balmer Lawrie, CWC Kalamboli, Sea Bird Marine Services, and Forbes Gokak etc. While most of the respondents dispatched their containers factory stuffed, a few of the respondents actually dispatched their consignment on LCL basis. They reported that the CHA, loading unloading, stuffing at CFS comes to around INR 1.5 to INR 1.8 / kg It has been reported that over the past one year, there has been a rise of almost 100% in the THC charges from INR 4,000 to INR 7,500 per TEU container. The increase in the cost of the THC has a major affect on shippers who have around 15-20 containers to be shipped per month thereby affecting his export price competitiveness During the survey, the exporters interacted from the eastern zone indicated that their west zone peers had the advantage of a superior gateway which facilitated in reduction of their logistics cost component. The shippers from the western region acknowledged that infrastructure at JNPT is indeed world class; however with Indias EXIM trade on a growth path and with increasing containerization of commodities, and JN Port being the containerized port of preference, the port infrastructure is bursting at its seams. The de-congestion of the JN Port should be taken at an immediate and utmost priority.

Transit facility (ICD / CFS / ware housing / etc)

Terminal Handling Charges

Other logistics cost

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Sr No

Parameter

Description The congestion is also not a onetime event. It is almost perpetual with it being very severe during every quarter ending. A repercussion of congestion is the port gates seldom open on the allotted time, thus making the exporter pay extra charges per day to the transporters for holding its consignment. The transporters again may have other commitments and would be losing money due to its truck not being deployed to transport the next consignment. The transporters charge around INR 1,000 INR 1, 500 / TEU / day for the delay to the shipper. There have been of occurrences where the port gates opening have been antedated without informing the shippers thereby catching them totally off-guard. The congestion at the port has a cascading effect and the respondents indicated that they have to incur out of pocket expenses for an export consignment in the range of a minimum of INR 5,000 - 10,000.

An indicative freight cost estimates for transportation from factory to JN Port is depicted in the table below: Table 11 : Inland freight cost by road from factory unit to JN Port Sr. No Location of factory unit Road Freight cost to JNPT in INR 20' 40' 1 Vapi / Silvassa 14000 18000 2 Karad 18000 23500 3 Nashik 19000 ( reefer) 4 Shiroli, near Kolhapur 22000 5 Pune 13000 6 Paithan, near Aurangabad 22000 7 Lothe Parshuram, Ratnagiri 17000 8 Narayangaon, near Pune 15000 Note: The figures quoted in the table are the responses provided by various exporters While most of the inland freight cost so surveyed ranged between INR 1.00 per kg to INR 1.50 per kg, there have been certain cases, wherein the freight cost was reported at INR 3.00 per kg. Table 12 : Break-up of total logistics cost for the movement of a TEU from Kolhapur to JNPT Segment Cost (INR) Cost % Time (days) Break - up of export cost excluding sea freight Road freight movement 23,000 60.53 1.0 CHA Charges / customs clearance 5,000 13.16 0.5 Terminal Handling Charges 6,000 15.79 Documentation charges 1,000 2.63 0.5

Approx Distance in km 220 300 200 400 160 250 210

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Segment Break - up of export cost excluding sea freight Others ( Detention charges due to congestion for three days @ INR 1000 / day) Total

Cost (INR)

Cost %

Time (days) 7.89 100 3.0 5.0

3,000 38,000

9.2 Zonal mapping and logistics cost analysis - Gujarat


Ahmedabad Ahmedabad is the commercial capital of Gujarat and strategically located in the industrial belt of Central Gujarat. The ICD Sabarmati is the major flagship ICD of CONCOR located in Ahmedabad on the NH 8 which links it to Mumbai. It is also connected by NH 8C from Rajasthan and NH 8A from Rajkot. A direct rail link, with sufficient space, backed by equipments has enabled it to efficiently move a train daily to JNPT and bi-weekly to Mundra port. Sabarmati ICD acts as the collecting point for industrial cargo from Kadi Kalol (Mehsana), agriculture products like groundnut, sesame seeds from Saurashtra region, and granite and marbles from South Rajasthan. The major share of the commodities exported in 2007-08 consisted of raw cotton, synthetic organic dyes, stainless steel coils, pharmaceuticals, marble stones and blocks, cotton dyed denims, foodstuff, machineries, assembly lines and agricultural products. The destination countries were China followed by the US, the Middle East and European countries. The major commodities imported in 2007-08 were waste paper, newsprint, scrap, LDPE, stainless steel products, steel items, compressors and glass. The present cargo movement from Ahmedabad region (covering the surrounding area) is above 1.50 lakh TEU per annum. CONCOR during the period April 2007 to March 08 handled 1,39,778 TEU with an overall growth of 24% over the previous year.

The mapping of the inland logistics movement and cost break-up for shipment of export consignment from ICD Ahmedabad is indicated below: Sr No Parameter Description 1 Inland road The ICD located near the Ahmedabad Mumbai NH 8, enjoys excellent transportation road connectivity from Saurashtra region in the south, Rajasthan in the north, Mehsana district industrial areas in the west and industrial clusters around Ahmedabad. Road movement is mostly to Mundra / Kandla ports which are at a distance of 410 / 360 km respectively, while JN Port is connected by a daily train which has reduced the movement by road. 2 Inland rail Most of the export cargo moves by rail from the ICD to the seaports of transportation JNPT / NSICT/ GTIL at Nhava Sheva. Other ports like Mundra / Kandla at Kutch, and Pipavav port in Amreli (Gujarat), are also connected by rail network, but cargo moves directly to the port of Mundra by road due to cost and time advantage over rail. The CONCOR tariff rates from ICD Sabarmati to the port of Nhava Sheva have been considered for the subsequent cost analysis since most of the

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Sr No 3

Parameter Inland water transportation Transit facility (ICD / CFS / ware housing / etc)

Description export cargo moves through it. It was found that there is no inland water transport taking place in this region for moving goods of export Sabarmati has CONCOR ICD which has its own tariff and schedule of rates for its service offerings.

Table 13 : TEU rail tariff charges from Sabarmati to JNPT/NSICT/GTIL ports SabarmatiAhmedabad Weight ( MT ) 12 15 18 22 28 Rail Tariff - JNPT/NSICT/GTIL Cost (INR) TEU 8,200 8,900 8,900 14,000 15,600 FEU 15,000 15,000 15,400 15,400 15,400 32,000 40,000 Road Charges- Cost (INR) TEU FEU

Source: CONCOR & Deloitte Research Table 14 : Break-up of total logistics cost ex Sabarmati to JNPT port Segment Cost Cost % (INR) Break - up of export cost excluding sea freight Transportation by road (50 km radius from ICD Sabarmati & back) Note - The time in days includes container movement from ICD to factory, factory stuffing and container movement from factory to ICD Rail movement to port (average) Custom clearance Terminal handling Documentation Others Total 11,160 2,500 6,000 1,000 1,000 25,160 44.36 9.94 23.85 3.97 3.97 100 2.0 0.5 0.5 1.0 6.0 3,500 13.91

Time (days) 2.0

Source: Deloitte Research The bottlenecks faced have been collaborated in section 9.3. Baroda Located 400 km from Mumbai on the NH - 8 towards Ahmedabad on the golden industrial corridor, the city is also home to some of the top industries like GSFC, GACL, IPCL (Reliance), Apollo tyres, General Motors etc

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Export container handling facilities are spread out in three different locations: o CONCOR Rail Container Terminal (RCT) which is a single rail sliding located in the city o CONCOR CFS at Chhani which is further 3 km parallel from the (RCT), where only warehouses and stuffing facility are available and road movement is possible o Central Warehouse Corporation CFS located 12 km, North of Baroda city on the NH 8 where cargo stuffing, de stuffing with road movement to port or through RCT by rail takes place Hence two CFS / ICD are linked by one RCT where rail movement is possible incurring additional charges of INR 1800 to INR 2500 per TEU. Table 15 : TEU rail tariff charges from Baroda to JNPT/NSICT/GTIL ports Baroda Weight ( MT ) 12 15 18 22 28 Rail Tariff - JNPT/NSICT/GTIL Cost (INR) TEU 6,700 7,100 7,100 10,700 11,900 FEU 12,200 13,400 13,400 13,400 13,400 26,000 35,000 Road Charges- Cost (INR) TEU FEU

Source: CONCOR & Deloitte Research Present volumes from Baroda region are about 4000 TEUs per month, out of which 1200 TEUs export and about 800 TEUs import per month is handled by ICD which has three train connections every week to JNPT, balance move by road to JNPT / Kandla / Mundra The break-up cost of movement of a TEU from Baroda to JNPT is similar to that of ICD Ahmedabad except for a reduction in basic rail freight of INR 1500 3000 which is nullified by the additional charges paid for movement of container from CFS to RCT in Baroda. This additional charge is caused due to having CFS and railhead at different locations. The road movement from Baroda to JNPT is about 7 hours drive on the NH-8. A comparative chart of ICD Sabarmati (Ahmedabad), ICD Baroda and ICD Pithampur (Indore) is indicated in Table 23. The ICDs in Sabarmati and Pithampur are both situated in the commercial capitals of their respective states and both the ICDs have a cargo potential of above one lakh TEUs per annum.

Table 16: Comparison between ICD of Ahmedabad, Baroda and Indore Parameter EXIM cargo TEUs / annum EXIM rail movement Road / Rail connectivity Frequency of rail link ICD Sabarmati Ahmedabad > 1,50,000 > 80% Good Direct daily rail connection to JNPT port ICD Pithampur Indore > 1,00,000 < 30% Poor No direct rail link which compels cargo to move via Ratlam 110 km away, or by road. ICD Baroda > 50,000 > 60% Needs Improvement Thrice a week, with separate facility of CFS & RCT with a distance of 3 / 12 km leading to additional handling cost

Source: Deloitte Research

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Rajkot Located in Saurashtra region of Gujarat, it has industrial estates for automobile industry spread over Gondal, Paddhari, Tankara, Jetpur, Upleta along with textile units in Jamnagar district specializing in Bhandni hand printed designer dresses and garments which are exported. Rajkot is surrounded by ports handling container cargo namely Pipavav around 200 km (South East), Kandla 220 km / Mundra 260 km (North West). Due to the short distance from the port, an ICD which was opened in Rajkot region earlier did not find sufficient cargo and was later closed down. Exporters prefer to truck their cargo or collect empty containers from the port for factory stuffing. NH 8A extension to Kandla is four lane and good except for about 30 km patch which is being developed. Mundra has a four lane road from Anjar to the port but it passes through Mundra town where a bypass is required to be constructed. Road to Pipavav port from Rajkot is a State Highway which requires improvement. Kandla Port Located in Kutch district of Gujarat, Kandla port was developed after India lost Karachi to Pakistan during partition. Kandla port handles the highest volume (64.89 million tonnes in 2007- 08) Port has privatized berth no 11 and 12 which has been developed for handling container cargo and has plans to extend it further to handle containers. As the port road passes to the old town of Gandhidham which is about 20 km before Kandla port there is heavy congestion and a bypass is urgently required at Gandhidham for which the port should take the lead and develop the same. As port has primarily been handling bulk cargo, the existing facilities are tuned for handling the same. A separate planning for container handling with approach and exit, buffer yard etc needs to be done. As Vadinar under Kandla handles the highest number of oil tankers, there is a need for the development of an advance vessel intimation system jointly with other terminals like Reliance and Mundra port.

Mundra Port Privately developed by Gujarat Maritime Board GMB with Adani group, the port has separate deep drafted berths to handle main line container ships along with liquid and bulk cargoes. The port has connected to the hinterland by developing a private rail connection from Gandhidham and also a four lane road from Anjar to the port .A bypass road near the old town of Mundra is required to ensure smooth traffic flow.

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Recommendations for improvement of exports from Gujarat region


ICD-Sabarmati was started converting the existing rail sliding at Adalaj to handle import and export cargo. However with volumes exceeding 8000 TEUs per month. CONCOR has plans to shift the EXIM operations at DCT-Khodiyar for which road connectivity and other supporting infrastructure should be assessed and developed by CONCOR A new green field ICD should be planned south of Baroda on the Mumbai Delhi rail line parallel to the NH 8 to shift all EXIM cargo handling. This would enable plan for the increase volumes, convert about 2000 TEUs presently moving to JN Port by road to rail mode and offer LCL stuffing and other services from one location reducing cost and increasing rail frequency. This new Greenfield ICD can also be linked to ICD Pithampur by rail ( after gauge conversion which is on) .This would enable a rail hub where cargo from three ICD namely Vadodara / Indore / Ankleshwar can be collected to have a daily scheduled train to JN port / Mundra Bypass at Gandhidham to be developed by Kandla port trust and around old Mundra town by Mundra port Four lane expressway from Rajkot to Pipavav should be developed by Pipavav port under PPP model with bypasses and supporting infrastructure for truck terminals and cargo movement

Figure 18 : Recommendations for facilitating seamless export movement from Gujarat region

Recommendations for infrastructure specific improvements to facilitate exports from Maharashtra, South Gujarat region
Plans have been approved for extending the 100 km Mahatma Gandhi expressway no 1 (currently between Ahmedabad and Vadodara) to Mumbai, as also broadening the NH 8 and removing bottlenecks on bridges, crossing etc. The NH-8 and expressway would run parallel to each other on the western coast which is also one of the busiest highway moving cargos for Gujarat, Rajasthan and NCR region. Considering the large volumes especially chemicals and over dimension cargo moving on this route a express road has to be ensured with last mile connectivity and bypass linking the NH 8 with JNPT node to enable cargo movement to JNPT port without any delay and traffic congestion Better port traffic management especially for cargo moving by road which consists and coverage a large hinterland. This would require advance intimation, better buffer yard planning based on vessels arrival. EDI working environment etc. Six lane highway linking NH 8 from Bhayander (on the outskirts of Mumbai city) via Thane to New Mumbai and JNPT would facilitate linking NH 3 from Nasik Indore ,NH 4 from Pune Bangalore and N H 17 from Goa with each other, in a smooth manner avoiding traffic congestion and preventing any potential disaster due to the heavy movement of vehicles approaching the port with different types of cargo including hazardous chemicals . JN Port should take the lead in developing it into six lane under PPP model with flyovers and underpasses wherever required for local traffic

Figure 19 Recommendations for facilitating seamless export movement from Maharashtra & South Gujarat

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9.3 Major bottlenecks identified and recommendations


Hard Infrastructure Area Road Infrastructure Issues Road stretches across various parts of the state leading to JN port is in a bad state Suggestions Need for a synergy between the Road Developers, transporters, cargo industry etc. Whenever the tenders for road development are floated by the Developer, the views and opinion of the trade must also be taken into consideration and the design criteria needs to be technically strengthened so that the axle load of the container carriers are adequately addressed. India should concentrate on providing better cargo facilities across the rail heads including better storage facilities, better material handling equipments, inclusion of more stations in the freight network. This will facilitate in reducing the inland logistics cost and congestion at the rail siding of the port The severe congestion follows a certain pattern. The officials concerned can make their planning in advance to reduce / nullify such a congestion scenario Need to plan for futuristic capacity to allow for gradual build up of traffic without affecting the port infrastructure facilities Port authorities may position the offices concerned for clearance of a shipment in the same building or adjacent buildings to save the CHAs time, which will result in faster clearance of the consignment The Industry sources feel that the authorities should have the basics of the following infrastructure and services in place o Efficient warehousing and identification system o Regular maintenance and up

Rail Infrastructure

There is usually congestion at the rail siding at JN Port. In addition, there is a shortage of prime movers to drive the cargo trains

Port Infrastructure

Congestion at JN Ports is almost perpetual with it being very severe during every quarter ending

The material handling systems existing in the MbPT port is around 30 years old and needs refurbishment / replacement The CHAs are required to travel a distance of around 5-6 km to obtain the necessary clearances for the consignment shipment

Airport Infrastructure

The infrastructure at the air cargo complex has not kept pace with the cargo volume growth The movement of the cargo to the customs clearances terminal is affected due to shortage of loaders,

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Hard Infrastructure Area Issues pallet trucks and other material handling equipments o Regular break-down in the printers, computers and other IT hardware support structure leads to further delay and back log of customs clearances Suggestions gradation of the IT hard ware and support system Change in the attitude of the staff by treating the cargo as a potential revenue generation A robust EDI system that offers proper co-ordination between AAI and Customs officials to streamline the whole process Improved material handling facilities for speedy movement of the goods within the complex

Trucks / trailers

The drivers of trucks usually siphon of diesel and do not go through the optimum routes, while delivering the cargo. An ICD facility is available at Ankleshwar. However the facilities are not adequate and the train service is not regular, thus taking more time than the road transportation Though there are several CFSs around JN Port, the infrastructure is not up to the mark and this causes decrease in productivity and increase transaction time

Need to incorporate track and trace systems for identifying the movement, diesel consumption etc. Need to have an affordable GPS system in place. Need to properly equip the ICD and regularize train service to JN Port thereby saving costs by means of fuel charges by road There is a need for a system, where in Key Performance Indicators are kept and for delays beyond a certain time period the shipper / consignee should be provided a concession in the rates.

Warehousing facility

Soft Infrastructure Area EDI Issues Regular occurrences of breakdown of the ICEGATE system used in JNPT Suggestions The Customs should have alternative arrangements to file shipping bills in the event of the tripping of the EDI Better coordination sought between DGFT, customs and other authorities

In the EDI system, the Customs is required to upload the shipping bill for the DGFT to take note, so they in turn issue the export completion certificate for the Customs to cancel the customs bond filed by the shipper. However there is no proper co-ordination between the two entities, documents get lost between the two and the exporter does not obtain his

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Soft Infrastructure Area Issues incentives on time EXIM Policy Area Customs Issues Sometimes there is a delay in commencing loading operations for want of clearances from customs, immigration and health officers Each Customs officer has his own interpretation of the customs law thereby causing problems with the shipments Suggestions Need to provide performance indicators to various departments involved in cargo shipment to improve standards Need to simplify procedures and do away with ambiguity .Never to give/ vest discretionary powers to the customs officials, since then he interprets the rules as per his convenience. It would be a welcome step on the part of the Maharashtra State Government to abolish Octroi to realize the lost costs in terms of loss of time in transit, fuel cost, man-hour costs It may be prudent if the government do away with the payment of the required taxes at the point of exports and provide the exporters the direct benefit of the taxes, than have an elaborate procedure to have the charges reversed, which is not only time consuming but also involves lot of administrative and other resources' time which cannot be quantified Standardization of forms and procedures that should be followed by the officials Suggestions

Octroi

In Maharashtra, it is estimated that around INR 5,500 Cr / annum is the Octroi collection from the industry. In addition, around INR 10,000 cr per annum is the estimated figure that the industry has to shell out by way of under the table amount for the Octroi staff. The Excise department does not provide any refund payments for the month of January, February and March citing year end closing

Excise

While filing for the excise bond, the necessary clearance is not obtained smoothly and is not given on time. The No Objection formats issued by the Excise Superintendent is sometimes not accepted by the Range officers , saying that the format is not proper even though it has been issued by the same dept VAT is applied on the packaging material thereby increasing the overall FOB value of the product

VAT

Since the packaging material is used for goods meant for exports, VAT should not be levied on it

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EXIM Policy Area Service Tax Issues Even with refund of service tax on commission paid to foreign buyers and agents, notification no 17 / 2008 dated 1st April, 2008 limits to only 2% of the FOB, while exporters pay anything between 10% to 15% of the FOB. Suggestions Such piecemeal refund only adds to the administration work for both the government and exporters without providing any immediate relief. What is important that the exemption should be straightaway given instead of paying tax and subsequent claiming the refund The government needs to fine tune the policy and inform the ground staff for the proper implementation

Schemes / Policy Schemes / Policy

A minimum delay of 2 months for obtaining the incentives With regards to the Focus Market Scheme, there is no proper notification provided to the actual ground staff regarding how the incentives and benefits should be provided.

Logistics Area Check post / road connectivity Issues raised by the exporter Lot of shipments are caught up in the octroi naka for want of a customs noted shipping bill, which is required to be submitted for the Octroi for it to pass without the payment of octroi. There are lot of additional charges levied by the shipping line with regards to o BAF Bunker adjustment charges ( due to hike in price of fuel) USD 250 / container o CAF Currency Adjustment Factor ( due to currency fluctuation adjustment) o Hazardous charges USD 150 / container o And Off season charges Suggestions provided by exporter Suggestion to include Octroi as part of the proposed Port Connectivity System

Ports / Sea connectivity

Need for a regulator to monitor the operations of CFS / Shipping lines There is a need for strict guidelines and a regulator for covering the stakeholders under the logistics chain, just as one has the TAMP for major ports, the TRAI for telecom etc

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10 Mapping of logistics movement and cost analysis East zone


10.1 East zone overview
The companies surveyed in the Eastern region were predominantly from in and around West Bengal which access Kolkata / Haldia port as their gateway for exports. The inland transportation mostly happens by road. For tea exports from Assam, the inland transportation is through rail after the commodity is loaded at the CONCOR ICD at Amingaon, from where it is brought to Kolkata. Few of the companies so surveyed in Bhubaneswar, Orissa prefer to route their cargo through Vishakapatnam port due to the relatively faster turnaround time of the vessels and good hinterland connectivity. Apart from the exports from the ports, there is also a substantial cargo movement from West Bengal to Bangladesh. At present, there are officially 35 Land Customs Stations (LCS) through which Indias trade with Bangladesh is carried out. Among these 35 LCSs, Petrapole (in West Bengal) in the road sector and Gede (in West Bengal) in the railway sector are the two noted ones, which together share over 70% of the IndiaBangladesh border trade. In addition, amongst the respondents surveyed, a few of the textiles / apparels manufacturers export their cargo through air via Kolkata airport. A brief description of the gateways most used by the exporters in the East Zone is indicated below: Kolkata port The Port of Kolkata is a riverine port in the city of Kolkata, India. The Port has two distinct dock systems - Kolkata Dock System at Kolkata and a deep water dock at Haldia Dock Complex, Haldia. Kolkata Port has a vast hinterland, comprising the entire Eastern India including West Bengal, Bihar, UP, Jharkand, Assam, North East Hill States and the two landlocked neighbouring countries viz. Nepal and Bhutan. The Amingaon ICD is a seasonal ICD, and is active during the tea shipment season. Even during the season, traffic is available only for one direction, that is, the Amingaon-Kolkata port leg. Only the empties are moved in the opposite direction, i.e. from Kolkata port to Amingaon. In 2007-08, the Amingaon ICD handled 2,501 of TEUs of tea exports as compared to 2,597 TEUs in 2006-07. The throughput in the current fiscal (2008-09), is estimated to be around 3,500 TEUs primarily due to the not-so-satisfactory Kenyan crop this year.

ICD Amingaon at Assam

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Kolkatta airport

Textiles constitute around 15-20 per cent of the exports from the airport. However the largest share of around 60 per cent of total airport exports is of leather garments and accessories. Out of the total of around 25,000 tonnes of cargo exported in 2007-08, perishable items comprised around1, 700 tonnes (6.8 per cent), while tea constituted only 2 per cent. Petrapole - Benapole is very strategic point for border trading between India and Bangladesh. It is estimated by the Land Port Authority of Bangladesh that around 90 percent of the total imported items from India comes through Benapole land port.

PetrapoleBenapole border

10.2 Zonal mapping and logistics cost analysis


The mapping of the inland logistics movement and cost break-up for shipment of export consignment through the East zone gateways is indicated below: Sr. No 1 Parameter Inland road transportation Description There have been issues of shortage of trucks / trailers due to the vehicles being tied up on contract basis for movement of the construction material and equipment / machinery for the various projects being developed in West Bengal. This has lead to rise in the inland transportation cost over the past few months. Most of the exporters surveyed in West Bengal had their plants / warehouses near the port and hence the distance required to ship the consignment from the plant to Kolkata port ranged between anywhere from 10-12 km to around 100 -120 km with the corresponding transportation cost for a TEU to Kolkata port ranging from INR 4,000/- to INR 12,000/-. For the shipments whose factory is located in the 100 km range, the inland transport cost per kg varies from INR1 to 1.5 per kg. Concern on the quality of the roads leading to the ports has been raised by almost all the shippers, which tends to increase the cost. For the inland transportation cost of tea by trucks from Siliguri to Kolkata for a distance of round 500 km, the cost has been indicated as INR 5 / kg. The high cost of transportation is due to the hilly geographical terrain. Tea exports from Assam are usually routed through rail by Amingaon ICD. However there have been respondents who have indicated that they undertake road movement from Assam to Kolkata. From Guwahati to Kolkata for a distance of around 1400 km, it takes around 6-7 days of time period with the inland transportation cost coming to INR 7-8 per kg. For

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Sr. No

Parameter

Description silk exports which are high value items, routed via air and shipped in LCL consignments, the inland transportation cost from Bhagalpur, Bihar to Kolkata (around 500km) is around INR 9 / kg. For the land side exports to Bangladesh, most of the respondents surveyed were routing it from Kolkata through the Petrapole Benapole customs border. In January 2008, trucks to Bangladesh were available at INR 4,000; however due to shortages of trucks, the freight charges has increased almost double fold. In addition, there are various issues in the border shipment which leads to increase the cost of the exports. The shippers contacted indicated that it has become more of a thumb rule to consider a minimum delay of three days for the road side exports to Bangladesh. Due to the delays caused at the check post, the shippers have to bear a demurrage cost to the trucker which is around INR 700 / day. A minimum additional cost of INR4,0004,500 per shipment is always envisaged during the shipments to Bangladesh. The CONCOR tariff rates for one way movement of a loaded container from Amingaon ICD to Kolkata Port is INR 13,300 / TEU and INR 26,600 / FEU. Similarly, the rate for a one way movement of empty container from Kolkata port to Amingaon ICD is INR 8,950 for a TEU and INR 16,650 for a FEU. Amingaon ICD is facing an issue of inadequate arrivals of imported containers. This creates a mismatch and as a result, the shipping lines are required to reposition the empties at a cost borne by the shippers. Exports to Bangladesh are also undertaken via rail. There is rail movement of processed food products from India to Bangladesh. The cargo traffic however can only be carried in Indian Railways (IR) wagons as Bangladesh Railways (BR) wagons do not meet the technical standards (brake systems and wagon running speeds) required by IR. BR locomotives haul the wagons inside Bangladesh but as IR trains are longer and heavier, the trains have to be reconfigured at the border. Rail cargo has to be transshipped to trucks, barges or BR wagons for final delivery, significantly reducing the rail advantage. One of the respondents which is a trading house and undertakes rake movement of maize and /de-oiled cakes indicated that the referred products are shipped from Bihar (Barauni / Kadaria) to Bangladesh (via Benepole / Darshana / Rohanpur). The freight cost for one rake consisting of 40 wagons and having a load factor of around 2,500 tonnes is around INR 22 lakhs. The freight cost comes to around Rs 0.88 / kg. There is movement of cargo via the rivers from India to Bangladesh by the Central Inland Water Transport Corporation (CIWTC) and Bangladesh Inland Waterways Authority (BIWA). Amongst the cargo moved from India to Bangladesh include rice, coal,

Inland rail transportation

Inland water transportation

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Sr. No

Parameter

Transit facility (ICD / CFS / ware housing)

Description cement, project goods, steel coils etc. The shippers indicated that they preferred the road movement since the border post is only 120 km away from Kolkata and road movement was more convenient with the handling cost by road being comparatively less as compared to movement by water. It has been indicated by the respondents that the stuffing cost for a TEU comes to around INR 5,0006,000/-. The majority of EXIM traffic in the region is handled at the port side terminals of Haldia and CONCOR Terminal KoPT Coal Dock Road (CTKR). Amingaon near Guwahati is the Inland Container Depot in the Assam region, functioning almost exclusively for the handling of tea exports. Export of steel consignments is also dealt with through the ICD at Tatanagar. Container Corporation of India is to launch two new terminals and upgrade facilities at two of the existing inland container depots (ICDs) in the eastern region. The new terminals will be located at Durgapur (West Bengal) and Rourkela (Orissa), while the existing ICDs at Amingaon (Assam) and Balasore (Orissa) will be upgraded. The new terminals will cater mainly to the steel sector. Central Warehousing Corporation also operates warehouses across the Eastern region and has its own tariff and schedule of rates covering its service offering. It has been felt by the exporters that there is an urgent need of more CFS near KoPT. At the moment, there are only two, one of Balmer Lawrie and the other of CWC. The government should take measures to provide land for new CFSs and invite private players for the same. Calcutta Customs House Agents' Association (CCHAA) is an apex body of the authorized agents of Kolkata Customs and is engaged in clearing and forwarding freight at the Airport and Seaports of West Bengal. It maintains close tie with Calcutta Port authority. The market rates usually charged by the Customs House Agents (CHAs) are INR 3,500 per TEU and INR 4,200 per FEU. These charges are exclusive of Service Tax. THC is charged by the respective shipping lines for handling, movement and loading of the container on the ship. It varies from shipping line to line and is fixed and non-negotiable. The shippers from Kolkata Port also have to pay a congestion surcharge amounting to US$ 150 / TEU and US$ 300 / FEU. The shipping lines have imposed the surcharge citing reasons of inordinate delay in vessel turnaround and under-utilization of vessels leading to increase in port stays. Exporters shipping their consignment from Kolkata Port report that they

Custom House Agent / Clearance

Terminal handling charges Congestion surcharge

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Sr. No

Parameter

Description are burdened due to increased freight costs accounting from the congestion surcharge. The surcharge when imposed was expected to be a temporary phenomenon and would be withdrawn when the congestion is eased out. The shippers cited the example of Chennai Port which had a similar surcharge imposed from December 07, 2007 and was later withdrawn in the month of February, 2008 when the congestion eased. However in Kolkata port, the exporters have voiced their concern that there seems to be no abatement of the surcharge and is being imposed for many months now. Being a riverine port, the Kolkata port problems and features are unique and cannot be compared with other ports of India. Silting is a major problem for KoPT, and due to the low drafts available, only feeder vessels cater to the port. Hence exports from Kolkata necessitate transshipment from Colombo or Singapore which involves an additional cost of around US$ 350 / TEU. Most of the shipments are undertaken on FOB basis and the sea freight is directly borne by the buyer. It is estimated that the sea freight approximately comes to around INR 7- 9 per kg depending on the destination location, route and transit time. For shipments via air, the cost of shipment comes to around INR 140 /kg. But again, the rates vary slightly depending on the destination, the airline and the cargo volume. The shipper has to incur a cost of INR 1,000 per Bill of Lading from Kolkata. Apart from the referred documents, the shipper would also be required to bear the nominal L/ C charges which vary depending on the bank. The other charges incurred by the shipper include courier & fax charges, certificate of origin charges etc. Accordingly the total charges associated with documentation would be around INR 1,5002,000/-. The exporters from Kolkata port have to pay a bunker surcharge of US$ 110 / TEU, which again inflates the cost of the exports. The other costs associated include inspection charges, foreign bank charges, custom cess, fumigation charges, supply of electricity to reefer containers etc. There are also non-receipt expenses which include hidden costs that an exporter has to shell out during the export transaction. There are also some other variable costs that arise primarily due to congestion at the port / border check post and which consequently has a cascading effect on other activities associated with exports thereby forcing the exporters to shell out extra money. During shipment, the normal delays that one can anticipate in Kolkata port is anywhere between 7 to 10 days. In addition, there are also delays in the port gates for the truck to enter; this delay may be around 1-2 days. Given the increase in exports from the eastern region, the port is

Shipping cost

Documentation cost

10

Other logistics cost

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Sr. No

Parameter

Description functioning at more than 100% of its existing capacity. The draft being low, no main line vessels come down to KoPT. The feeder vessels are usually not on schedule and if the feeder vessels miss the main line vessel at Singapore or Colombo, the consignment shipment is further delayed by 10 -15 days. Respondents have indicated that due to the congestion, increased freight charges etc, they are finding the exports unviable and are more concentrating on the domestic front. There have been instances when the respondent has lost out on export order to its competitor from Delhi due to the high freight charges and longer transit time taken from the Kolkata port. From Kolkata to Europe the average time taken is 35 days, while that from JN Port, it is around 18 days. Apart from the delays in the congestion, the shippers face problems in obtaining the containers on time, the interest cost incurred due to the delays in the availing the benefits of various governmental schemes for exports promotion, demand of bribes for speedy work, detention time incurred by the shipper on the truck when it is in the queue in front of the port gates / customs border etc. Shippers incur an additional cost of INR 700 to INR800 per day due to congestion delays at the Bangladesh border; and around INR 1,0001,500 per day for congestion delays at Kolkata Port,

Table 17 : Terminal Handling Charges for FCL at Kolkata , Haldia and ICD A THC for FCL Container 5/8 NSD TEU 575
8

Kolkata CPY TEU 2100


9

Non-CPY TEU 3425 FEU 5000

For FCL ( House Stuffed) Export Container For FCL ( Dock Stuffed) Export Container For FCL ( Dock Stuffed) Import Container For FCL ( House Stuffed) Import Container

FEU 715

FEU 3000

Kolkata / ICD 10 MHC CPY TEU FEU 2400 3125

In INR Haldia GCB TEU 2100


11

FEU 3150

8500

12755

10125

15040

10125

15040

4525

6760

1375

1915

2825

4085

10325

15340

2675

3765

4525

6760

575

715

2100

3000

3425

5000

2000

3000

8 9

Netaji Subhash Dock Calcutta Port Yard 10 Mobile Harbour Crane 11 General Cargo Berth

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THC for FCL Container 5/8 NSD TEU X


8

Kolkata CPY TEU 2100


9

Non-CPY TEU 2100 FEU 3000

FEU X

For discharge of FCL and delivery ex-hook import container

FEU 3000

Kolkata / ICD 10 MHC CPY TEU FEU X X

In INR Haldia GCB TEU 650


11

FEU 975

Table 18 : Terminal Handling Charges for LCL at Kolkata , Haldia and ICD B THC for LCL Kolkata Kolkata Container 5/8 NSD CPY Non-CPY MHC ICD 1 LCL Export INR 555 / CBM X INR 555 / CBM X X Container INR 885 / 1000 kgs. X INR 885 / 1000 X X kgs. 2 LCL Import INR 570 / CBM X INR 570 / CBM X X Container INR 900-1000 kgs X INR900/1000 X X kgs

Haldia GCB INR 285 / CBM INR 460 / 1000 kgs INR 285 / CBM INR 460 / 1000 kgs

For a factory (house) stuffed container, the CHA is also required to pay port related charges (in addition to the THC) of INR 4,263 for a FCL 20 container at NSD and INR 2,600 for a FCL 20 container at CPY. Similarly the port charges for a factory stuffed FEU at NSD is around INR 6,0006,300. So the total charges (THC + port charges) for a factory stuffed TEU at NSD would come to INR 575 /- + INR 4,263/- = INR 4,838/- and that for a FEU would be around Rs 7,000/-. The following tables depict the indicative costs associated during the exports transaction in various transit routes. The bottlenecks and the various issues which causes an increase in the logistics cost as well as well as time over-runs is indicated in section 10.3 : Table 19 : Movement of a 20 container (TEU) from Hugli to Kolkata (excludes sea-freight) Segment Cost (INR) Cost % Time (days) Transportation by road 60 km 5,000.00 15.53 Customs clearance 3,500.00 10.87 Terminal handling charges 5,000.00 15.53 Documentation charges 1,500.00 4.66 Congestion surcharge @ US$ 150 per TEU 6,750.00 20.96 Bunker surcharge @ US$ 110 per TEU 4,950.00 15.37 Other costs ( detention charges for 3 days / other OPEs) Total Source: Deloitte Research 5,500.00 32,200.00 17.08

1 1

3 5

Table 20 : Movement of a 10 ton truck load from Kolkata to Bangladesh Segment Cost (INR)

Cost %

Time (days)

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Segment Transportation by road Customs clearance Documentation Coolie charges Detention costs due to delays Other OPEs including speed money Total Source: Deloitte Research

Cost (INR) 12,000.00 2,000.00 1,500.00 2,000.00 2,800.00 1,500.00 21,800.00

Cost % 55.05 9.17 6.88 9.17 12.84 6.88

Time (days) 2 1

4 7

Table 21 : Movement of a rake (40 wagons) from Barauni at Bihar to Bangladesh Segment Cost (INR) Cost % Freight cost by rail per rake. Each rake would have 2,200,000.00 72.13 40 wagons. Total rake capacity - 2,500 tonnes (from Barauni, Bihar to Bangladesh via Darshana / Benapole / Rohanpur customs border) Transportation of 2,500 tonnes by road to rail head (on Indian side) @ INR2,000 / 10 ton truck load Customs clearance @ INR 40 / ton Material Handling charges @ 10% of freight cost Total Source: Deloitte Research Table 22 : Movement of a 20 container (TEU) from Assam to Kolkata (excludes sea-freight) Segment Cost (INR) Cost % Transportation by road (from Tea Garden to ICD Amingaon) @ INR 1.25 / kg Rail movement from ICD mingaon to Kolkata Port Customs clearance Terminal handling charges Documentation charges Congestion surcharge @ US$ 150 per TEU Bunker surcharge @ US$ 110 per TEU Other costs ( delays and other OPEs) Total
(Exchange rate US$ 1=INR 45/-)

Time (days) 7.0

500,000.00 100,000.00 250,000.00 3,050,000.00

16.39 3.28 8.20

3.0 0.5 1.0 11.5

Note The value of the referred consignment is usually around INR 2 crores (Deoiled cakes)

Time (days) 1.5 3.0 2.0

13,125.00 13,300.00 3,500.00 5,000.00 1,500.00 6,750.00 4,950.00 5,500.00 53,625.00

24.48 24.80 6.53 9.32 2.80 12.59 9.23 10.26

4.0 10.5

Source: CONCOR and Deloitte Research

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10.3 Major bottlenecks identified and recommendations


During the course of interaction with the exporters, there were various observations / recommendations mentioned by the exporters, some of which are indicated below: Hard Infrastructure Area Rail Infrastructure Issues Indian Railways have provided a few stations for the private container operators. Surprisingly, Durgapur which is a major industrial hub as not been declared as a Container Rail Terminal. The Kolkata port has been increasing its port related charges which the exporters feel is unfair, since it adds to their cost of shipment, without obtaining any value added services. Promotion of Kerrier dock - The berth where the vessel will dock depends on the port and authorities are trying to promote the Kerrier dock at Kolkata Port. However the said dock does not have the necessary material handling equipment on shore. Haldia Dock has better port infrastructure than KoPT. But Haldia is 100 kms away from Kolkata and many CHAs do not have have their offices at Haldia. The supporting infrastructure at Haldia has not come up and hence exporters are averse to ship their cargo from Haldia. The storage charges levied by AAI in Kolkata is very high (approx Rs. 7 / kg), while in Bangalore it is Rs. 2 / kg. Time taken for processing of documents at the air cargo complex is high. Infrastructure for cargo clearance at the Kolkata airport is poor. There is a shortage of warehouses in and around Kolkata, especially cold storage Suggestions It is recommended that adequate container rail terminals are established at important industrial stations (with provisions for private rail carriers) to improve cargo uploading There is an urgent need for improvements and capacity addition in the sea port infrastructure. The improvement should be in terms of material handling system, labour productivity, development of additional berths, increase of draft, and a proper and reliable EDI system.

Port Infrastructure

Endeavour to make Haldia more accessible and also provide necessary supporting infrastructure in and around Haldia, so that the shipper earnestly looks at Haldia as an alternate port of preference The charges at Kolkata airport should be brought down. In addition, the free days for storage of import cargo is 3 days which is very less and should be increased to a minimum of 7 days. Need for improvement of the facilities at the cargo complex. Need for establishing more warehouses under PPP model.

Airport Infrastructure

Warehouse facility

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Soft Infrastructure Area Labour Issues The low productivity of the port workers Suggestions Need to provide incentives for the workers by having a variable pay component which is directly linked to the particular departments output. Need for a more robust EDI system, which should also be connected to the state borders / Check Nakas.

EDI

The EDI system at the Kolkata port is not very reliable. Breakdown in the computer hardware system, especially printers and server is frequent. This causes delays in obtaining the shipping bill.

EXIM Policy Area Customs Issues It has been observed that there would be 15-20 CHAs gathered around one Customs official table, each coaxing the Customs official to clear his papers leading to delays in goods clearance. The Excise B1 bond was earlier issued for five years. It has been changed and now the same is issued for one year. The Sales Tax department is very stingy in issuing the Form H used for sales tax exemption by the exporter. It takes around 2-3 days for a shipper to obtain the Form H after having his documents scrutinized Though service tax is exempted for exports transaction, exporters are still paying for it.
12

Suggestions A token number system shall be implemented to avoid queues / scrambles In Customs office

Excise

It has been suggested by the exporters that issuance of the B1 bond may be increased to five years again. For regular exporters, the forms should be preferably available on demand.

VAT and others

Service Tax

Clarity is required on Service tax issues especially with regard to the service tax incurred by the CHA , transporter etc for providing services for exports Any policy change implementation should be notified in advance to provide the exporter sufficient time period to take necessary measures to implement the same

Schemes / Policy

The policies of the government keep changing and hence may directly impact the export of a product if it is included under the list of non-exportable item.

12

The exporter can execute B-1 bond for export of goods without payment of excise duty. The bond can be with surety or security or only guarantee. The bond should be at least equal to the duty chargeable on the goods, with such surety or security as the excise officer may approve. The bond can be executed with the Maritime Commissioners or Assistant / Deputy Commissioner under whose jurisdiction the factory is situated or Assistant / Deputy Commissioner (Export) as officer authorized by Board.

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Logistics Area Ports / Sea Connectivity Issues Chittagong is just a one and a half days sailing from Kolkata. But since there are no regular services to Chittagong from Kolkata, the shipments are first routed to Singapore and from Singapore it is then transshipped to Chittagong. The cost of shipment of the consignment through Singapore is around USD 1500 and the time taken is around 10-15 days, while the shipment from Kolkata to Chittagong is around USD 300 to USD 400 per TEU. Since only feeder vessel calls, the cost of transshipment is extra for Kolkata port. There have been instances when the respondent has lost out on export order to its competitor from Delhi due to the high freight charges and longer transit time taken. Exporters are reportedly mulling on dispatching their goods to JNPT via rail to save on the congestion time caused at Kolkata port and to gain direct access to Mother Ships. At present there is no agreement between Bangladesh and India for freight and vehicles movement by road. Thus, trade has to be transshipped at the border. This transshipment of cargo is carried out either by unloading the cargo in the warehouses of the other country or directly from one vehicle to another in at the no-mans land at Benapole (Bangladesh). At Petrapole (India), Customs checking is done at a place other than within the terminal premises, which results in delays and increased transaction costs. Suggestions Need for a regular weekly service from Kolkata to Chittagong.

Rail Connectivity

To facilitate the movement of their container from Kolkata to JN Port, exporters have indicated that there should be regular container train service from Kolkata to JN Port.

Bottlenecks at the Petrapole Benapole border

Need for a formal agreement between Bangladesh and India to lay down guidelines for freight and vehicles movement by road.

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11 Mapping of logistics movement and cost analysis North Zone


11.1 North zone overview
The industrial location of the northern region surrounds New Delhi and the adjacent states bordering the capital. Export cargo is facilitated from the various inland container depots which is concentrated on the main rail line between Mumbai / JN Port and Delhi. Export volume from National Capital Region (NCR) NCR covers a total of 30,242 sq km covering Delhi and parts of Haryana, Rajasthan and Uttar Pradesh. Inland container depots in the North connect the container handling port of Mundra / Kandla / Pipavav and JN Port / NSICT, through which most of the cargo movement takes place. In 2006 07 the ICD covering Tughlakabad, Moradabad, Panipat, Dhandarikalan, Ballabhgarh, Jodhpur, Jaipur, Rewari, Dadri, 13 Agra, Gwalior, Kanpur, Ravtha Road etc handled a total of 9,30,304 TEU . The major movement of export containers is through CONCOR rail network with their flagship ICD at Tughlakabad (TKD) which handles more than 0.4 million TEU per annum.

Moradabad, 6%

Rewari, 2%

Ludhiana, 17%

Tughlakabad, 56%

Dadri, 19%

Figure 20 : Major CONCOR - NCR Export Cargo Movement (April 2006-07) Source: CONCOR ICD Tughlakabad is followed by Dadri and Ludhiana in handling EXIM volumes. As ICD Tughlakabad is located inside Delhi the cargo movement from NCR region (which extends and covers a vast area of Haryana including the auto hub of Gurgaon and industries located at Faridabad) moves inside Delhi which has to be avoided and reversed. There is a proposal to close down ICD Tughlakabad, for which reverse planning needs to be put in place. This would require creation of additional facilities at other ICDs (south of NCR). Cargo coming from South Delhi in the first stage can be gradually diverted to ICD at

13

Indian Ports Association

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Rewari where supporting infrastructure including offices of shipping companies etc should be facilitated with additional trains siding and connectivity from ICD Rewari on a daily basis.

11.2 Zonal mapping and logistics cost analysis


For exports from NCR The following section indicates the mapping of the inland logistics movement and cost break-up for shipment of export consignment from NCR Sr No Parameter Description 1 Inland road NCR collects cargo from various industrial hubs located in the states of transportation Haryana, Punjab, Rajasthan, Himachal Pradesh, Uttarakhand, and Uttar Pradesh. The road haulage freight rate depends upon the type of vehicles and its availability (supply) in the market. For light cargo movement in forty feet equivalent unit FEU, the rail freight charged is 1.8 times that of a twenty equivalent unit -TEU (Two TEU are considered as one FEU) however the road charges comparatively are cheaper by about 15% for textiles goods and about 25% for automobile spare parts moving from NCR to JN Port in FEU. This discourages light cargo from moving by rail leading to additional traffic of FEU on the highways which create congestion in the absence of dedicated traffic lanes. Association of Container Train Operators (ACTO) has demanded that the Railways should fix the haulage charges for FEU containers at 1.6 times of the corresponding rates for a TEU. 2 Inland rail Most of the export cargo moves by rail from the ICD to the seaports of JN transportation Port / NSICT/ GTIL - Nhava Sheva in Maharashtra, Mundra / Kandla port at Kutch - Gujarat, and Pipavav port in Amreli, Gujarat. The CONCOR tariff rates from Ludhiana and Tughlakabad have been compared for the port of Nhava Sheva, and Gujarat based port of Mundra and Pipavav. From the comparison analysis ( as depicted in Table 14 ), it can be noted that in spite of the tariff for Gujarat ports being 8-10% lower than of that of Nhava - Sheva, the cargo movement is higher for Nhava Sheva port due to the number of sailing ships and frequency offered from the ports, especially main line direct vessels. It was found that there is no inland water transport taking place in this region for moving goods meant for exports. A feasibility study shall be considered for inland water transportation on the Yamuna River which may require having small dams to maintain a sufficient level of water to develop flat bottom barge movement. NCR has various ICD / CFS including private owned and operated ones, which have their own tariff and schedule of rates for their respective service offerings The Bombay Custom House Agents' Association popularly known as BCHAA is the oldest association representing the custom house agents in

Inland water transportation

Transit facility (ICD / CFS / ware housing / etc Custom House Agent /

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Sr No

Parameter Clearance

Description various trade and government bodies. The Custom house agents (CHA) have their main offices at the sea ports of Mumbai and have branch offices covering ICD and dry ports .They are regulated and obtain registration from the customs to operate .Their charges vary between INR. 2000 - 3500 /- per TEU / FEU. The survey has identified that the staff working with customs and logistics movement needs to be trained. THC is charged by the respective shipping lines for handling, movement and loading of the container on the ship. It varies from shipping line to line and is fixed and non-negotiable. It has been reported that over the past one year, there has been a rise of almost 100% in the THC charges from INR 4,000 to INR 7,500 per TEU container. The quality of service provided however has not improved to commensurate with the increase witnessed in the cost. The increase in THC is affecting price competitiveness of major shippers who have around 15-20 containers to be shipped per month Sea freight is paid to the shipping line or NVOCC (Non Vessels Owning Container Operator) who issues the Bill of Lading to the exporter. The sea freight depends on shipping line to line, the route and transit time. The exporter agrees to the sea freight on which basis booking note with empty container is issued for stuffing of the export cargo. During the period 2007- 08, sea freight rate for Europe from JN Port has increased from US$ 1200 to 2000 for a TEU and now has averaged to around US$ 1500 per TEU. For shipment to USA, the freight rate had come down from US$ 2000 to US$ 1500 due to less volume and has now recovered to US$ 2200 2500 per TEU. The documentation charges cover the expenses incurred for obtaining the necessary documents required for processing export shipment including bank related documents. It covers the charges of obtaining Bill of lading (INR 750) from the shipping line, charges for certificate of origin, etc. depending upon the product Other logistics costs include cost of movement of the empty container by road or rail to the ICD, cost of loading, unloading, stuffing, palletisation, fumigation, excise inspection etc. Based on the primary survey and ICD rail tariff, which is on weight basis and common for nonhazardous cargo, average rail freight for a TEU was been taken for calculating the various components of cost incurred for moving an export container from the exporters factory to the port.

Terminal Handling Charges (THC)

Shipping cost

Documentation Charges

Other logistic costs

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Table 23: TEU & FEU rail tariff charges ex Ludhiana to western region ports LUD-TEU 1 2 Tariff Difference between 1 and 2 Weight Tariff Tariff - Pipavav (INR) (MT) JNPT/NSICT/GTIL 12 15 18 22 28 LUD-FEU 18 22 40,100 42,200 34,100 36,000 36,900 6,000 6,200 7,400 20,700 23,300 23,300 30,600 35,100 18,200 21,200 21,200 30,600 35,800 2,500 2,100 2,100 0 -700

3 Tariff Mundra 17900 20800 20800 30500 35300 33600 35400 36300

Tariff Difference between 1and 3 (INR) 2,800 2,500 2,500 100 -200 6,500 6,800 8,000

28 44,300 Source: CONCOR & Deloitte Research

As highlighted from the comparison statement above, basic rail freight of CONCOR charges to Mundra are INR 8000 / - less for a FEU from Ludhiana to JN Port and as Ludhiana has more of FEU movement same can lead to a substantial saving for the exporters. Table 24: TEU & FEU rail tariff charges ex Tughlakabad to western region ports TKD-TEU 1 2 Tariff Difference 3 between 1 and 2 Tariff Weight Tariff Tariff (INR) (MT) JNPT/NSICT/GTIL Pipavav Mundra 12 15 18 22 28 TKD- FEU 18 22 32,800 34,900 30,100 31,700 33,100 2,700 3,200 3,400 29,500 31,000 31,900 3,300 3,900 4,600 17,300 19,500 19,500 27,200 32,100 15,600 18,200 18,200 26,200 29,000 1,700 1,300 1,300 1,000 3,100 15,400 17,800 17,800 25,900 28,500

Tariff Difference between 1 and 3 (INR) 1,900 1,700 1,700 1,300 3,600

28 36,500 Source: CONCOR & Deloitte Research

As highlighted from the comparison statement above, basic rail freight of CONCOR charges to Mundra are INR 3600 / - less for a TEU from Tughlakabad (NCR) then to JNPT.

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Table 25: Break-up of total logistics cost ex NCR to JNPT port Segment Cost (INR) Break - up of export cost excluding sea freight Transportation by road (30 km radius in NCR from ICD) Rail movement to port (average) Note The time includes the dwell time of the loaded export container which is usually less than 24 hours and transit time of 46 hours Custom Terminal Handling Documentation Others Total Source: Deloitte Research 5,000 23,120

Cost %

Time (days) 1.0 2.5

12.78 59.10

3,000 6,000 1,000 1,000 39,120

7.67 15.34 2.56 2.56 100

0.5 0.5 1.0 5.5

From the break - up of the total cost, it is observed that sea freight charges contribute to a high percentage of above 70% followed by the inland charges for movement from the hinterland factory to the port. The sea freight charges especially for container cargo are also subject to fluctuations increasing by up to 80% in the last year 2007- 08 in the EU sector and involves freight brokers and NVOCC which add to the final cost paid by the exporter. A reduction in sea freight of 10% would save about INR 9000 which would reduce the total cost by about 6%. The second cost element of 18% is the inland haulage which is directly due to the distance of NCR from JNPT. Other expenses incurred, are cost of repositioning the empty container from the port to the ICD (which is the rail freight of an empty container plus handling charges) the charges of which are borne by the exporter.
Recommendations for improvement of exports from the NCR region
1. The National Capital Region Planning Board which has the mandate for preparing a Plan for the development of the NCR should include a master plan for logistics movement also. This plan needs to be incorporated in the overall development plan; to enable seamless movement of logistics to take place. Logistics Plan can suggest bypasses, under/over bridges, dedicated lanes and linkage with certain sections especially for Gurgaon and Faridabad. The logistics plan should (based on the proposed route of Delhi Mumbai Industrial corridor DMIC and feeder rail linkage with ICDs in the north) suggest the proposed Western Peripheral road expressway for NCR to facilitate cargo movement from Chandigarh and Northern Haryana to move south, linking the feeder rail connection on which future ICDs can be developed. Similarly industrial hubs of eastern Delhi can also be linked to the feeder rail links connecting the DMIC by planned road .This would enable traffic to move away from Delhi to link the feeder routes and DMIC

2.

Figure 21 : Recommendations for facilitating seamless export movement from the NCR

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For exports from ICD Pithampur (Indore) Indore is the commercial capital of Madhya Pradesh and strategically located in the industrial belt of Dewas. ICD Pithampur lies 45 km from Indore in the industrial belt, where other textile and pharmaceutical parks are also being developed. ICD Pithampur is 110km from Ratlam, the nearest railhead on the busy DelhiMumbai broad gauge rail link. Export containers have to move to Ratlam rail head which leads to double handling and additional cost and delay reducing the benefit offered by lower rail freight. Lack of last mile rail connectivity of ICD with Ratlam has limited the growth, compelling the exporters to either bear the delay of 10 -15 days for movement to JN Port by rail, or move containers directly by road on the already busy NH 3 adding to the traffic congestion. Non development of rail and smooth road connectivity is directly affecting the growth and development of south MP region, which has very good potential for textile, food, pharmaceutical and auto industry. The present cargo potential from Indore region (covering the surrounding area) is about 1 lakh TEUs per annum. CONCOR during the period April 2006 - March 2007 handled 27,384 TEU from ICD Pithampur with road movement accounting for the balance. The following section indicates the mapping of the inland logistics movement and cost break-up for shipment of export consignment from ICD Pithampur. Sr No 1 Parameter Inland road transportation Description ICD Pithampur being in the industrially developed region, can act as a gateway ICD for the entire region covering Indore, Pithampur, Dewas, Mandideep, Bhopal, Nagda, Ghatabillod, Dhamnod, Sarangpur, Ratlam, Pilukhedi etc; provided: o The area is linked with good state road network o Provide rail connectivity with Ratlam (MP) and Dahod (Gujarat) Most of the export cargo moves by road from the factory to the seaports of JNPT / NSICT/ GTIL at Nhava Sheva, Maharashtra. Other ports like Mundra / Kandla at Kutch, and Pipavav port in Amreli, (Gujarat), do not have good connectivity or rail network ex Indore. 3 Transit facility (ICD / CFS / ware housing / etc. The CONCOR tariff rates from ICD Pithampur have been taken for port of Nhava Sheva which is about 700 km as most of the cargo moves through it. Indore has CONCOR ICD which has its own tariff and schedule of rates for its service offering. Fairdeal Group (private ICD) has just commenced its road linked ICD from 1st October 2008 and another is being developed by Allcargo Global Logistics

Inland rail transportation

Table 26: TEU rail tariff charges ex Pithampur to JNPT/ NSICT / GTIL ports INDORE Rail Tariff - JNPT/NSICT/GTIL - Cost (INR) Road Charges - Cost (INR) Weight ( MT ) Up to 12 MT >12 <= 16 MT >16 <= 20 MT >20 <= 25 MT TEU 10,200 10,900 10,900 14,400 19,800 30,000 45,000 FEU TEU FEU

>25 <= 26 MT 14,400 Source: CONCOR & Deloitte Research

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Table 27 : Break-up of total logistics cost for movement of a TEU from Pithampur to JNPT Segment4 Cost (INR) Cost % Time (days) Break up of export logistic cost, excluding sea freight Road Transportation (100 kms - ICD Pithampur - Ratlam) Rail movement to port (average) Custom clearance Terminal handling Documentation Others Total Source: Deloitte Research Comparison of logistics constraints faced by Tughlakabad, Delhi and ICD Pithampur, Indore The rail freight is charged based on the distance and weight and increases proportionally based on the location of the ICD. However the handling charges and other cost of enabling stuffing and movement of empty container back to rail terminal depends upon the location of the ICD and availability of rail connection from the same. At Indore the rail head is 110 km from the industrial area and ICD Pithampur. Hence an empty container picked up from the ICD moves to the factory at Indore and back to Ratlam where rail movement to the port is available, covering a distance of 150200 km which accounts for 63% of transportation cost associated with rail movement (rail freight is INR 13,115 and inland haulage is INR 8300). The referred cost is 25% more as compared to the inland freight cost incurred by exporters shipping from ICD Tughlakabad Delhi.
Recommendations for improvement of exports from Indore Pithampur region
Government of India along with state government should prepare a master plan for Pithampur -Dewas - Mhow region, covering industrial potential areas with infrastructure planning for helping setup non-polluting based industries in food, pharmaceuticals, textiles, automobile, information technologies, etc Master plan should also identify a new location for green field ICD to be developed by CONCOR with sufficient land to cover future growth. This ICD should be aligned with the rail line being developed between Ratlam-Indore as the present ICD at Pithampur is constrained for space being in the SEZ zone. Priority should be given to develop rail connectivity between Indore (Pithampur) with Ratlam so that rail movement can take place directly from Indore. Similarly Indore - Ratlam highway via PPP mode should be expedited Converting NH 3 from Indore to Mumbai (Maharashtra) and NH 59 from Indore to Godhra (Gujarat) into six lanes should also be expedited. Roads linking Indore with other major cities in South MP, Rajasthan, Gujarat and Maharashtra should be developed using PPP models (Minimum 6 lanes should be envisaged) Conversion / development work of Dahod (Gujarat) Indore (MP) via Jhabua and Chhota Udaipur - Dhar has already been inaugurated by the Prime Minister on 8 February 2008.Its first leg between Pratapnagar (Vadodara) to Chhota Udepur has been completed and opened for traffic on 2nd October 2008 .However from Chhota Udepur to Dhar the work needs to be expedited which would finally link Indore. Similarly Ratlam Mhow section which is underway as part of the Ratlam - Khandwa - Akola, project should be completed to enable Indore city via ICD Pithampur getting connected to Ratlam junction by rail..

8,300 13,115 3,000 6,000 1,000 1,000 32,415

25.61 40.46 9.25 18.51 3.08 3.08 100

1.0 10.0 0.5 0.5 1.0 13.0

Figure 22: Recommendations for facilitating seamless export from Indore Pithampur region

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Table 28 : Comparative cost of rail freight v/s inland road transportation in % ICD Tkd Delhi Inland road charges = 22% of basic rail freight ICD Indore Inland road charges = 63% of basic rail freight Difference 41%

11.3 Major bottlenecks identified by the exporters and recommendations


Some of the major logistics issues highlighted by exporters of NCR and Indore regions during the primary survey are indicated below: Hard Infrastructure Area Infrastructure Issues The overall infrastructure ( roads, power, warehousing facilities etc) covering the industrial region surrounding New Delhi is inadequate to take care of the volume of exports being carried out Poor road connectivity between Indore and Mumbai /JNPT / Kandla / Mundra sea ports Lack of ICD infrastructure in North Haryana and Chandigarh region. Now the cargo has to move to South Delhi or East Delhi for further connectivity to the gateway ports in the western region Lack of infrastructure facility at ICD Pithampur Indore ICDs in India are not inter linked for information management Lack of cold storage especially at Delhi Airport A Management Integrated system (MIS) can be setup linking all the ICDs in the country Need for development and up gradation of cold storage facilities that offers reliable services at the major gateway terminals in the North zone Agency with pan India presence (lab facility) should test and issues reports on behalf of customs to avoid delay Suggestions Need for a better infrastructure and planning to cover the industrial region surrounding New Delhi which extends up to 150 km

Road infrastructure

Suitable planning and execution of road projects to be done with the help of NHAI The government can facilitate development of ICDs across export centers on PPP basis by providing land and other ancillary support for the necessary development of ICD infrastructure

Warehouses

Cold chain

Certification lab

Lack of authorized Certification laboratory facilities for sample testing of export consignments

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Soft Infrastructure Area Labour Issues Inflexible labour laws Suggestions Labour laws in the country are not in tune with industry requirement and needs amendments.

EXIM Policy Area Service tax Issues Refund of service tax is causing delays and discomforts for exporters Suggestions Exporters should be exempted from paying service tax, rather than asking them to pay and claim refund which involves time and documentation.

Logistics Area Rail connectivity Issues Rail carriage with 4 cars is very light (4 MT) for which the freight charged is higher than that of truck charges from NCR to seaports in the western region Export containers have to move from ICD Pithampur to Ratlam rail head which leads to double handling and additional cost and delay reducing the benefit offered by lower rail freight. Lack of last mile rail connectivity of ICD Pithampur with Ratlam has limited the export growth, compelling the exporters to either bear the delay of 10 -15 days for movement to JN Port by rail, or move containers directly by road on the already busy NH 3 adding to the traffic congestion. Two toll charges between Indore and ICD Pithampur and high cost of ICD operations discourages exporters from using ICD facilities Need for ICDs offering competitive rates and services in order to encourage exporters to use the facilities. Private participation for ICD operations is a right step in this direction Export cargo should be exempted from Octroi formalities to avoid delay. Exporters association can file a bond on behalf of exporters and co-ordinate for documentation Suggestions Need for rationalizing the rail freight rates by the rail cargo operators

Need for a feasibility study to understand the cost-benefit analysis for extension of rail from Ratlam to ICD Pithampur

Check post / road connectivity

Others

Inland movement of exports from Indore to Mumbai incur procedural delay due to N form

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Logistics Area Issues Restricted movement from Gurgaon and Noida factory allowed only during certain limited hours Suggestions This step was taken to alleviate road congestion but long term measures like construction of bypass lanes to move cargo should be thought of

Source: Primary survey findings

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12 Mapping of logistics movement and cost analysis South Zone


12.1 South zone overview
South zone is an important region involved in the export of textile, auto & auto components, chemicals and food processing. The south zone comprises of consists of four states namely; Andhra Pradesh Karnataka Kerala Tamil Nadu And two union territories Lakshadweep Pondicherry Figure 23 : Southern India region Commodity profile The commodity profile of the region is as follows State Commodities exported Andhra Pradesh Karnataka Kerala Tamil Nadu Textiles, Chemicals, Food Processing Auto components, Food processing, Food processing Auto components, Textiles

The export gateways The companies in the southern region export the commodities mainly from 5 major ports; Chennai, JNPT, Vizag, Cochin and Tuticorin. State Locations covered in Mode of transport Gateway ports used the survey to port Andhra Pradesh Hyderabad, Medak, Road, Rail Mangalore, Chennai Port Prakasham Trust, Cochin Port Trust Karnataka Bangalore, Hosur Road, Rail Chennai Port Trust, Mangalore, Cochin Port Trust Kerala Ernakulam, Allapuzha, Road Cochin Port Trust Thrissur, Palakkad Tamil Nadu Chennai, Coimbatore, Road, Rail Chennai Port Trust, Tuticorin Port Trust, Cochin Port Trust

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The subsequent sections has a brief description of the gateways most used by the respondents contacted Chennai Port Trust Chennai Port, the third oldest port among the 12 major ports, is an emerging hub port in the East Coast of India. This gateway port for all cargo has completed 126 years of glorious service to the nations maritime trade. Currently Cargo to / from ChPT is handled through rail (33%), road (40%) and pipeline (27%). Cochin Port Trust Cochin is the fastest growing maritime gateway to peninsular India. An all-weather natural Port, it is located strategically close to the busiest international sea routes from the Gulf to Singapore and Europe to the Far East circuits. The port is spearheading fast-track maritime and industrial growth in the large geographical spread of its economically vibrant hinterland. The logistically sensitive port is emerging as the most preferred investment destination for maritime commerce. The port attracts cargo from the region of Andhra Pradesh, Kerala, Tamil Nadu and Karnataka. Figure 24 : Hinterland mapping for Cochin Port Tuticorin Port Trust Tuticorin has been a centre for maritime trade and pearl fishery for more than a century. The natural harbour with a rich hinterland activated the development of the Port, initially with wooden piers and iron screw pile pier and connections to the railways. Tuticorin was declared as a minor anchorage port in 1868. Since then there have been various developments over the years. Visakhapatnam Port Trust It plays a crucial role as the middle point distribution base for Southern, Eastern, Central and Northern states of India. Described as the Brightest Jewel of all Indian major ports for its outstanding performance and productivity, Visakhapatnam Port serves as a catalyst in spurring domestic and international trade.

12.2 Zonal mapping and logistics cost analysis


Sr No 1 Parameter Inland transportation charges Road Inland transportation charges Rail Inland transportation charges Description The freight rates from the various southern hinterland export centers to the various gateways is indicated in table 33

The rail transportation is preferred from Andhra Pradesh and Karnataka. The transportation charges for transporting the containers from various destinations to the ports are mentioned in Table 34 At present it is seen that there is no inland water transportation mode used by the exporters. It is seen that except for Kerala no other state uses Inland water transport as preferred mode to transport the consignments.

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Sr No

Parameter Water

Description However considering the economies of scale in transporting via water, the mode of travel is to be encouraged in future for reducing the logistics cost. The companies in the hinterland use the following ICD and CFS State Andhra Pradesh Karnataka Kerala Tamil Nadu ICD / CFS Hyderabad (CWC, CONCOR), Guntur Whitefield, Desur Cochin Coimbatore, Chennai, Madurai, Tuticorin

Transit facility (ICD/ CFS/ Warehousing etc)

5 6

Custom house agent charges Shipping cost

Documentation charges

Other logistics cost Unauthorized check posts Total logistics cost

It has been seen that most of the bigger companies in the hinterland prefers to directly stuff the containers in the port premises and smaller companies prefer sending the LCL to the ICDs/ CFSs where they get stuffed and is then taken to the various ports depending on the export destinations. The custom house agent charges are INR 2,000 per TEU and INR 3,000 per FEU. These charges are exclusive of Service Tax. The companies in the southern region prefer JNPT and Cochin Port Trust as they handle direct vessels. Tuticorin and Chennai are less preferred as the ports are mainly into transshipment and hence are costlier when compared to other ports. Depending on the urgency and the high value consignments the exporters prefer air or sea options. The shipper has to incur a cost of around INR 600 to INR 1,000 per Bill of Lading in the southern ports. Apart from the referred documents, the shipper would also be required to bear the nominal L/ C charges which vary depending on the bank. The other charges incurred by the shipper include courier & fax charges, certificate of origin charges etc. Accordingly the total charges associated with documentation would be around INR 1,0002,000/-. The exporters in the southern region have to pay hefty bribes in the checkposts spread across the country. According to the exporters, in some cases they end up paying around INR 1000 to INR 2000.

Most of the cargo in the southern hinterland moves by road. This is mainly because of lesser distance from the factories to the gateway ports. It could be seen that exporters prefer rail movement if the distance between the factory to the gateway ports is more than 600 kilometers. The logistics cost for the following routes have been analyzed in detail for Andhra Pradesh Hyderabad to JNPT Hyderabad to Chennai Port Trust Tamil Nadu

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Sr No

Parameter

Description Chennai to Chennai Port Trust Coimbatore to Cochin Port Trust Coimbatore to Chennai Port Trust Hossur to Cochin Port Trust Hosur to Chennai Port Trust Kerala Cochin to Cochin Port Trust Allapuzha to Cochin Port Trust Thrissur / Palakkad to Cochin Port Trust Karnataka Bangalore to Cochin Port Trust Bangalore to Chennai Port Trust

Table 29 : Road freight charges Cochin Port Trust 20" 40" Allapuzha 3000 4600 Bangalore NA NA Chennai Cochin 1000 2000 Coimbatore 12000 18000 Hyderabad Palakkad 13500 13500

Chennai Port Trust 20" 40" NA 2000 16500 21600 NA 4000 28000 38000

20"

JNPT 40"

20"

Tuticorin 40"

14000 22000 42000

21000

Note: The figures quoted in the table are the responses provided by various exporters

Table 30 : Rail freight charges In INR (excluding the applicable taxes) Cochin Port Trust Chennai Port Trust 20" 40" 20" 40" Bangalore 8500 16,300 6,300 12,200 10,500 19,200 Hyderabad Source: CONCOR

20" 10,700

JNPT 40" 20,700

Table 31 : Movement of a 20 container (TEU) from Hyderabad to various ports by road Hyderabad to various ports (road) JNPT Chennai Port Trust Logistics cost parameters Inland transportation charges road Inland transportation charges rail Inland transportation charges water Transit facility (ICD / CFS / ware housing / etc) Custom House Agent /Clearance Terminal Handling Charges Documentation Charges Other Logistic costs Cost 22000 0 0 5000 2500 6000 800 200 Cost % 60.27% 0% 0% 13.70% 6.85% 16.44% 2.19% 0.55% 1 Time (days) 2 0 0 2 Cost 22000 0 0 2800 2500 6000 500 500 Cost % 64.14% 0.00% 0.00% 8.16% 7.29% 17.49% 1.46% 1.46% 1 Time (days) 2 0 0 1

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Total logistic costs Source: Deloitte Research

36500

100%

34300

100%

Table 32 : Movement of a 20 container (TEU) from Hyderabad to various ports by rail Hyderabad to various ports (rail) JNPT Chennai Port Trust Logistics cost parameters Inland transportation charges road Inland transportation charges rail Inland transportation charges water Transit facility (ICD / CFS / ware housing / etc) Custom House Agent /Clearance Terminal Handling Charges Documentation Charges Other Logistic costs Total logistic costs Source: Deloitte Research Table 33 : Movement of a 20 container (TEU) from Chennai and adjoining areas to Chennai Port by road Chennai to various ports (road) Chennai Port Trust Logistics cost parameters Inland transportation charges road Inland transportation charges rail Inland transportation charges water Transit facility (ICD / CFS / ware housing / etc) Custom House Agent /Clearance Terminal Handling Charges Shipping cost Documentation Charges Other Logistic costs Total logistic costs Source: Deloitte Research Table 34 : Movement of a 20 container (TEU) from Coimbatore to various ports by road Coimbatore to various Cochin Port Trust Chennai Port Trust Tuticorin Port Trust ports (road) Logistics cost Cost Cost Time Cost Cost Time Cost Cost Time parameters % % % Cost 3000 0 0 2000 1200 5800 99000 500 0 111500 Cost % 2.69% 0.00% 0.00% 1.79% 1.08% 5.20% 88.79% 0.45% 0.00% 100% 2 1 Time 1 Cost Cost % Time (days) 1 4 0 2 Cost Cost % Time (days ) 1 3 0 1

2000 10700 0 5000 2500 6000 800 200 27200

7.35 39.34 18.38 9.19 22.06 2.94 0.74

2500 10700 0 2800 2500 6000 500

1.97 8.44 2.21 1.97 4.73 0.39 0.39

1 8

500 25500

1 6

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Coimbatore to various ports (road) Logistics cost parameters Inland transportation charges road Inland transportation charges rail Inland transportation charges water Transit facility (ICD / CFS / ware housing / etc) Custom House Agent /Clearance Terminal Handling Charges Documentation Charges Other Logistic costs Total logistic costs Source: Deloitte Research

Cochin Port Trust Cost 14000 0 0 4500 Cost % 56% 0% 0% 18% Time 1 0 0 2

Chennai Port Trust Cost 18000 0 0 2000 Cost % 65% 0% 0% 7% 1 Time 1.5

Tuticorin Port Trust Cost 14500 0 0 1500 Cost % 61% 0% 0% 6% 1 Time 1

1200 4000 600 500 24800

5% 16% 2% 2% 100% 0.5 3.5

1200 5800 500 0 27500

4% 21% 2% 0% 100% 2.5

2000 4800 800 0 23600

8% 20% 3% 0% 100% 2

Table 35 : Movement of a 20 container (TEU) from Bangalore to various ports by road & rail Bangalore to various ports Cochin Port Trust Chennai Port Trust (road /rail) Logistics cost parameters Inland transportation charges road Inland transportation charges rail Inland transportation charges water Transit facility (ICD / CFS / ware housing / etc) Custom House Agent /Clearance Terminal Handling Charges Documentation Charges Other Logistic costs Total logistic costs Source: Deloitte Research Table 36 : Movement of a 20 container (TEU) from Cochin and adjoining areas to Cochin Port Cochin to various ports Cochin Port Trust (road) Logistics cost parameters Cost Cost % Time Cost 18500 0 0 4500 1200 4000 600 500 29300 Cost % 63.14% 0.00% 0.00% 15.36% 4.10% 13.65% 2.05% 1.71% 100% 1 5 Time 2 0 0 2 Cost 15000 0 0 2000 1200 5800 500 0 24500 Cost % 61.22% 0.00% 0.00% 8.16% 4.90% 23.67% 2.04% 0.00% 100% 1 4 Time 2 0 0 1

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Cochin to various ports (road) Logistics cost parameters Inland transportation charges road Inland transportation charges rail Inland transportation charges water Transit facility (ICD / CFS / ware housing / etc) Custom House Agent /Clearance Terminal Handling Charges Documentation Charges Other Logistic costs Total logistic costs Source: Deloitte Research

Cochin Port Trust Cost 3000 0 0 5158 0 0 500 0 8658 Cost % 34.65% 0.00% 0.00% 59.57% 0.00% 0.00% 5.78% 0.00% 100% 3 2 Time 1

Table 37 : Movement of a 20 container (TEU) from Palakkad and adjoining areas to Cochin Port Palakkad to various ports (road) Cochin Port Trust Logistics cost parameters Inland transportation charges road Inland transportation charges rail Inland transportation charges water Transit facility (ICD / CFS / ware housing / etc) Custom House Agent /Clearance Terminal Handling Charges Documentation Charges Other Logistic costs Total logistic costs 500 0 20500 Cost 13500 0 0 6500 Cost % 65.85% 0.00% 0.00% 2 31.71% 0.00% 0.00% 2.44% 0.00% 100% 3 Time 1

Source: Deloitte Research

12.3 Major bottlenecks identified and recommendations


Hard infrastructure
Area Road Issues Road conditions of the following stretch Suggestions Concept of express highways

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Hard infrastructure
Area Issues are very poor o Coimbatore to Cochin o Coimbatore to Chennai The preference is always given for passenger trains over goods trains. This increases the transit time for movement by rail Direct connecting vessels are not available from Chennai and this is forcing the companies to go for transshipment and thereby incurring higher logistics cost. At present most of ships either goes to Singapore or Colombo for transshipment. Suggestions should be explored in the high traffic routes If found feasible, Railways should initiate steps to have dedicated freight corridors in the South, Government should take steps for increasing the direct connectivity from India The development of Vallarpadam Transshipment Terminal at Kochi and Vizhinjam Port near Thiruvananthapuram will address the transshipment problems as mother vessels can carry cargo directly from these ports Airport infrastructure should be improved and steps should be taken for handling bigger pallets

Rail

Ports

Airport

Power

Water

Bigger pallets handling at Coimbatore airport - According to Shippers, air freighting the bigger pallets (over 1200 length mm) is not available at Coimbatore airport. No scanning machines available for scanning the bigger pallets. There is a shortage of cargo flights from Coimbatore Power shortages in Kerala and Tamil Nadu are affecting the operations for the exporters. In most of the places, there are mandatory power cuts and mandatory holidays. There is a shortage of potable water to the exporting units There is a shortage of adequate warehouses and cold chain facilities in the south

Warehouses & Cold chain

Empty / reefer container / trucks

Availability of empty containers in the south a major problem for the exporters. This forces the exporters to incur extra costs in fetching the containers from the nearby ports.

Government should take actions to provide proper power connectivity to the exporters. Power generation under private sector participation should be encouraged Suitable steps to curb water wastage and to ensure better water management shall be taken Steps should be taken to increase the warehouses and cold chains in South. Setting up of common cold chain infrastructure shall be encouraged. Ensure on time availability of reefer containers

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Hard infrastructure
Area Terminal markets Issues There is a need for more terminal markets across Southern states Suggestions Seek to set up more terminal markets

Soft infrastructure Area Issues Labour Shortage of labour especially for the textiles and food processing sector in the South Research & development EDI There is a need for proper R&D investment in food processing and textiles There are no EDI systems in Coimbatore. This increases the time taken for clearing the containers

Suggestions Training should be imparted to local people through ITIs, polytechnics, etc so that successful persons shall be inducted to the industry Government should initiate actions to have proper R&D facilities in the South EDI systems should be implemented in Coimbatore

Policy Area Local, regional & national regulations Customs / Excise

Issues Time restrictions for entering the city premises in Hyderabad, Coimbatore cities is increasing the logistics cost for exporters Customs do not have enough testing facilities Customs do not work on Saturdays & Sundays. Hectic documentation procedures for availing various schemes Excise and customs official should be knowledgeable about the products they handle and avoid time delays According to exporters, Customs charge overtime charges after 7 pm. Respondent feels that Customs should not charge the overtime charges and should be on the regular scale. According to exporters, rejection and call back consignments from the customers is charged customs duty and import duty In customs there is no provision for DDU and DDP ( Delivery duty unpaid &

Suggestions Government should initiate actions to have separate roads / highways for the trucks and trailers Customs should have proper testing facilities Customs should be operational on 24/7 basis Reduction in documentation procedure for exporters Proper technical training to the officers to be imparted There should not be any overtime charges for any transactions

This issue needs to be jointly resolved by DGFT, CBEC and the concerned ministries Customs should have a provision for DDU & DDP

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Policy Area Brand Promotion

Issues delivery duty paid) Brand promotion should be done for processed foods and textiles

Suggestions Government should take steps for branding the sectors

Logistics issue
Area Road connectivity Rail connectivity Issues Poor road conditions inhibiting the seamless cargo movement by road Poor rail connectivity between the following regions o Hyderabad to Chennai o Hyderabad to JNPT o Bangalore to Chennai Because of the poor rail connectivity the companies are forced to send their consignment via trucks which is costlier Hold up of goods at ICD Bangalore Frequency of trains from ICD to Chennai is very less The transit time associated with rail transportation is very high Less cargo flights connectivity in the following southern region airports o Chennai o Coimbatore Longer than usual time taken for cargo clearance at ports Suggestions A comprehensive planning to be carried out for multilane express ways that can carry cargo traffic CONCOR shall improve the connectivity from the high cargo region to gateway ports Alternatively, private participation in the container operations shall be encouraged in these regions

Air connectivity

Frequency of goods trains from Bangalore to Chennai has to be increased Railway should introduce high speed container and goods trains to reduce the transit time More cargo flights to be introduced in Chennai and Coimbatore to tap the high cargo potential The exporters are of the opinion that the Government should take some steps in reducing the container and cargo clearance timings. Proper rail and road linkages should be provided between ChPT to reduce traffic congestion. The respondent feels that port should keep the same 7 free time. Promulgation of ordinance / legislations to bring the port operations under essential

Ports / Sea connectivity

Congestion at Chennai Port Trust

At Chennai Port the free time has been reduced from 7 days to 3 days. Fraught with frequent strikes at ChPT, Cochin Port and Tuticorin Port

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Logistics issue
Area Issues Suggestions services thereby curbing the flash strikes, etc. Amenable changes in the labour legislation is sought to tackle this problem. Terminal charges at CPT should be reduced and should be in line with other major ports. Strict patrolling should be done at the ports to stop thefts and pilferages. Government should initiate actions to increase the draft at the Indian ports and attract direct mother vessels to come to India. The prices charged by the shipping lines should be regulated by the government. There should be strict guidelines laid down by the Government in regulating the shipping lines. Government should initiate actions to improve the facilities at the port Port authorities should provide adequate training to the crane operators. Government should have a proper control over the CHAs through a suitable mechanism. Government should make it mandatory to have only authorized check posts Government should initiate actions regarding the same.

Terminal charges are high at Cochin Port Trust

Thefts and pilferage at the major ports

Transshipment delays from Chennai, Cochin & Tuticorin Port Trust

The prices charged by the shipping lines are very high and there is no regulating authority in the ocean freight

Check post

Inadequate port facilities result in high demurrage costs. Inefficient crane operation leading to delays in container offloading at Chennai port There is lack of control over the CHA agents by the governments and as a result the work carried out by the agents lacks professionalism. Unauthorized check post across South

3PL providers

Delays at Valayar Check Post have made it difficult for the consignments to reach on time. Trucks and trailers have to wait at the check post for hours before getting the clearance. Lack of 3PL operators in the south

Government should encourage the 3PL operators in India in order to decrease the inland logistics cost. Third party logistics providers

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Logistics issue
Area Issues Suggestions (3PL) have a significant opportunity of growth with the outsourced logistics market in India. The exporters feel that more private players be allowed to operate rail services in the Indian market which will considerably reduce the logistics cost. Respondent feels that lack of proper logistics players are driving the logistics cost for the industry. Government needs to educate the players on the best practices available in the market and should encourage them to follow the practices. Companies should also take care to encourage CHAs who follow these practices. Government / Port authorities should try to regulate the congestion charges charged by the shippers.

Less number of rail freight logistics service providers in India

CHAs do not follow the best practices

Others

During congestion shipping lines impose congestion charges on exporters. The congestion chares are 20 to 30 US$ and consumes up the profits Shipping lines increase GRI by 300 to 500 for 40 hi cube every month and its a major factor on export competitiveness Documentation hassles during inland transportation. The consignor indicated that the Government should consider a uniform single set of documentation valid for the interstate movement across all the states. Weight restriction at the highway - Almost 90% of the textile companies use 40" hi cube containers. These containers are considered over weight by police officers / RTO officials and drivers are asked for bribes for proceeding further.

The documentation involved in the export of the consignments should be reduced and be made ITenabled.

Government should have some provision for the 40 hi cube containers and the same should not be considered as overweight.

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13 Logistic policy framework


Increased competition worldwide, the emergence of new technology, ubiquitous connectivity, changing demographics, climate change etc. are bound to affect the Big Picture of business across the world. New capabilities are to be developed by industries in order to be competitive in the global market place. The development of new capabilities also depends upon enabling policy environment in the logistics space. In other words, in order to create an environment which facilitates a seamless flow of material within the country and also for EXIM purposes, it is important for Government to devise a logistics policy framework. This shall be done with a long term perspective ensuring consistency in policies. The logistic policy should be aimed at: Intelligent regulation in tune with the market realities Achieving cost efficiency Seamless integration of business flows Level playing field for SMEs and big players Encouraging private participation by chalking out clear roles Focusing on infrastructure development Aligning the policies of Central government and various state governments and Union Territories While the logistics policy should try to address all the issues of the logistics components in an export transaction, most of the shippers have indicated that policy measures should be more focused on ports. While the constraints faced by the Shippers in the other logistics chain have also to be dealt with, these however (as per the shippers) seem secondary as compared to issues / constrains faced at the ports which delays the handing over of the consignment to the shipping line and has a ripple effect on the shipment costs in terms of truck detention charges, inability to catch the planned vessel, loss in terms of the re-order value from Clients etc. Since Ports handle more than 90% of the export volume, specific policy measures aimed at fixing these shortcomings would help in achieving desired efficiency in operations, which in turn, would translate into benefit in form of cost saving / loss minimization to individual importer/exporter, thus improving his export competitiveness. The section below elucidates specific policy measures for the port sector followed by policy measures for the other parameters of the logistics chain. 1. Procedural delays Manual processing, multiple physical interfaces and redundancy characterize the EXIM processes at Indian ports. Bottlenecks and limited use of information technology in the processes hamper the seamless transfer of cargo in the supply logistics chain. Switching to a policy that propagates efficient online procedures & paperless regime will help achieve time bound clearances 2. Poor infrastructure Unlike most Indian ports, international ports are characterized by sufficient port infrastructure in terms of modern resources, port superstructure and services. The draught available in these ports ensures that neither the size of vessels nor the nature of cargo is a constraint. Internationally, the norm is that infrastructure developments precede the demand for port services and as a result resources wait for servicing the vessels / cargo.

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Most Indian ports lack the necessary draft, due to which they are rendered uncompetitive. Efficient handling of container traffic may require creation of deepwater facilities (17 m) capable of berthing Suezmax vessels. While this holds good for hub ports, feeder ports would require upto 12 m draft. Bigger, deeper ports allow for larger ships, in turn, allowing for larger parcel sizes (number of containers handled at a time) bringing in operational and, in turn price efficiencies. A national policy prescribing time-definite creation of minimum 14 m draught for all major ports & 12 m draught for non-major ports, will give port sector the necessary boost. The cost of maintaining minimum draught should be funded by the Central Government (for major ports) and respective State Governments (for non-major ports). 3. Congestion Any reduction in dwell time of cargo would reduce transaction / inventory costs, and also increase the capacity of existing port infrastructure. This in turn would facilitate trade in general and enhance competitiveness of Indian goods in international markets. At most Indian ports, overutilization of capacity is the pressing factor and it not only increases the vessel turnaround time, but also leads to cost overruns. This typically forces shipping lines to prefer foreign ports for transshipment over Indian ports. The government is already focusing on increasing the capacity of major ports to 1 billion tons by the end of fiscal 2012. But alongside the State Ports sector will also need to ramp up considerably, more than doubling their present capacity to 580 million tons by then. Policy interventions initiated by Ministry of Shipping to reduce congestion at ports In recent times, the Ministry of Shipping has undertaken certain steps mostly in the area of enhancing port capacity at Major Ports, which in a way also assist in decongesting ports. These include: Directions to ports to undertake process engineering with a view to reduce the otherwise high dwell times of cargo Advice to ports to undertake study of their internal yard planning to help evacuate cargo better Formulation of projects to be implemented through Public Private Participation (PPP) for creation of new port infrastructure facilities, procurement of new cargo handling equipments and mechanization of handling systems to increase productivity Implementing 24 X 365 Round the clock port working to ensure higher productivity and faster evacuation Introducing IT as a strategic weapon in port sector and implementation of Port Community System (PCS) 4. Inadequate connectivity - Inadequacies in the infrastructure for ports-hinterland connectivity has resulted in delays in evacuation of goods from ports, thereby hampering efficiency. A minimum fourlane road connectivity and double line rail connectivity are a must for major ports. Incorporating stringent service level agreements (SLAs) in the contracts underlying connectivity projects & speeding up the development of Dedicated Freight Corridor (DFC) would go a long way in enhancing reach & mobility of goods originating from distant industrial belts.

5. Lack of state-level initiative in development of non-major ports States like Orissa, West Bengal & Karnataka are still without a maritime board, which is an important state-level nodal body

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instrumental in facilitating port development. Of late, although a lot of interest has been evinced by industrialists for setting up captive port facilities at various locations, there is an urgent need for statelevel intervention for regulation & coordination of such development initiatives. Although initiatives seem to be lined up in this regard, the need of the hour is to accelerate their pace and achieve tangible outcome. The Maritime States Development Council (MSDC) should make the respective state governments accountable for development and monitoring of non-major ports by devising performance metrics in line with national targets and demanding compliance thereto. 6. Uncompetitive pricing While privatisation has led to increase in productivity, there is little benefit for the cargo owner as concessions are hard to obtain. Even if concessions are awarded, the government nets 30-50 per cent of the revenue, leaving the price of cargo on the higher side. Generally, the port authority tends to retain marine services such as pilotage, vessel handling, etc, charges for which are some of the highest in the world. For instance, a single call by a mid-sized container vessel at JNPT port costs over Rs 20 lakh. Such high port costs deter ship owners from making multiple port calls along the coastline resulting in over concentration of cargo in one area. Added to this is the ship-to-shore fee of over Rs 5,000 per TEU, a yard handling fee, a gate fee and several such fees. Standardization / setting a permissible range to the extent possible for various port charges can be envisaged to provide a level-playing field to port developers & make Indian port sector globally competitive. 7. Unskilled labour / Low mechanization To improve the efficiency levels, there is need for high degree of mechanization and skill intensive, technology driven workforce, both of which are relatively lacking in the Indian context. The human resources aspect of port policy should stipulate mobilization of adequate multi-skilled & disciplined labour force, and employment based on issue of licenses by the Port / local Government to such labour force. As per industry sources, any reduction of logistics cost by 1 per cent of GDP translates to savings of over Rs. 6,000 Crores. Understanding trends, learning from best practices and developing insights will be critical to evaluating the competitiveness of Indian logistics sector and evolving a path forward. As trade in manufactured cargo increases, there would be rising demand for multimodal services. At present, the cost of switching from one mode to another is high as different modal nodes are located far away from each other. The government should plan logistics infrastructure development by linking it with ports in a manner that such exchanges are adjusted and economic transfer is facilitated. To sum up, the policy framework for port sector should be so designed that it culminates into Rapid transition of port authorities into autonomous and empowered institutions overseeing landlord functions Integration of major and non-major ports so that they constitute a hub-and-spoke model and complement each other Development of capacity critical to structuring bankable PPP projects & attracting investment Creation of a conductive regulatory environment for sustainable PPPs with transition in TAMPs role from mere tariff setting to economic regulation of the ports including checking of anti-competitive practices and dispute resolution Enhanced safety and security measures in a bid to prevent losses due to pilferage & unforeseen events like accidents, etc

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Creation of an apex body for logistics by integrating all modes of transportation, system, process and the related documentation issues

In addition, the table below enunciates some of the other key policy measures that are required in the logistics space

Area Logistic services regulation

Policies required

Mechanization and upgradation

Multimodal Logistics hubs

Packaging

There exists a gap in various services offered and the pricing by different logistic service providers. A regulatory authority needs to be set up by the Government, which can stipulates minimum service standards and benchmarks for the logistic and supply chain industry. Logistics policy should identify specific prime movers (category of service providers) that have an impact on the logistics movement in the state and provide necessary incentive to these identified categories for upgrading their material handling equipment. In order to facilitate uninterrupted movement of cargo using multimodal transport, the development of integrated logistics hubs that act as a link between road, rail and coastal carriers is vital. These logistics hubs would help in the movement of domestic and international cargo. The development of such multi-modal logistic hubs shall be formed as part of the Comprehensive Traffic & Transportation Plan Policies pertaining to the training & development of personnel in the packaging industry to boost the industry competitiveness Policy to encourage development of proper road / rail linkages to the ports & airports thereby enabling easy clearances of the cargo Centre shall increase the allocation for infrastructure fund (Viability gap funding) to address the connectivity issues Need to have effective utilization of the available resources including Pavement Management systems, Bridge Management Systems etc.

Agencies responsible (Only indicative) New Regulatory Authority shall be formed at All India level

Government shall enact special provisions / tax incentives to promote mechanized handling Inter-ministerial Group comprising officials from Ministry of Shipping, Ministry of Road, Ministry of Railways and Ministry of Civil Aviation

Connectivity

Effective space utilization

Telematics

Route and load planning is essential to maximize vehicle utilization and reduce the incidence of emptyrunning, yet little work has so far been undertaken on

HRD Ministry in consultation with the relevant industry sectors / trade bodies Government departments / bodies (For e.g.: Surface Transport, Shipping, Aviation, Planning Commission etc.) Government (Ministry of Surface Transport) shall provide guidelines for Pavement / Bridge Management Systems Special incentives for players who adopt IT for fleet management

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Area

Policies required transport efficiency and fuel savings that can be achieved from IT based systems.

Agencies responsible (Only indicative)

Inland congestion

Pollution

Cargo tracking

Code of conduct

Land acquisition

Congestion is faced not just at ports, but also along highways & roads connecting towns and cities The Government should identify congestion zones along the various states, assess the impact of the traffic flow and the delays caused due to the congestion. Based on the congestion analysis report, the state government may take up construction of bypasses across important congestion zones. It is generally accepted that construction of bypasses around congestion habitats decongests the area and allows the seamless flow of traffic. Government should make it mandatory not to allow the development of any further commercial activity within the vicinity of the by-pass that would restrict the flow of traffic. State Government in collaboration with the Central Government has to provide an appropriate environmental framework that provides a balance safeguarding the transporters interest and also protecting the environment. Various options like alternative fuels CNG & LPG, scrapping of old vehicles should be encouraged Government to make it mandatory to have GPS based systems / Telematics installed in the Commercial Vehicles used in cargo transportation in a phased manner spread over a period of 3-5 years. It is proposed to develop a code of conduct and operational standards that would comprise of the best practices of the logistics industry and award such companies with certifications or incentives for achieving those standards of performance. Government should propose a revised land acquisition policy for easy clearance / acquisition of the lands for various infrastructure projects

Government (both Central and State) and Private players

Government (E.g.: Ministry for Environments & Forests)

Government shall incentivize the adoption of cargo tracking by logistic players Union Government

The Government of India shall enact a legislation to simplify the land acquisition policies and procedures for infrastructure projects. The guidelines shall be communicated to various state governments and UTs to

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Area

Policies required

Agencies responsible (Only indicative) follow.

Warehouse planning

Consolidation centers

Cold storage

Warehouses should be safe, functional and efficient to ensure that the productivity of the staff employed in the warehouse is always on the higher side thereby reducing operating costs and improving customer service. In addition design provision should also be made for yard management which allows for the management of inventory and equipment (trailers, containers) that are located outside the usual four-wall warehouse space. Government can ensure that the warehouses so built should have the best-in-class in terms of adherence to the layout planning, safety and provision for future additional incorporations by introducing a warehouse policy. There is a requirement for Primary Collection Centers (PCCs), for the cause of a potential reduction in the mileage associated with transporting less-than truckload consignments to retailers. Government should also explore the possibility of setting up a state of the art common cold storage systems in major cities across the country. This would ensure the proper utilization of perishable commodities.

Government, Private players

Private players

EDI systems

Advance infrastructure planning 3PL / 4PL/ 7PL

The electronic media is being used very widely for dissemination of information by the Customs, the DGFT and the Reserve Bank of India. The Government should consider having a single focal point as it would make it easier for the shippers to access information. Government should try to create the logistics infrastructure well in advance. This can be done by conducting traffic studies and infrastructure requirement studies. There is a need to have the best logistics service providers in place to reduce the overall logistics cost and bring in the efficiency in the system

Government shall provide incentives to developers of cold storage (Public-private partnership shall be promoted to develop facilities) Government (GoI) shall implement an integrated EDI system for CBEC, RBI, DGFT, CBDT and port authorities. Government (Planning Commission can act as a nodal agency for infrastructure Planning) Government shall introduce schemes and incentives to third party logistics players (for the adoption of best practices)

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Area Information Management

Policies required

Usage of inland water transport Unauthorized check posts Faster clearances

Common RTO guidelines & Web based Database

Faster trains

Safety measures and adequate parking spaces

A common information centre at the highest level should be setup, which can process enquiries and provide clarifications covering classification of goods and duty drawbacks etc. There is a need for the improving the usage of the inland transportation between the west and the east coast of India. This shall improve the logistics cost to a great extent. Policy / directives by the respective state governments / UTs to regulate the number of check posts across the state highways There is a need for faster clearances of documents / consignments to improve the logistics activity. This shall be achieved by the introduction of a Single Common Document System acceptable by shippers, DGFT, Customs & Excise, Income Tax Dept etc Introduction of Electronic Data Interchange connecting all sea ports, airports, check posts, Customs, Income Tax and other similar offices Creation of a web-based database of the vehicles having National Permits and adopting e-payment scheme for payment of taxes of various states so as to eliminate problems such as delayed remittance and fraud / forgery etc. There is a need to have a uniform RTO guidelines for the trucks / trailers across all the states in the country Introduction of high speed trains for freight movements Dedicated Freight Corridor (hasten the process of implementation of DFC in the West and East corridors and also earmark for such corridors in other regions of India) It is observed that there have been regular occurrences of theft and pilferage of material from the goods carrier, when it is parked near highway / road side eateries Most of the road side eateries do not have proper parking facilities, due to which most drivers who patronize such eateries are forced to park them along road side. The logistics policy should mandate State governments to identify locations at specific intervals of say 50 kms along the highways, that would serve as secure parking arrangements for goods vehicles belonging to Logistics

Agencies responsible (Only indicative) Government (The National Informatics Centre may coordinate this) Government, (For e.g.: Central Inland Water Authority) Government

Planning Commission, Various Ministries / Government Depts. like Finance, Commerce, Industry, Shipping, Aviation etc.

The Ministry of Surface Transport shall provide guidelines to various State Governments and Union Territories in this regard. Government (Ministry of Railways, Finance, Planning Commission etc.) NHAI

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Area

Policies required Service Providers (LSPs)

Agencies responsible (Only indicative)

Issue of return cargo unavailability

Road accidents could be due to fatigue resulting from long working hours, consumption of alcohol by drivers, condition of vehicles, etc. While the element of human error in the accidents is known to be high, the State Government can undertake various preventive measures to reduce the same. These preventive measures include providing XX numbers of signage boards per YY km of roads; providing XX number of lamp posts per 500 meters distance in those stretches of roads where street lighting is not present; providing plantations on the road dividers etc. Usually goods carrier vehicles enter a city either to load / unload the cargo and / or to access facilities for repairs or other supporting services. Entry of goods vehicles in a city only to access the services related to repairs, shelter etc may pose a problem to the existing city traffic. To de-congest traffic caused by the entry of Medium / Heavy Commercial Vehicles (goods carriers) inside the cities, the State Government may introduce the concept of Transport Nagar: a self sufficient hub, located at the outskirts of a city, for all the transport related activities ranging from parking facilities, eateries, dormitories, cloak-rooms, repair and maintenance facilities for vehicles, office space for the transport owners, petrol / diesel pumps etc. Transport Nagar would enable a transporter to avail the required facilities without actually entering the main city. The logistics service provider (LSP) is forced to bring back his vehicle empty, since he is not aware of the availability of any return cargo. It is here that the concept of Transport Nagar can play a pivotal role in filling up the information void & providing the necessary data to the logistics service provider of the availability of such a cargo. The methodology can be mooted on the basis of an enquiry made by the logistics service provider based in city X to the Transport Nagar office of its scheduled destination in city Y on the availability of a return cargo

State Governments surface transport department

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Area

Policies required to city X from city Y on a specified date. The Transport Nagar office, meanwhile would have received enquiries for dispatch of cargo to city X. The Transport Nagar office would then accordingly inform the LSP of the availability of such cargo from city Y to X and in turn coordinate with the Shipper of city Y. The above information exchange via the Transport Nagar office will provide a win-win situation to all the stakeholders concerned. Both the shippers in city X and City Y would eventually bear the transportation cost for only a one way trip thereby selling the product at a reduced cost and thus improving their competitiveness.

Agencies responsible (Only indicative)

Need for State Logistics Authority As part of the Logistics Policy framework, a Logistics Regulatory Authority that would be formed at All India level was mooted, which as part of its profile would stipulate the minimum service standards and benchmarks for the logistics and supply chain industry. However each state may have different terrain and an eco-system for logistics activity that would be unique to the particular state. Hence, the stakeholders from some states may have difficulty in complying with the logistics standards as set by the National Authority. Accordingly to assist the National Logistics Regulatory Authority for deriving the best practices for the particular state (within the framework as envisaged), it would be worthwhile to have a state level regulatory authority that would chalk out a state level logistics policy within the guidelines and benchmarks as established by the National Logistics Regulatory Authority. The state level logistics policy as drafted by the State Regulatory Authority would enable to create an environment which facilitates a seamless flow of material in the States for EXIM purposes and for inland consumption. The policy would also provide a road map for facilitating best in class logistics practices for the state and would be drafted would be done after taking into account the opinions and views of the logistics stakeholders concerned. The policy so prepared would be reviewed and updated on a bi-annual basis to take into cognizance the new developments and the changing logistics environment. The above arrangement would facilitate a smoother co-ordination of the state with the National Logistics Regulatory Authority.

The highlighted para contains additional points on the 2009 report titled Logistics Cost Study and have been included based on the request of NMCC . These additional details have been derived from the feedback on the report received by NMCC from some of the key stakeholders

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14 Logistics performance and benchmarking


Logistics performance plays an important role in the export competitiveness of a country. The performance of Customs, trade related infrastructure, inland transit, logistics services, information systems and port efficiency are all very essential for countries to export the goods and services on time and at low cost. A recent study by World Bank on the Logistics Performance Index places India on 39 position amongst the 150 countries so studied. The study was mainly conducted to help countries identify the challenges and opportunities they face in their performance on trade logistics and what they can do to improve their performance. The LPI was captured by focusing on the following seven parameters: 1. Efficiency of the clearance process by Customs and other border agencies 2. Quality of transport and information technology infrastructure for logistics 3. Ease and affordability of arranging international shipments 4. Competence of the local logistics industry 5. Ability to track and trace international shipments 6. Domestic logistics costs 7. Timeliness of shipments in reaching destination The benchmarking of the above indicated factors has been taken on a scale from 1 to 5, with 5 being the epitome of the efficiency rating for the particular parameter (except for the domestic logistics cost parameter). For this report, India has been benchmarked with Singapore, Netherlands, Germany, Japan, Hong Kong, United States and China Indias standing vis--vis the referred countries on each of the logistics efficiency parameter is indicated in the subsequent section. 1. Efficiency of the clearance process by customs and other border agencies Efficient clearance process by customs and border agencies plays a major role in the logistics performance. In India the interstate and country border check posts causes huge time delays in the transit of the consignment. Some of the key issues identified for this delay are: Plethora of documents required to be verified at check posts and customs due to the absence of a uniform single document being used for exports Occasional failure of Electronic Data Interchange systems necessitate waiting till the EDI is restored as there are no fall back options being exercised by the customs Need for 24X7 office hours for customs offices to ensure speedy clearances of export consignment
th

Demands for speed money from officials further complicate this matter Figure 25 : Efficiency of the clearance process by customs and other border agencies

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4.5 4 3.5 3 2.5 2 1.5 1 0.5 0


Singapore

3.9

3.99

3.88

3.79

3.84 3.52 2.99 2.69

Netherlands

Germany

Japan

Hong Kong, United States China

China

India

Source: World Bank report: Trade logistics in global economy 2007


2. Quality of transport and information technology infrastructure for logistics Telecommunications and IT infrastructure are an essential component of modern trade processes. The physical movement of goods now entails the efficient and timely exchange of information. The ability of the country of having the requisite infrastructure in place well in advance based on the future traffic projections plays a major role in facilitating the seamless movement of cargo.

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0


Singapore Netherlands Germany Japan Hong Kong, United States China China India

4.27

4.29

4.19

4.11

4.06

4.07 3.2 2.9

Figure 26 : Quality of transport and information technology infrastructure for logistics

Source: World Bank report: Trade logistics in global economy 2007


The bottlenecks pertaining to the physical infrastructure like ports, warehouses, cold chains, roads, rail, inland waterways, etc are highlighted in the respective chapters before, and for the sake of brevity, those issues are not reproduced here.

3. Ease and affordability for arranging international shipments

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For any country, the availability of the facilities for ensuring a seamless export transaction, and its associated costs act as a deciding factor in logistics performance. India again scores poorly as compared to the other sample countries

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

4.04

4.05

3.91

3.77

3.78

3.58 3.31 3.08

Singapore

Netherlands

Germany

Japan

Hong Kong, United States China

China

India

Figure 27 : Ease and affordability of arranging international shipments

Source: World Bank report: Trade logistics in global economy 2007


4. Competence of the local logistics industry The logistics performance also depends on the quality of services delivered by the private sector through CHA agents and road transport companies and on the competence and diligence of public agencies in charge of border procedures. Indian companies are increasingly using specialist logistics service providers to reduce costs and focus on their core competence. This shall increase Indias competency in the local logistics industry.

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

4.21

4.25

4.21

4.12

3.99

3.85 3.4 3.27

Singapore

Netherlands

Germany

Japan

Hong Kong, United States China

China

India

Figure 28 : Competence of the local logistics industry

Source: World Bank report: Trade logistics in global economy 2007


5. Ability to track and trace international shipments

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Information flow is the blood line for any efficient supply chain system. For the end user / supplier who are more worried of where his consignment may be, information regarding the location of his material in transit helps in reducing the anxiety factor and assists in planning the production schedule. As per the indicators mentioned below, India has to undertake adequate measures to provide an enabling framework for implementing track and trace technology in the domestic transportation.

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

4.25

4.14

4.12

4.08

4.06

4.01 3.37 3.03

Singapore

Netherlands

Germany

Japan

Hong Kong, United States China

China

India

Figure 29 : Ability to track and trace international shipments

Source: World Bank report: Trade logistics in global economy 2007


6. Domestic logistics costs The domestic logistics costs are an important factor affecting the logistics performance. The domestic logistics cost in India on the higher side when compared to the other developed countries. This is mainly due to the relatively higher transit time taken by rail and road transport in India. The following table shows the comparison of the rail load capacities carried in India viz-a-viz EU, USA and Australia. Table 38 : Comparison of load capacities in various countries Comparison of load capacities in various countries Description (RAIL) Average speed (kmph) Capacities (TEU) Axle load wagons (tons) Load capacity per wagon (ton) Pay load: Tare weight of wagon

EU / USA / AUSTRALIA 100 150 30 120 4.5-5.5

India 23.3 90 22 88 2-2.06

Source: Deloitte resources


In India only two per cent of roads constitute national highways but carry 40 per cent of all cargo. Only 48 per cent of villages are covered by road network and Indian cargo travels 250 to 300 km per day vis--vis 600-800 km as per international norms. This severely limits the access of rural producers to the consumer markets and increases the domestic logistics cost. For figure 29, the score 5 denotes that the country has the highest domestic logistics cost and score of 1 denotes the lowest.

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3.5 2.97 3 2.5 2 1.5 1 0.5 0


Singapore Netherlands Germany Japan Hong Kong, United States China China India

3.08

2.7

2.65 2.34 2.02

2.66 2.2

Figure 30 : Domestics logistics costs

Source: World Bank report: Trade logistics in global economy 2007


7. Timeliness of shipments in reaching destination With the global manufacturing following the JIT principle, timely delivery of international shipments is a pre-requisite for follow-up orders. India is placed way below in the above parameter and need to improve on this front dramatically.
5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0
Singapore Netherlands Germany Japan Hong Kong, United States China China India

4.53

4.38

4.33

4.34

4.33

4.11 3.68 3.47

Figure 31 : Timeliness of shipments in reaching destinations

Source: World Bank report: Trade logistics in global economy 2007, Deloitte Resources Logistics Performance Index
Taken together, all these factorsquality of infrastructure, the competence of private and public logistics service providers, the roles of Customs and other border agencies, governance issues such as corruption and transparency, and the reliability of the trading system and supply chainsconfirm once again that logistics performance is about predictability (see figure 31). Predictability is central to the overall costs that companies incur in logistics and thus to their competitiveness in global supply chains.

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4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

4.19

4.18

4.1

4.02

16000 3.84 3.32 13807.6 3.07 14000 12000 10000 8000

4375.4 3321 161.3


Singapore

6000 3242 1131.8 207.2 2000 0


China India

4000

776.1

Netherlands

Germany

Japan

Hong Kong, United States China

LPI Score

GDP (US $ Bn)

Figure 32 : LPI score of India and other countries

Source: World Bank report: Trade logistics in global economy 2007, Deloitte resources
The following table highlights the various country specific performance data based on the different parameters

Table 39 : Country specific logistics performance data Netherlands Hong Kong Singapore Germany

Japan

China 7 1.4 2.6 2.4 3.8 4 3.9 36 380 388

Parameters Rate of physical inspection Customs clearance * Lead time, export, median case ** Lead time, import, best case *** Lead time, import, median case # Number of border agencies exports Number of border agencies imports Possibility of a review procedure ## Typical charge for a 40" export container ### Typical charge for a 40" import container

Units % days days days days

% US $ US $

3 1.1 2.4 1.2 2.2 1.5 1.7 67 311 311

3 0.6 2.6 1.6 2.6 2.9 1.7 80 298 364

2 0.7 2.3 1.6 2.4 2.8 3.7 100 806 806

3 1.4 3 1.3 2.7 3 3 100 721 630

2 0.6 1.9 1.3 2.4 2.5 3.7 67 561 654

3 1.1 3.6 2.5 3.9 2.9 3.2 64 861 1008

25 2.4 4 4 4.7 2.9 2.4 39 601 619

Source: World Bank report: Trade logistics in global economy 2007


*. Time taken between the submission of an accepted customs declaration and customs clearance **. From shipper to port of loading, median case = 50 percent of shipments. ***. From port of discharge to consignee, best case = 10 percent of shipments. #. From port of discharge to consignee, median case = 50 percent of shipments. ##. The percentages reported in this column represent the proportion of respondents answering that a simple and inexpensive review procedure is available. ###. Total cost to transport and port services.

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India

USA

Countries that top the rankings are major global transport and logistics hubs or the base of a strong logistics service industry. Logistics services in these countries tend to benefit from economies of scale and are often sources of innovation and technological change. Industry research suggests that the following interdependent factors will shape the Global Logistics Industry over the next 5-10 years: Figure 33: Global Logistic Best Practices

Globalization and Consolidation

Mergers and acquisitions are creating firms that may have capability to provide a single point of contact that can handle global supply chains for their clients Globalization of traditional businesses is driving the logistics industry to international trade, etc Supply chains are becoming complex to manage. Companies are focusing more on core competencies In order to increase flexibility and responsiveness in their supply chain, companies are increasingly utilizing logistics outsourcing Supply Chain Security and Risk Management will be a key area to prevent disruptions like weather, labor issues, diseases or terrorist attacks Rapid advancements in supply chain technology enablers (like RFI will lead to increased functionality and greater potential to improve . performance of supply chains Customers will be moving away from tactical transactional based services Outsourcing to solutions that are more strategic in nature and supported . By leading edge technology and systems

Increased Outsourcing

Security and Risk Management

Technological Advancements Increased Customer Expectations

India with its long coastline and the proximity to the international maritime routes, stand a better chance to transform itself into global logistic hub by introducing better infrastructure, enabling policies, duty rationalization, simplified procedures, robust IT systems, etc, and by bringing about improvements in transaction processes

Future Logistics scenario The World Bank Study report on the Logistics Performance Index (LPI) of countries gives India a score of 3.07 as compared to 3.32 for China, 3.84 for United States and 4 for Hong Kong. While India presently lacks in logistics competitiveness vis--vis its peers amongst the developed nations, a series of infrastructural developments have been lined up across the country that aims to propel India in the League of Nations, whose logistics competitiveness would be the best amongst the world.

The highlighted sub-section on Future Logistics scenario contains additional points on the 2009 report titled Logistics Cost Study and have been included based on the request of NMCC . These additional details have been derived from the feedback on the report received by NMCC from some of the key stakeholders

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A brief overview of the infrastructural development so planned that would provide a reflection of the future logistics scenario is indicated in the section below Sr. No 1. Infrastructure Dedicated Freight Corridor Infrastructure description Background The Dedicated Freight Corridor (DFC) project was conceived mainly due to the capacity constraints faced by the existing railway network. At present the freight and the passenger trains are using the same tracks causing delays.

Western rail freight corridor The Western Corridor covers a distance of 1,483 km of double line electric (2 X 25 KV) track from JNPT to Dadri via VadodaraAhmedabad-Palanpur-Phulera-Rewari. The traffic on the Western Corridor mainly comprises of containers from JNPT and Mumbai Port and ports of Pipavav, Mundra and Kandla destined for ICDs located in northern India, especially at Tughlakabad, Dadri and Dandharikalan. Besides Containers, other commodities moving on the Western DFC are POL, Fertilizers, Food grains, Salt, Coal, Iron & Steel and Cement. The rail share of container traffic on this corridor is slated to increase from 0.69 million TEUs in 2005-06 to 6.2 million TEUs in 2021-22.

Eastern rail freight corridor The Eastern Corridor encompasses a double line electrified traction corridor from Sonnagar on the East Central Railway to Khurja on the North Central Railway (820 Km), Khurja to Dadri on NCR Double Line electrified corridor (46 Km) and Single electrified line from Khurja to Ludhiana (412 Km) on Northern Railway. The total length works out to 1279 Km. The Eastern Corridor will traverse 6 states and is projected to cater to a number of traffic streams - coal for the power plants in the northern region of U.P., Delhi, Haryana, Punjab and parts of Rajasthan from the Eastern coal fields, finished steel, food grains, cement, fertilizers, lime stone from Rajasthan to steel plants in the east and general goods. The total traffic in UP direction is projected to go up from 38 million tonnes in 2005-06 to 116 million tonnes in 2021-22. Similarly, in the Down direction, the traffic level has been projected to increase from 14 million tonnes in 2005-06 to 28 million tons in 2021-22. 2. Delhi-Mumbai Industrial Delhi-Mumbai Industrial Corridor (DMIC) is conceived to be developed as Global Manufacturing and Trading Hub supported by

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Sr. No

Infrastructure Corridor ( DMIC)

Infrastructure description world class infrastructure and enabling policy framework. The focus is on ensuring high impact developments within 150km distance on either side of alignment of DFC

The project objectives of DMIC include Develop new industrial clusters and upgradation of existing industrial estates/ clusters in the corridor Provide efficient logistics chain with multi-modal logistics hubs.

The existing industrial belts which would benefit from DMIC include Uttar Pradesh- Noida/ Greater Noida, Ghaziabad (General Manufacturing) Haryana- Gurgaon, Faridabad, Sonepat (Automobile, Electronics, Handloom) Rajasthan - Jaipur, Alwar, Kota, Bhilwara, Jodhpur (Marble, Leather, Textile) Gujarat- Ahmedabad, Vadodara, Anand, Bharuch, Surat (Engineering, Gems & Jewelry, Chemicals) Maharashtra - Mumbai, Pune, Nashik (Auto/Auto Component, Textile, Pharma, Aluminum)

One of the project goals is to quadruple exports from the DMIC region in five years. Plans have been mooted to develop integrated multi-modal logistics in an area of around 500 to 700 in the following locations Bawal & Palwalin Haryana; Ajmer& Marwar in Rajasthan; Palanpur, Dholera, Dahej/ Hazira in Gujarat Nashik, Pune, Dighi in Maharashtra; Indore, Dewas in Madhya Pradesh

3.

Network of SEZs / logistics hubs

4.

New and emerging ports

In addition, there are also plans across various the country to develop new Export Oriented Units (EOU)/Special Economic Zones / Parks/ Clusters for potential sectors Augmentation of existing industrial estates/clusters/parks Setting up Industrial Units in new/existing industrial parks/clusters The coastal states under the aegis of the respective state governments are planning to develop non-major ports across the various locations. These non-major ports along with the major ports

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Sr. No

Infrastructure description can develop a hub-and-spoke arrangement to optimize the logistics cost. In addition to the development of the non-major ports, the various major port authorities are chalking and implementation plans to enhance their existing capacity, facilitate faster turnaround time and improve last mile connectivity. Accordingly based on some of the above developments indicated, it is expected that over the long term, the transportation and industrial infrastructure of the country is bound to change for the better. The new infrastructure development would provide the necessary platform to trigger and sustain Indias economic growth, logistics competitiveness and subsequently the growth of overall exports from the country. The subsequent section indicates some of the recommendations for improving the export competitiveness.

Infrastructure

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15 Recommendations for improvement of exports competitiveness


15.1 Seaports
Seaports are interface between two modes of transport, namely land and sea and its efficiency is directly related to the connectivity covering both the modes of transport. Seaside would require sheltered water, sufficient draught, navigational and communication facility and proper port management. Land side would require handling equipments, sufficient and well designed stack yard, cargo evacuation facility and hinterland connectivity with supporting infrastructure and systems. Container terminals should provide rapid transit facilities for containerized cargo (similar to an Airport where passenger arrive and depart with ready luggage / cargo). This would enable the ports to plan and utilize land optimally for the benefit of the ships and not for stowage for which CFS / ICD are planned. Containerized unit is the form through which most of the exports from textiles and apparels, automobile & auto-components, processed food and chemicals takes place. Hence ports and terminals handling containers are reviewed under this study and classified on the basis of their coverage of the hinterland. As north India cargo moves through the western ports, the same is classified under one heading i.e. north western

Figure 34 : Hinterland based classification of ports in India Source: Deloitte Research From the export figures illustrated below, a comparison between containers traffic at all India ports and North West ports is shown:

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Table 40 : Comparison between container traffic at all India ports and North West ports TEUs in Million Ports All India Ports N - W Ports 2003-04 3.98 2.71 2004-05 4.52 3.06 67.70% 2005-06 5.01 3.37 67.26% 2006-07 6.14 4.31 70.19% Growth Y-o-Y % 22.55% 27.89%

N - W Ports 68.09% contribution Source: Deloitte Research

During the period 2003-07, the Northwestern ports have grown at a higher rate of 27. 89% compared against the national average of 22. 55% accounting for around 70% of container traffic of the country. Among the North Western ports, Jawaharlal Nehru (JN) Port continues to handles the largest number of containers (4.06 MTEU) accounting for over 61 per cent of the total all India cargo shipped in containers, followed by Mundra / Kandla and Pipavav (GPPL). As all these ports share a common hinterland (shown in the above hinterland map in yellow colour) the cargo movement to JNPT is based on better frequency of mainline vessels sailing which offers more choices to the exporters, while due to limitation of draught, feeder vessels cover most of the other ports increasing the cost of exports due to transshipment. As JNPT accounts for a major share in container handling and would remain so in the medium term till new capacities are created which divert its cargo, increasing efficiency in cargo handling at JNPT would contribute to improvement in the logistics of export Recommendations With a growth rate of 19%, Indias container cargo traffic is estimated to reach 21 Million TEUs by 2016, and the north western ports would require creation of additional facilities and improving efficiency in some of the features listed below 1. Connectivity Unlike Singapore which has more than 70% transshipment cargo which only use one mode of connectivity i.e. sea ways, or Rotterdam which has industry located in its primary hinterland with a wide range of berths to handle different type of cargo, JNPT has cargo arriving from hinterland which is more than 1700 km away from the port. This not only requires an exporter to plan for just in time shipment from the port requiring seamless port connectivity.

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Legend
All Inland container depots would be linked to all gateway ports to provide information on export cargo movement. Similarly import information will be received by ICDs from the ports. All factory stuffed export containers will register data at NH terminal which is linked to all gateway ports. This would enable port to plan storage and gate/ yard management. Also one consolidated toll charges up to the port will be paid to NHA cutting down time delay.
Port Hinterland

Port would develop and maintain rail and road connection to cover their hinterland jointly with railways / NHA. Last mile connectivity to the NH will be the responsibility of the port / ICD.

Figure 35: Port connectivity model Source: Deloitte Research Better cargo management at the port can be made possible, with advance and better communication which can lead to better planning and optimum utilization of space and resources. The model above shows the communication setup which can be developed by the major ports especially those handling containers covering both private and public sector entities. All ports should jointly appoint an agency to setup EDI connection with ICD / CFS and major junctions on expressway and National Highways. A export vehicle would pay a single toll tax on the first EDI point, which would cover movement up to the port (a sticker with port based colour code and number can be attached on the vehicle).This would enable data collection covering type of cargo, weight etc with safety and security enhancement. Possibility of tracking by the seaport to know the number of vehicles expected during the day at a particular port can also be enabled, along with processing of octroi refunds online. This would save the

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export vehicle delay at toll and other state border posts by crossing via a separate lane / gate and also help seaport with better entry and yard management. Vitronic which has already successfully implemented a free flow traffic system for collected toll with unimpeded traffic flow on Autobahns throughout Germany is now implementing a similar system on several roads operated by Queensland Motorways Limited Australia. . Payment will be made by either a transponder located on the vehicles windscreen or through license plate identification - at full motorway speeds. Tolls are subsequently deducted from pre-registered accounts 2. Port road connectivity projects Ports should also facilitate hinterland connectivity projects to ensure seamless cargo flow. The government can mandate all ports under automatic approval, to develop projects under Swiss challenge system for supporting infrastructure connecting their hinterland. These projects have to be developed by the ports either by themselves or through JV with other companies. This would include four lane express roads, port railways and supporting infrastructure like truck terminals, warehouses and handling equipments. Other than a vast hinterland, JNPT also has a large number of cargo coming by road namely from Industrial belt of South Gujarat, Indore along with Pune and parts of Maharashtra amongst others. JNPT can take a lead in developing a six lane road from its port node to connect NH 8 which would also enable linkage with NH 4 connecting Pune Bangalore, NH 3 connecting Nasik Indore and the busy NH-8 which is also being developed with a parallel expressway.

Figure 36 : Port road connectivity Source: Deloitte Research

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Mundra port has taken a lead in developing connectivity by having 2 railway sidings for container traffic (which is being increased to 3 sidings) and two dedicated diesel locomotives with a 64 km private railway line. It has also stake in the Kutch Rail Company Ltd. (KRCL), a project by the Indian railways to shorten the distance between the northern hinterlands. In September 2008, the port handled 106 trains, which increased the hinterland ICD share from 10 per cent in the second quarter to 23 per cent of the overall terminals monthly throughput. 3. Development of barging facilities Rotterdam handles about 50% cargo by barge movement as it offers easy movement on the river .As JNPT would continue to handle large volumes of NCR cargo which requires rail connectivity, it can seriously consider barging movement between JNPT and Mumbai port. This would enable utilization of the developed infrastructure including rail and private road network of Mumbai port which is presently under utilized only due to draught limitation. Mumbai port shall consider a feasibility study in which various types of barges can be considered and a suitable one (preferably flat bottom) can be leased for a period of 6 months to run between JNPT and Mumbai. Based on the viability, suitable types of self propelled barges capable of carrying 250 - 300 TEUs can be built in Indian shipyard and a fleet can be deployed to operate between Mumbai and JNPT. Specification of self propelled barges which can carry 292 TEUs is as follows ; length overall 85.04 m ,beam 19.98 m and maximum draft 8 m) can be considered. A separate JV company between the two ports of Mumbai and JNPT can be formed to promote and develop coastal movement of cargo including barging of containers. This will enable develop expertise in costal shipping which is untapped in India. Figure 37: Conceptual diagram of barging operations Source: Deloitte Research A study can also cover developing a new terminal parallel to the approach channel south of the Gharapuri Island (Elephanta caves) which can be used for barging. This would enable ships calling at JNPT to use the same channel and discharge part cargo at the new Elephanta terminal which can be moved to Mumbai by barges (a conceptual diagram of the same is shown in figure 29 Bharati Shipyard in India is to build the first ship in the world to be fuelled solely with liquefied natural gas (LNG), to be delivered in 2010 it would have a simple mechanical drive propulsion system. The 132.8m long vessel will be able to carry 5,600 tonnes of cargo on a draught of 6 m, with up to 94 TEU of containers on deck and 1,140 lane-metres of Ro-Ro capacity

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4. Creation of a new Greenfield container port As the cargo from the north moves through the western ports, a new Greenfield port which can handle fourth and fifth generation vessels with overall length exceeding 305 m and capacity of carrying 4,000 5,000 TEUs with a draught of 14 m needs to be developed. Linkage has to be made with the proposed Delhi-Mumbai Industrial Corridor (DMIC).The government can consider giving certain specific concessions to ports coming up on the coast, north of Mumbai up to Bharuch (Gujarat) which can meet with this requirement. This will enable more cargo to be directly exported on mother vessels reducing the cost of transshipment and delay while reducing the share and congestion at JNPT. 5. Benchmarking terminal operations Gateway Terminal India at JNPT is a joint venture between A.P.Moller-Maersk and CONCOR which has set many new records including Handling 11 trains in 24 hours Highest berth productivity of an average 145.37 moves / hour. Handling 1, 38,600 TEUs in July 2008 against a capacity of approximately 1, 10,000 TEUs per month. To support its operations it is backed by 8 post panamax twin lift Quay Cranes, 18 wide, 61 mt SWL on a quay length of 712 meters which is connected to the yard with 3 approach bridges. The stack yard is serviced by 29 Rubber Tyred Gantry Cranes, capable of 7 wide and 5 high stacking. Connectivity is through 3 X 830 meters dedicated rail sidings and 11 lane separate and dedicated Gate complex for in / out road movements. These are Indian standards which are comparable at the global level and hence can be studied and emulated by other ports handling container cargo, duly modifying it to suit their cargo mix. In other words, the benchmarking of terminal operations shall be done by operators of respective ports at globally comparable levels. 6. Inter-cooperation and co-ordination between major ports Indian Ports Association (IPA) is an apex organization covering the major public sector 12 ports with the prime objective of developing and increasing efficiency and productivity in major ports and its working environment. IPA can consider including private ports like Gujarat Pipavav Port Limited, Mundra Port Limited, etc as its members to enable IPA to cover a larger canvas and fulfil its objectives of increasing efficiency for Indian ports as a whole. They may look forward to having: Increased interaction through workshops and training sessions, thereby enabling knowledge dissemination Collective tenders for purchase of port equipments etc through IPA can give all its members cost advantage Compile case studies on efficiency parameters and working, which can be documented in the knowledge repository. These documents shall be shared among the members of IPA.

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15.2 Rail
Indian railways with a rail network of 1,09,221 kms, is also the worlds fourth largest freight carrier and accounts for 2.3% of GDP. Freight loading has increased by 9.06% in 2007- 08 to 794 million tonnes and is expected to cross 1 billion tonnes by 2011-12. During the 11th plan period (2007-12) the Railways have plans to invest US$ 46.70 billion for the modernization, capacity increase and completion of new projects, with plans to attract US$ 24.63 billion through public private partnership. Some major projects lined up for supporting logistics include: Dedicated freight corridor projects (Western and Eastern) Modernization of Railway stations. Manufacturing facilities for locomotives, coaches, and other railway equipment Container services Creation of Inland Container Depots and warehouses. Port connectivity projects Economics of rail transportation Movement of goods for distances exceeding 500 km is preferred by rail mode, especially for heavy cargo due to the various advantages it offers. Road movement, especially of FEU, in the absence of dedicated traffic lanes would only lead to more traffic congestion. The Association of Container Train Operators (ACTO) has demanded that the Railways should fix the haulage charges for FEU containers at 1.6 times of the corresponding rates for TEUs. This shall be applicable for rail cargo being moved for distances above 500 km. Recommendations To enable railways to carry more light cargo including vehicles, auto parts, textiles in FEUs at competitive rates, some steps for rail traffic improvement shall be considered as follows: 1. Port connectivity for container traffic on double stack trains All sea ports especially those handling major container cargo, should have rail link which can handle double stack trains. A feasibility report should be available which identifies the routes where double stack container trains movement is possible in the next one or two years (This will assist in route planning on which basis ICDs for collecting cargo for movement to the port can be planned). Similarly major routes like NCR to Mumbai port and others where container ports are being developed should also be covered so that route identification, realignment and conversion can be considered. This will enable reduce tariff charges and increase carriage of more containers at competitive haulage rates on existing routes. Studies for new rail routes from sea ports, keeping the development of new ports and expansion of existing ones in mind, should be commissioned. The Ministry of Railways shall take initiatives to introduce the concept of double stack trains connecting the major ports of India with the hinterlands by conducting a feasibility study. The public-private partnership model may be adopted for the development and operation of double stack trains in these routes. The rail team of Jawaharlal Nehru Ports Gateway Terminals India (GTI) terminal, on July 13 2008, set a new record by handling 180 TEUs in 15 minutes, bettering the previous record by 5 minutes. Earlier, on June 23, GTI had achieved a record-breaking performance by handling 11 trains in 24 hours.

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2. The proposed Dedicated Freight Corridor Western (DFC) DFC is to connect NCR via Ajmer and Vadodara to Mumbai / JNPT. There is also provision for feeder routes from the main DFC route linking ports and cargo centres. A feasibility study shall be done simultaneously to link Ajmer (proposed dedicated freight corridor route) to Kota (existing rail junction) covering a distance of 201 km so that trains from Kota can move to the DFC. Similarly the study can also cover possibility of adding a couple of tracks between Kota and Vadodara. This would enable immediate use of DFC leg between Ajmer - Delhi by connecting it with Kota, as this bypass can also be used for exigencies and for movement of empties in the future, giving DFC an added route to move containers etc up to Vadodara. Figure 38: Proposed linkage with DFC 3. Reduction in pay load Indian Railways are working to reduce the ratio of payload to tare weight load i.e. for every 1.0 mt of 14 freight carried the dead tare weight of the wagons etc which should be ideally around 200 kgs (presently it is around 333 kgs). Railways have recently flagged off a stainless steel (SS) body wagon, upgraded from an open wagon, from the Carriage and Wagon Works at Perambur, which has the capacity to carry an additional freight of 11.6 tonnes. Thus, a rake of 58 wagons will be able to haul an additional freight of 673 tonnes, which works out to about 16.6% more than the existing payload of a rake Rail wagon leasing companies should be encouraged to develop their activities in India for which proper framework covering leasing period, rental, survey and maintenance parameters should be drawn up. This would enable availability of sufficient stocks of wagons by the industry to meet their demand without investing or facing delay. Two schemes, i.e. the wagon leasing scheme (WLS) and the liberalized wagon investment scheme (LWIS) that will permit private companies to own and lease wagons, has been launched .This would help private companies who have sufficient captive cargo to own and also lease special type of wagons including 27 mt wagons. 4. Co-operation between Private rail operators and ICD / CFS A meeting can also be initiated by the Railway Ministry through Container Corporation of India (CONCOR) and other private rail operators in which guidelines for co-operation between various rail operators shall be discussed and formalized. This may include tariff finalization for using each others
14

Hon. Railway Minister budget speech 2007-08

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container freight stations, Inland container depots and slots on the container train. This would facilitate common trains and more interaction between rail operators resulting in better utilizing of limited logistics resources, reducing idling and increasing efficiency.

15.3 Shipping
India with a vast 7517 km coastline should be amongst the top ten countries in the world with respect to shipping fleet. However the shipping tonnage as on June 1, 2008, has declined from its peak of over 9 million gross tonnages to 8.84 million GT with DWT standing at 14.55 million. A policy promoting companies from buying ships especially for captive cargo can be considered with incentives Recommendations 1. Coastal shipping With an aim of developing regional trade especially among SAARCC countries by sea mode, coastal shipping would play an important role. In this regard, state governments having sea coast line should be asked to conduct a pre- feasibility study and identify ports or locations which can be developed exclusively for coastal shipping. Central government can assist the state government in developing required infrastructure and connectivity. For instance, under the National Maritime Development Programme, public investments will be made available for creating common user infrastructure at the ports such as construction of breakwaters, deepening of navigations channels, rail-road connectivity etc., whereas private parties shall be encouraged to construct, operate and maintain port terminals. Shipping Corporation of India plans to connect coastal sea routes from Chittagong to Karachi, by joining hands with private service operators to provide coastal feeder service is a welcome step in this direction and should be encouraged. 2. Hinterland connectivity All existing seaports and upcoming ones should prepare a hinterland connectivity assessment report, which should list; the present supporting infrastructure, the future requirements including projects in progress, implemented, planned and required. The 12 major ports have already prepared a business plan, which includes the hinterland connectivity issues which can be compiled in a separate report. New upcoming and private ports can prepare a similar document and send it to the Government. The objective of this exercise would be to integrate the ports connectivity issues into a common plan, which can be factored in by the Planning Commission for the next FYP. 3. Sea freight As per the Planning Commissions Report of The High Level Group on Services Sector for the Revealed Comparative Advantage, the RCA show a decline with respect to transportation (of which shipping is the major component). During the year 2007- 08, the ocean freight rate to major global destinations, particularly Europe and Gulf among others, had increased more than 50% e.g. ocean freight for a TEU from India to EU has increased from US$ 1200 / - to US$ 1800 / - affecting the competitiveness of Indian exports. The exporter has no control over such costs which are decided by the shipping lines operating under a conference or cartel covering a particular sector. As ocean freight constitutes a major element in the overall cost (6070%),

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which has to be borne by the exporter in any type of contract, there is need to regulate it to the extent possible. One way to achieve this is by increasing the tonnage in container trade through proper route planning, dedicated scheduled vessels at regular intervals, and mandating a full sequence of ships to serve a sector, for example service to US East coast would require 8 dedicated ships to cover. National carrier, the Shipping Corporation of India (SCI) shall consider preparing a status report on the number of cellular (container ships) required to cover important export destinations like US East coast, Mediterranean service, Europe. Africa etc. SCI plans to add three container ships of 4,400 TEU each out of which two SCI Chennai and SCI Mumbai were recently acquired. SCI also plans an East Coast string from Chennai, Tuticorin to Europe and the Mediterranean, with 6 vessels in the 2,000-2,500 TEU range which needs to be supported by other private operators. Based on the total vessels requirement the government can induce other non container Indian shipping companies, to jointly operate with SCI, or buy cellular ships which would be taken on long term lease by SCI. The lease should be guaranteed by the Government which would enable companies to raise funds. The Government can also support it by not levying any service charge for lease rental paid to Indian lessor companies against the present 12.4% charged as also offering other mainly tax incentives as 15 suggested by the Planning Commission As ships are undergoing technological advancement with 8,000 -10,000 TEU vessels becoming the norms in transoceanic trade, India needs to have at least adequate ships in the 4,400 TEU range which can be then be replaced with bigger vessels for foreign trade. The smaller ships (4400 TEU range) can then be used for coastal service and feeder routes to cover SAARC countries. Lack of development of foreign going fleet is directly affecting: o The development of coastal shipping o Socio - economic impact on strategy position and employment generation o The ocean freight rate which is going northwards Share of Indian ships in the carriage of Indias overseas trade have fallen from 31.5% in 1999 - 2000 to 13.7% in 2005-06.While cargo traffic is to rise to 708 MMT by 2011-12 with maximum growth in container traffic in which India does not have sufficient tonnage. 4. Regulation of shipping practice The Shipping Trade Practices Bill has been cleared by the Union Ministry of Law and Justice. It seeks to regulate and register the thousands of maritime logistical service providers, like consolidators, NVOCC Customs House Agents (CHA), etc. Under this bill, committees can also look into the issues of sea freight increase and other charges with service standards by interacting and inviting improvement suggestions from the trade.

15.4 Roads
India accounts for the worlds second largest road network with over 3.34 million kilometers. Share of road transportation is over 4.6% in the GDP in 2007 with annual average growth of 9.5% during the period 2000-01 and 2005 06. Roads contribute to 65% to total freight traffic with the national highways
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Report of the High Level Group on Services Sector, Chapter 4

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accounting for about 2 per cent of the total road network, carrying 40% of the total goods and passengers. Out of the total length of national highways, 32% is single lane / intermediate lane, 56% is 2lane standard and the balance of 12% is 4-lane standard or more. Out of 3.3 million kilometers of roadway in India only 195,000 kilometers are highways (State and National Highways). China, on the other hand, has roughly 1.4 million kilometers of highway. During the 11th plan period (2007 - 12) investment in this sector is projected at US$ 93.11 billion, according to the Planning Commission with approximately US$ 46.05 billion projected to be invested in national highways, US$ 34.65 billion for state roads, US$ 10.97 billion in rural roads, and US$ 1.42 billion in roads in the North-East. The private sector investment is expected to be US$ 33.61 billion, accounting for 36.1 per cent of the total investment. The Government has taken various initiatives and reform measures to encourage development of the road sector which include: National Highway Development Programme (NHDP) involving a total investment of US$ 54.1 billion up to 2012. Bharat Nirman Programme that aims to cover every village with over 1000 population or over 500 in hilly and tribal areas with all-weather roads. To achieve this around 1, 46,185 km of road length is proposed to be constructed by 2009. 100 per cent foreign direct investment (FDI) under the automatic route in all road development projects. 100 per cent income tax exemption for a period of 10 years, the NHAI provides grants / viability gap funding for marginal projects, and formulation of model concession agreements among others Committee of Secretaries under the Planning Commission ,Government of India has prepared a detailed report on Road Rail Connectivity of Major Ports which has suggested projects strengthening the connectivity of ports with the hinterland which an be expedited. Effect of bad infrastructure on the road sector indirectly adds to the cost which has to be borne by the exporter in the form of delay and high transport charges. These are: High variable costs due to frequent break down and non-working time High fuel consumption due to congestion, traffic jams, reduced average speed and poor fleet condition High maintenance costs, high tyre usage (typically 2 or 3 times higher than that in EU) Lack of training affects drivers behavior and professional ethics Lack of maintenance especially during monsoon creates potholes creating bottlenecks and delays Recommendations 1. JN Port six lane expressway JNPT handles more than 60% of containerized cargo of the country . An express road (6 lane) needs to be planned, starting from the port node connecting the NH 8 linking other important highways including NH-4B Mumbai -Pune Expressway, NH -17 Mumbai-Goa Highway, SH-54 to Navi Mumbai, Thane, Nasik, etc. It is very important to link the NH8 with JNPT to reduce transit time and congestion as NH8 is also one with a very heavy traffic flow. Existing roads and projects around JNPT port can be aligned with this express road so that separate lane for port cargo is ensured enabling smooth traffic flow.

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2. Reclassification of roads with port connectivity As suggested by the Committee of Secretaries under the Planning Commission, port connectivity classification shall be considered on certain sections which link the port with the industrial hubs. Such classification should not be limited to the last mile connectivity (as suggested) but should enable a coordinated corridor approach which covers the total leg between ports and cargo centres i.e. based on Origin Destination transit. This can ensure total transit time management and can bring several benefits such as improved state border-crossings, better information sharing, bottleneck identification and solutions finding to address them. Corridor cooperation can also lead to more in depth re-engineering of the transit systems. A coordinated development plan can be finalized and divided between the states and NHAI with last mile connectivity covered by the industrial hubs. Such Port Connectivity projects need to be initiated by the ports under BOT mode and funding support mechanisms such as viability gap funding by the Centre can be made available for important projects with lower internal rate of returns.

15.5 Exports policy


Under the present structure of the Government, two ministries are actively involved in the promotion and regulation of the countries exportimport trade; namely the Ministry of Commerce and Industry through Director General of Foreign Trade (DGFT) and Ministry of Finance through Central Board of Excise and Customs (CBEC) under the Department of Revenue. As exports in a global economy is also a benchmark of the countries competitiveness, which for India (with a billion plus population and a large domestic market to protect) is very important as our domestic market is also an export market for our competitors. Based on the primary survey interaction with the stakeholders, it was found that a body which can help resolve and clarify implementation issues and disputes between the customs and DGFT would be appreciated by the trade This would also show the Governments seriousness and act as a moral support booster to the trade, It would ensure speedy implementation and help focus approach on national issues which are affecting export competitiveness like infrastructure and connectivity. Recommendations 1. Dedicated Export cell To ensure exports get the due attention, priority and resources, a dedicated cell under the Prime Ministers Office can be setup which can have a retired secretary from either the Commerce or Finance ministry to co-ordinate, monitor import-export of certain identified products, prioritize implementation of MFN treaties and fine tune foreign policy with trade and exports. The cell would also interact with the trade bodies, receive feedbacks and suggest policy initiative and government intervention from time to time. This would help in responding promptly to the dynamics of the international market forces 2. Representative in the Board of Trade

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Small and Medium enterprise (SME) account for more than 35% of the countrys manufacturing sector. As the share of manufacturing in GDP can only be increased by developing SSI and SME into major companies, this sector needs to be represented effectively in the committees looking into policy matters. Association of SMEs shall be included in the Board of Trade (formed to advise the DGFT on policy matters). 3. Dedicated laboratory and testing facility As testing is not the core function of the central customs & excise and to expedite testing of samples covering import & exports, a dedicated all India laboratories and testing facility provider needs to be developed. This shall be separated from the customs and can be entrusted to some other governmental agency specializing in laboratory work, which would develop world recognition and accreditation as required and offer services to the trade in an efficient manner covering all locations within and outside the country as required. Ministry of Finance shall initiate steps to de-link the testing and certification facility from the Excise & Customs Department and can be reconstituted as an independent certification and testing agency.
In 2005, Chinas international trade dwarfed that of India. According to the WTO, Chinas merchandise exports were US$764 billion versus US$96 billion for India. By comparison, Koreas exports were US$290 billion and Thailands were US$110 billion. Roughly 91% of Chinas exports were manufactured goods versus 75% for India. While India is better known for its exports of services, here again China leads. In 2004, Chinas service exports were US$62 billion versus US$40 billion for India. On the other hand, 60% of Chinas service exports were travel and transportation services while in India the figure was 22%. A large share of Indias service exports were related to information technology and IT related services which might go down in future on account of the decreasing labour arbitrage opportunities and global economic recession.

Source: World Trade Organization

15.6 Others
Equipment ICD / CFS / Rail depots / Warehouses / Sea and dry ports/ third party service providers, handling export cargo should get a periodical certification in the form of assessment of their equipment standards and maintenance by a competent independent agency. This agency would also issue guidelines for housekeeping of equipments with type and number of equipment required to be maintained based on capacity and handling projections. This would ensure adequate working equipment is made available to service the cargo, preventing delay in cargo handling and movement. Packing The Indian Institute of Packaging is a national enterprise set up in May 1966 by the Indian Packaging and allied industry and the Government of India, Ministry of Commerce. It has its registered office in Mumbai and branch offices at Delhi, Kolkata, Chennai and Hyderabad and is assisting in developing packing solutions for various modes of transport, including testing and certification. The Institute can consider opening extension counters in unrepresented regions like Ahmedabad, Lucknow, Indore, Nagpur, Bangalore etc. The institute can also actively pursue and develop innovative storage solutions which are both environmental friendly and user friendly. Such storage solutions should

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be for transportation and preservation of fruits and vegetables in the rural areas where uninterrupted electricity is still a major issue. Similarly, it could also develop with the chemical industry, packing material to safely handle liquid and powder chemicals which are accepted by the importing foreign country, where most of the chemical handling is done by machines only. The Institute can also conduct training and awareness programme to improve the hygienic condition in food industries and other needs of the industry.

15.7 Role of industry in improving competitiveness


While the government shall provide an enabling environment to boost the industry competitiveness through policy interventions and incentives, it is equally important for the industry per se to strive for excellence in manufacturing, warehousing, distribution and marketing of finished products. Since logistics is only a component out of many other elements that determine the export competitiveness, it is crucial for industries to constantly innovate in the area of design, manufacturing, distribution and logistics, etc. Needless to say, these measures are important to reduce cycle time, cut costs of manufacturing, storage and distribution and to bring about differentiation in product features, etc. Indian textile industry need to move up the value chain from the lower end markets to value-for-money and also to the high end value added products. Some of the initiatives required are mentioned below: Modernization of power looms and textile machinery Investment in R&D for productivity improvements and New Product Development Industry shall aim to create network organization to tap synergies among various industries including support organizations, distributors, ware housing, logistics, training and development etc. Work force must be trained and oriented towards high productivity Embrace ICT, e-commerce and m-commerce to reduce transaction costs, delays and wastes Follow a cluster based approach Similarly, chemical industry shall strive to achieve excellence by adopting a slew of measures like: Focus on brand building of their products in overseas markets Increased Research & Development initiatives for product innovation adhering to cleaner methods of production Outsource non-core areas by focusing on areas of core competence Enter into alliance with companies abroad for product-specific marketing Create facilities to handle bulk chemicals and POL (Petroleum, Oil and Lubricants) by setting up captive jetties / berths at ports (under PPP mode) Encourage pipeline transportation either by sharing the pipeline facility available with public sector companies or by creating new facilities through joint venture participation Beef up procedures to comply with REACH legislation of the European Union so that the exports to EU are not suffered As discussed in chapter 6, the food processing potential in India is grossly under-utilized. But with the entry of multinationals and big corporate in this sector is poised to change the scenario for better. The industry shall initiate the following measures to improve the overall competitiveness of the industry and thereby the export competitiveness of the sector too:

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Setting up of comprehensive Cold Chain Infrastructure for preservation, storage, warehousing and distribution of processed food through collaboration among different industry sub sectors in which the government can play a facilitators role Mechanized and state-of-the-art abattoirs shall be set up under PPP mode that can benefit the meat processing segment Collaborating with MNCs will help in adopting best practices in collection of input materials, grading, sorting, preservation, processing, testing, labeling and dispatch of processed food items Industry shall enter into tie ups with target firms (reputed international players in the respective segments) for overseas marketing of their products Some of the measures (apart from those already spelt out in respective chapters) that the Auto industry shall attempt to improve the competitiveness are mentioned below: The industry trade bodies shall invest hugely in R & D in order to develop alternative fuels and also to design and build more fuel-efficient and environment-friendly vehicles The industry shall take necessary steps to construct and operate dedicated car terminals at ports closer to the auto manufacturing hubs. These terminals shall have roll on-roll off facilities to promote coastal movements of automobiles. These may be achieved through joint ventures with existing port operators. Expanding overseas (either through organic or inorganic routes) looks like a feasible proposition for Indian automotive and auto component companies to improve upon their design and manufacturing capabilities in addition to the opportunity to create new brand equity in the international market. India is slowly becoming a manufacturing and export hub for small cars and it is high time for Indian auto giants to think even bigger (To conceive, design, build, mass produce and market future generation vehicles to the world market)

15.8 Specific issues pertaining to policies


The sector-specific and the region-specific logistic issues are analyzed in the respective chapters, and therefore this section contains only some highlights pertaining to policy reforms / amendments etc. There is no DEPB rate available for the mini-tractor segment under the Schedule of DEPB Rates, which may be addressed suitably by amendment / modification to the DGFT clause under the Foreign Trade Policy 2004-09. A similar situation was prevailing for Front-engine three wheeler drive away Chassis in CKD/SKD/ CBU condition, which got amended by the Director General of Foreign Trade through a public notice dated 12/7/2007 through powers conferred under Paragraph 2.4 of the Foreign Trade Policy, 2004-2009 and Paragraph 1.1 of the Handbook of Procedures (Vol.I). There is no uniform specification for car carriers transporting vehicles and this is causing harassment to the drivers at state check posts, etc. A clear communication to this effect shall be sent by the concerned ministry / department to every state governments so that issues related to non-uniform standards are resolved, leading to no penalty for car-carriers used in inter-state transportation. The VAT imposed on packaging materials used for exports shall be done away with in order to reduce the cost. State levies such as octroi, electricity duty, mandi tax etc., are not reimbursed to the exporters. The multiplicity of taxes not only increases costs of export but also the time taken for clearing the goods. The Government shall take suitable measures either to compensate the exporters directly or do away

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with the levies (by compensating the states / local self bodies for their revenue losses on account of the abolition of such levies). More items under the chemicals category shall be covered under the Focus Market and Focus Product Scheme unveiled by the DGFT. This may provide the desired impetus for chemicals export. All R & D equipments procured for research purposes (with an aim to bring in innovation in each of these sectors of industry) shall be exempted from import duties and other forms of taxes. Presently, the list does have only a few equipments on which tax exemption is available. The Government of India shall frame a wine policy (similar to that of Australia) with an effort to make the wines produced in India popular across the world. Thrust is to be given on the branding and quality aspects of wines produced in India. Ministry of Agriculture shall play a dominant role here. Efforts may be put to bring tea and coffee under the Vishesh Krishi Gram Udyog Yojana (VKGUY) scheme to provide more benefits to this segment The Ponni-S variety of rice is banned for exports. This variety commands a better price in the world market than Basmati and hence the ban may be lifted subject to the resolution of issues in connection with the export of this rice variety. The Government of India has not approved the production of shrimp variety called Pennious Mannami which has better taste and immunity to diseases than the black tiger shrimp. This variety has good market in the Europe and hence the GoI shall lift the ban on production of the above variety. All ports with valuation facilities notified by Customs for export-import shall be included as ports under Export Promotion Schemes.

15.9 Suggested action points for the Government


Indicated below are some action points that the various departments, ministries and independent agencies of the Government may take in order to improve the logistic and export competitiveness of Indian industry. Ministry / Department / Govt. agencies Empowered Group of Ministers under the Chairmanship of Prime Minister / Task Force under the Planning Commission Issues / areas of concern Suggestions / recommendations

National Logistic Policy- It is high time for a country like India to have a comprehensive Logistic Policy at the national level.

An indicative framework is given in this report (please refer chapter 13 for details). The Parliament shall enact a bill on Logistics Services Regulation Act as part of the above policy. The Logistics Policy shall spell out the roadmap for creating cold chain facilities, terminal markets, collection centres and warehouses across the country It can also devise a model concession agreement to promote PPP for logistic infrastructure A Task Force under the Planning

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Commission can be set up to specifically look into the issues and formulate suitable policies Ministry / Department / Govt. agencies Inter-Ministerial Group (IMG) Issues / areas of concern Suggestions / recommendations

Further simplification of customs procedures for export / import

The IMG shall recommend for the simplification of custom procedures at all ports of export / import and also at international check posts. The IMG shall design / recommend a Single Common Document acceptable to Customs, Excise, DGFT, CHAs, Banks, Octroi, etc. Procedural delays with respect to export / import can be reduced significantly by this. Expedite the Western and Eastern Dedicated Freight Corridor projects Conduct feasibility for DFCs in the South (For e.g.: HyderabadChennai, Bangalore-Chennai, Coimbatore-Vallarpadam-Vizhinjam etc.)

Single Common Document to reduce complexities with regard to export / import

Ministry of Railways, Government of India

Need to have dedicated rail lines for container movement of goods from hinterlands to major ports of exports

Container traffic on Double Stack trains

Rail links which can handle double stack trains on major container routes connecting major ports shall be considered Rail connectivity from Indore to Ratlam to be developed to benefit the industries in Indore and surrounding region Rationalization of rail freight for light cargo is sought from CONCOR

To develop Pithambur (Indore)-Ratlam broad gauge rail linkage

CONCOR

Rail carriage with 4 cars attracts a higher freight than that charged by truckers from NCR to JNPT. Similarly, there is no rail tariff slab available for cargo below 15 MT. Dedicated car terminals at ports closer to automotive hubs (on the lines of Port of Nagoya in Japan)

Department of Shipping (Ministry of Shipping, Road Transport and Highways)

Favorable policies to be developed to build and operate car terminals at ports near automotive hubs, capable of handling foreign-going car carriers. The Department of Shipping shall forward proposals to this effect and Planning Commission shall set up a task force in this context and allocate resources accordingly in the Five Year Plan.

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Ministry / Department / Govt. agencies Central Inland Water Transport Corporation (CIWTC)

Issues / areas of concern

Suggestions / recommendations

Inland water transport mode is underutilized within the country for moving goods

CIWTC shall initiate steps to revitalize the inland water transport as a cheaper mode for cargo movement. This may also de-congest the already clogged highways. Each state government shall constitute an autonomous, multidisciplinary professional body (on the lines of NHAI) which shall be mandated to develop, maintain and manage State Highways (S.H.). Each of these State Highway Authorities shall be made responsible for envisioning the State Highways Development Programme and implement them through PPP mode. Model Concession Agreements shall be developed for PPPs by the SHAs. CBEC shall extend the Risk Management System-based clearance procedures to all EDI-enabled ports and air cargo complexes, which shall help in reducing the dwell time. RBI shall direct all banks to act on LC related documents as a top priority and penalty may be slapped on defaulting banks on his account. JNPT and MPT shall consider barge movements between the two ports and also between other minor ports in Maharashtra. Feasibility study shall be carried out to operate flat bottom, selfpropelled barges between the ports, which can de-congest the road / rail traffic in Mumbai.

Various State Governments (Public Works Department)

Need to develop various state highways in different parts of the country that interlinks the National Highways and Expressways to derive maximum benefits of network planning

Central Board of Excise and Customs (CBEC)

To reduce the time taken for clearance of goods at ports and air cargo complex

Reserve Bank of India

Any delay from Indian banks to forward the Letter of Credit (LC) related documents to its Dubai counterpart leads to the consignment getting stuck thereby attracting demurrage charges The container movements by rail and road in the Mumbai Metropolitan Region is leading to congestion

Jawaharlal Nehru Port Trust (JNPT) and Mumbai Port Trust (MPT)

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Ministry / Department / Govt. agencies Ministry of Agriculture The Ministry of Agriculture & the Ministry of Commerce and Industry

Issues / areas of concern (indirectly related to export competitiveness) There is no specific wine policy in India Tea is not covered under Vishesh Krishi Gram Udyog Yojana (VKGUY) Ponni-S variety of rice is banned for exports, which commands a good price in the export market The pennious mannami shrimp variety which has a better taste and immunity to diseases than the black tiger shrimp is not approved for production in India. This variety is very much in demand in Europe.

Suggestions / recommendations

India should develop a Wine Policy to promote Indian wines abroad The benefits under VKGUY may be extended to the exporters of tea The ban may be lifted subject to the resolution of issues surrounding this The Government may approve the production of this shrimp variety by suitably resolving any issues related to it.

The export competitiveness of any country depends on a host of factors such as infrastructure, innovation, R & D, human resources, government policies, robust supply chain, etc. Therefore, it is important to bring in synergies in infrastructure, transport regulations, investment, customs, foreign trade and better border management. Apart from doing a facilitation agenda, the government needs to take steps to bring in better infrastructure (roads, rail, sea ports, warehouses, airports, etc) , efficient fleet management, and overall market reforms for logistic services. The transformation to a developed country will be hastened if the export competitiveness is improved upon through creation of infrastructure and policies conducive to the business environment.

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Annexure 1: Chemical sector recommendations


1. Policy guidelines New policy initiatives should be interlinked to in a manner to encourage industrial development, creation of value addition, development of a cohesive industrial setup which can respond and seize global market opportunities (If required a new chemical policy can also be considered). Some aspects which the policy should seek to address and cover may include: Raw Material Ensuring availability of basic raw material or feedstock, by developing indigenous capacity and monitoring its export to ensure domestic industry is not deprived of the basic product (Separate classification can be considered for products which consist of Raw material and the list can be regularly upgraded). This would include increasing capacity creation of import substitution products, especially in Olefins and Aromatics, which have wide range of applications and high growth potential Capacity Enhancement Facilitating merger and tie-up among Indian companies especially between SSI units or downstream integration between a major producer and SSI unit to exploit the benefits of vertical integration. This would enable major companies to have small SSI units under them producing specialized captive products meant for exports (Tax breaks and concessions in mergers can be considered) Incentives for capacity expansion for manufacturing value added products Incentives for more R&D in high value segments covering knowledge and specialty chemicals Encouraging integration with SSI units and others by developing contract manufacturing.

2. Pesticides export promotion As pesticides require registration in the importer countries, the South Asian Association for Regional Cooperation (SAARC) can have a common registration procedure and data base by which any exporter from SAARC country can register in the SAARC office which would be valid and approved for all member countries. This would save multiple registrations and facilitate more trade between members countries.

3. Human Resource Development Existing research institutes under Council of Scientific and Industrial Research (CSIR) like Indian Institute of Chemical Technology - Hyderabad, or National Chemical Laboratory - Pune, should identify developing chemicals hubs and open extension counters with industries participation. These extension counters can be modelled on the industry-specific requirement and can be gradually developed into a full fledged setup with R&D, specialized courses, training etc. One year onsite plant training should be made mandatory for process and automation engineers etc, as practiced in Germany. This would ensure orientation and development of proper aptitude for pursuing career in the respective field of study.

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4. United Nations Globally Harmonized System (GHS) for classification of chemicals More than 65 countries under the United Nations Globally Harmonized System (GHS) are amending their present system of Classification and Labelling of Chemicals, by types of hazards and is cocoordinating to have a common harmonized hazard communication element, including labels and safety data sheets. Areas covered include transport, environment, occupational health and safety, pesticide management and prevention and treatment of poisoning. As the same is an important factor for trade facilitation, there is a need for a review by the industry in association with the government. REACH is new European legislation about the Registration, Evaluation and Authorization of Chemicals. The complex wide-ranging regulation will have a big impact on all companies that manufacture, import or use chemicals. A joint committee with the industry and government can be constituted to involve the industry and develop strategy for meeting the challenges poised by GHS and REACH.

5. Fire Fighting and Disaster Management (FFDM) A disaster prevention and management plan should be developed by the GoI, in which basic requirement of fire fighting infrastructure and support systems would be indicated. The plan should be an evolving one and subject to periodic review for up gradation to cover security threats, perceptions and modern equipment and technology. This plan would be given to all states as guidelines for improvement and development of their FFDM plan. Feedback from states and various agencies involved would be incorporated to make FFDM effective and purposeful. Some guidelines in the FFDM plan would include: Highways should be divided into zones based on response time. Each zone should have a supporting emergency response team with fire fighting service maintained by a major chemical unit of that zone named as Zone FF unit. These zone wise fire fighting or disasters management team (Zone FF unit) should have experienced fire fighting and emergency disaster management experts on permanent basis, preferably trained and recruited from neighbouring cities and towns, who are familiar with the region. The Zone FF units should co-ordinate, train and equip other units to effectively cover the allocated zone Chemical tanker driver should have an ID card that should indicate the type of chemicals authorized to drive, transporting route, and training received from Zone FF unit and emergency contact numbers. Villages, towns en-route should also be covered by training selected persons in Dos and Donts by the Zone FF unit. Zone FF units should be part of the state wise disaster management plan and should be supported by a mobile air unit which can cover the state with required fire fighting and disaster management training and specialized equipments. This would be required for all states and regions but priority should be given for areas where chemicals transportation is being undertaken.

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6. Technology Web based Industry specific domain portal on the Chemical Industry should be developed and maintained by a professional agency with regular updates on links, news and views. This portal would act as a focal point for the industry and would feature in all marketing, trade & business development publicity. It would provide links to a wide range of other websites and companies in India which provide service and products covering this sector. The portal could be on similar lines as developed by Singapore government i.e. http://www.chemindustry.org.sg. NASSCOM expertise can be garnered to register web professionals (includes training ,security checks etc ) who can provide services to develop and regularly update web based portal for all export oriented companies, who can be linked to the industries domain e portal. These web developers would be able to ensure accessibility, quality service at a very nominal rate to facilitate marketing via the website route while maintaining the required standards 7. Research India has a huge talent pool, whose knowledge can be channelized into industry applications. Some approaches which the Government can consider include For Education Institutes government can invite research concept paper on relevant topics based on usefulness, global trends, application etc. The list of such research topics can be developed by major educational, scientific, research, industrial and other related organizations who can contribute in preparing a master list of research topics. Similarly Research Institutes (government and private) based on the approved master list, can also select topics and areas which they would like to research and develop further against a possible outcome, time and budget. Government can provide some upfront assistance for such research startup and balance in phases, based on outcome of theses researches. This would give an impetus as also cover new areas in research. Private sector funding can also be tapped based on specific research projects Chlor-alkali industry consists of Caustic Soda, Chlorine and Soda Ash, which are the basic building blocks in the chemical processing industry. These are used as essential inputs in about 45% of the total chemical industry. With around 82% plants using Membrane Technology, (membrane cell process requires the lowest consumption of electric energy and the amount of steam needed for concentration of the caustic is relatively small), there is a need to develop and produce indigenously technology. Research Institutes can be directed to undertake this task, if required through tie ups with other global institutes to meet the industries requirement 8. Green Chemicals - Banning and Substitution A list of potential chemicals (which are sought to be banned or substituted globally due to their toxic nature) should be compiled preferably by chemicals associations. Manufacturers of these in India should be identified and assisted to develop alternative process or chemicals which are more environmental friendly and acceptable. (This would ensure that there is a planned switch over, and replacement developed for these products in time to fill in the gap caused by withdrawal of banned chemicals from the major export markets. This would also enable development of innovative products using Indias traditional knowledge base and help lead the industry in modifying its production adhering to the relevant environment and global trends.

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9. Feedstock The chemical industry especially the SSI units are dependant on availability of raw material which includes feedstock for manufacturing. Non availability or increase, variation in price of the feedstock affects the production and export commitment. A separate category in classification listing chemicals used as feedstock should be developed, regularly upgraded so that special policy focus and incentives can be given to this category as and when required. Policy can encourage indigenous capacity creation and expansion; regulate exports to ensure domestic requirements are fully met to add value and export finished products. An association of feedstock manufactures can be developed and regular meetings can be held to ensure domestic requirement at competitive price is ensured. Any shortage of any specific chemicals can be met by imports collectively through the feedstock association with assistance from the government if required. This will ensure availability of raw material to the industry at competitive prices round the year to enable them to meet the production and export targets. 10. Others Clusters having EOU and other units especially for chemicals should be assisted by external agency to plan and develop common supporting infrastructure which would help them in better logistics, operations and exports. Assistance by the respective state and central government agencies can be in the form of improving common facility covering fire fighting equipments, providing training to all plant personnel, setting up of independent laboratory, conducting power audit with state government agencies to identify and suggest power saving methods, developing common facility with information centre with conference hall for sharing latest industrial news, logistics information, sea freight rates etc. All custom office should be EDI / EDP enabled. A common information centre at the highest level should be setup, which can process enquiries and provide clarifications covering classification of goods and duty drawbacks etc. This is to enable ensure application of rules and classification across the country in an identical manner to solve issues arising out of different interpretation of customs rules and guidelines. Custom and excise officers should be trained in EXIM policy and implementation of guidelines. Arbitration panel should be setup presided over by the Deputy Commissioner with other trade members on a monthly basis to review and assist the trade in solving working issues.

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Annexure 2: Government policies related to textile exports


1. The Scheme for Integrated Textiles Parks (SITP) The scheme for Apparel Parks for Exports (SITP) was launched in August 2005, by merging Apparel Park for Export Scheme and Textile Centres Infrastructure Development Scheme. The Scheme is being implemented under public-private partnership through a Special Purpose Vehicle (SPV). The industry associations / group of entrepreneurs are the main promoters of SITP. The primary objective of SITP is to provide the industry with world class infrastructure facilities for establishing textile units. The scheme would facilitate textile units to meet international environment and social standards (covering sectors of weaving, knitting, processing and garmenting) at potential growth centres. 2. Technology Up gradation Funds Scheme (TUFS) This scheme for the Textile and Jute Industry was launched from April 1, 1999 and has been extended Scheme extended till 31-03-11 but with exceptions. The decision of the Government places special thrust on garmenting, technical textiles and processing segments of the textiles industry in view of their potential for value-addition and employment generation. This decision is expected to help the textile sector to achieve the targeted growth rate of 16% and make an investment of INR 150,600 crores in the above plan period. 3. Technology Mission on Cotton (TMC) TMC was launched in February 2000 and has completed 4 phases (missions). It focuses on improving cotton production and handling with better infrastructure. The objective of mission 1 was cotton research and technology generation, while that of mission 2 was transfer of technology and development covering the following Increase productivity in cotton production Steps to be taken to reduce the cost of cultivation Improve fiber attributes The objective of mission 3 is development of market infrastructure (including development of 4 new market yards and also improvement of 250 existing ones).Missions 4 objective is to modernize / up grade 1,000 ginning and pressing factories covering infrastructure of cotton agriculture markets and improving and modernizing ginning and pressing factories. 4. Jute Technology Mission (JTM) Approved in June 2006 and under the Mini Mission III & IV of JTM were launched to develop efficient market linkages for raw jute under MM-III and to modernize, technologically upgrade, improve productivity, diversify and develop human resource for the jute industry under MM-IV. 5. Foreign Direct Investment (FDI). The Government has allowed foreign equity participation up to 100%, through automatic route, in the textile sector with the only exception of knitwear / knitting sector, which was reserved for SSI.

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6. Incentives as mentioned in the Foreign Trade Policy 2009-14

With an objective to promote investment in upgradation of technology of some specified sectors including Textiles, Jute and Handicrafts as indicated in Para 3.16.4 of FTP 2009-2014, Status Holders shall be entitled to incentive scrip @1% of FOB value of exports made during 2009-10 and during 2010-11, of these specified sectors, in the form of duty credit. Special incentives for Handlooms sector under new FTP 2009-14 o Specific funds are earmarked under MAI / MDA Scheme for promoting handloom exports. o Duty free import entitlement of specified trimmings and embellishments is 5 % of FOB value of exports during previous financial year. o Duty free import entitlement of hand knotted carpet samples is 1 % of FOB value of exports during previous financial year. o Duty free import of old pieces of hand knotted carpets on consignment basis for re-export after repair is permitted. o New towns of export excellence with a threshold limit of Rs 150 crore shall be notified. o Machinery and equipment for effluent treatment plants is exempt from customs duty o Duty free import entitlement of tools, trimmings and embellishments is 5 %of FOB value of exports during previous financial year. Entitlement is broad banded, and shall extend also to merchant exporters tied up with supporting manufacturers. o Handicraft EPC is authorized to import trimmings, embellishments and consumables on behalf of those exporters for whom directly importing may not be viable. o Specific funds are earmarked under MAI & MDA Schemes for promoting Handicraft exports. o CVD is exempted on duty free import of trimmings, embellishments and consumables. o New towns of export excellence with a reduced threshold limit of Rs 150 crore shall be notified. o Machinery and equipment for effluent treatment plants are exempt from customs duty. o All handicraft exports would be treated as special Focus products and entitled to higher incentives. Exporters in Small Scale Industry (SSI) / Tiny Sector / Cottage Sector, Units registered with KVICs /KVIBs, Units located in North Eastern States, Sikkim and Jammu & Kashmir, Units exporting handloom/ handicrafts / hand knotted or silk carpets, exporters exporting to countries in Latin America / CIS / sub- Saharan Africa, units having ISO 9000 (series) / ISO 14 000 (series) / WHOGMP/ HACCP / SEI CMM level-II and above status (granted by agencies approved by the government), exports of services and exports of agro products shall be entitled for double weightage on exports made for grant of status. Double Weightage shall be admissible to Merchant as well as Manufacturer Exporters. In addition as per the Foreign Trade Policy 2009-14, Market Linked Focused Product Scheme (MLFPS) benefits has been extended for export to additional new markets for certain products including apparels among others

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Annexure 3: Textile sector specific recommendations


1. Exports of raw cotton and value addition Policy should aim at gradually reducing and discouraging export of raw cotton. China and Taiwan which account for about 60% of cotton exports from India, are offering higher prices especially for Shanker - 6 variety which has lead to average cotton prices shooting up from INR 43 - 45 per kg two years back to INR 50 - 52 per kg, affecting Indian industry. China which has already moved up the value chain with its large capacity and is the largest exporter to the United States with 33.5% of market share. China requires raw cotton which is also supplied by India. On July 24, 2008 the Government has made it mandatory for all cotton exports to be registered with the Textile Commissioner before their shipment. Policy should further aim at developing and utilizing capacity to process cotton into yarn and fabrics. This policy can be reviewed after a three year period to further reduce the export of yarn while developing exports of value added products like readymade, apparels, etc. A minimum support purchase (MSP) price is fixed for domestic cotton to ensure that farmers get a fair price. Import duty has been withdrawn on cotton imports along with incentives for exports. Similarly minimum export price of raw cotton (based on international prices) should also be fixed, along with a quota which can be exported. Indian domestic textile companies purchasing cotton should be registered under a central scheme in which their financial position and working capital requirement can be assessed by a team of bankers. A credit limit can be fixed which can be integrated with the exporters gold card scheme (RBI scheme) to provide soft loan to enable them to buy raw cotton. The loan could be repaid from the export foreign inward remittance proceeds received, or within a certain fixed period of 9 months, whichever is earlier. This would ensure that funds are available with the textile companies for purchasing cotton on cash basis, helping the farmers and the industry. Textile companies can also enter in forward deals with the farmers, advancing them certain amount and balance on delivery of the cotton to help in cultivating organic cotton farming. Similarly a value addition scheme should be launched by the government to especially target Export Oriented Units (EOU) and cotton processing units by offering them assistance in the form of soft financial loan ,consultancy advise to identify value added products and segment, to enable them to expand / forward integrate into value addition products (example yarn processing units can expand into fabrics and ready-mades).This scheme would be for a fixed period of 3 / 5 years after which all EOUs would be converted into domestic tariff units. This would enable EOU to prepare them to face competition with a cut off period and help them forward integrated into value products.

2. Infrastructure creation and capacity building The Cotton Textiles Export Promotion Council (TEXPROCIL) based in Mumbai, since its inception in 1954 as an autonomous, non-profit export promotion body has been facilitating exports (especially during the quota regime) and has contributed to the growth of the sector. TEXPROCIL can be given a bigger role of covering the various clusters across India to build, develop and train capacity especially in garmenting and value addition by implementing not only the various central government schemes like Textile Centres Infrastructure Development Scheme (TCIDS) - for modernizing infrastructure facilities at major textile centres of the country, but also evolve other functions like providing consultancy, training, research, fashion trends and value addition assistance. This would enable an

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experienced agency to lead the growth of the industry and ensure effective implementation and amendments in various schemes. Through TEXPROCIL offices and extension counters at major clusters, exporters would be assisted by offering them information on prices, trends, designs and development of other common users facility in the form of designing and lab facility along with other services, covering documentation and procedural assistance to facilitate exports and data collection . Testing and designing studio would enable textile exporters to have their products designed and print required samples by paying a nominal charge. Students doing Fashion designing at National Institute of Fashion Technology - NIFT can as part of their curriculum offers their services through TEXPROCIL in designing and training at clusters. Infrastructure setup would also cover efficient communication facility for video-conferencing with foreign buyers and act as a market place for circulating enquires for contract work and other market information. The main objectives of TEXPROCIL would be to develop and leverage the combined strength of small and medium size units, to represent and execute major export order with quality checks in the shortest time. This would be achieved by development of supporting facility to help in improving quality and design of products. This would enable TEXPROCIL to also develop as a nodal agency which can collect orders from other exporters / buyers like The Handicrafts & Handloom Exports Corporation of India Ltd., and get it executed through contract work covering various clusters through its network of offices. TEXPROCIL would have an ongoing relationship with fashion and textiles research institutes to collect and dispense information on latest manufacturing machines, process, fashion trends etc. The services provided by CTSU should be subsidized by the government. 3. Marketing and Sales promotion For business promotion and feedback on global fashion trends, textile malls / marts should be opened abroad in various markets; Such Indian malls would be owned and developed by Central government agencies in locations identified by the textile associations as major markets. Such malls should be capable of showcasing and selling different products like food, textile etc which have good potential of creating value. Such malls can be leased to the textile associations or TEXPROCIL for a reasonable rent and period. Textile associations would manage and make available display and sales counter to Indian textile companies to promote and increase their exports. This would give a permanent display for our brands and products which can also be rotated depending upon the demand and festival season. 4. Capacity enhancement in unorganized clusters Reorganization Model for development of unorganized clusters into co-operatives, assisted by nodal government agency. The small scale units (unorganized) would be formed in co-operatives which would then be trained, upgraded to ensure improvement in quality and output levels. Each co-operative on a combined basis would have the capacity which would enable them to undertake and deliver on export order. Each co-operative would have an elected team to manage their various functions.

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Textile Cluster (Unorganised) Small scale units


Co- operative Team Business Training Management Operations

Co-operative Nodal government agency Information Flow

Central Textile Body

Figure 39: Reorganization model for unorganized SSI units development (proposed)
Source: Deloitte Research 5. R & D and Institutional development Non-woven textiles and Technical textiles Technical textiles are defined as comprising all those textile-based products which are used principally for their performance or functional characteristics rather than for their aesthetics, mainly for non-consumer (i.e. industrial) applications. Technical Textile industry is estimated to be worth 115 16 billion dollars, and expected to reach 125 billion dollar by 2010. Some of the industries where it can be applied in extent are Construction, Defence, and Healthcare. Government is aware of the potential and in collaboration with trade organization like FICCI has already held conferences to create awareness in the industry. There is a need to have an Institutional framework which can look after the objectives of integrating various industries with textiles to develop products which fulfil their requirement. A Technical textile cell can start with enrolling manufactures as members in various categories covering functionalized fibers, regenerated fibers; smart textiles, medical textiles etc. Similarly data on basic raw material or feedstock like high tenacity polyester, with their capacity and manufacturers in India can be listed for the benefit for its members. Interaction between Indian industries, R&D centres and global institutions can be promoted to understand the demand in international market and integrate with the same. This can be followed by policy interventions to assist, develop and promote value addition and expansion or creation of capacity in required feedstock and products. The Synthetic and Rayon Textiles Export Promotion council (under the Ministry of Textiles, GoI) can
16

Conversion of non woven roll goods to hygiene and medical products By : Dr. S. K. Basu, Mr. D. Ghosh

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be given the mandate to formulate an agenda for structuring and development which can include, introduction of the subject in academic Institutes among others.

Some of the industries where Technical textiles can be used include: Industry Aero Agriculture Apparel Automobile Chemical Civil Construction Defence Electrical Food Horticulture Industries Manufacturing Medical Mining Shipping Water Application Parachutes ,Glider Fabrics, Composites Flexible silos, Sacks Reinforced threads, Fire retardant, protective clothing, shoes Tyre cord, Seat material & belts Protective clothing Separator, Road material stabilizer, Drainage Tarpaulin, Slings Camouflages Insulating fabrics Wrappings, Bags Shades and Shields Applications Composites, Sound Insulation Absorbent cloths ,Bandages, Swaps Conveyor belts Hovercraft skirts, Inflatable and Sails Membrane, Hoses, etc

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Annexure 4: Food processing sub sectors


1. Fruits and vegetables
Fruits & vegetables Fruits: Banana, Mango, Citrus, Papaya, Guava, Grape, Pineapple, Apple, Lichi, Sapota Vegetables: Potato, Brinjal, Tomato, Tapioca, Cabbage, Onion, Cauliflower, Okra, Peas, Sweet Potato Jam, pickles, sauce/ Ketchup, pulp/ concentrate, juices, squashes, ready to eat vegetables, chips, pastes, frozen and dehydrated products wafers Ready to eat F&V - Mangoes, grapes, citrus fruits, pomegranates, banana and dried, assorted canned, preserved vegetables Pakistan, Bangladesh, U.S.A., Japan, Netherlands, Malaysia, Sri Lanka, U.A.E., Nepal , U.K, Saudi Arabia, Belgium, Russia, France, Germany & Spain Fruits: Maharashtra, Andhra Pradesh, Tamil Nadu, Karnataka & Uttar Pradesh Vegetables: West Bengal, Uttar Pradesh, Bihar & Orissa India is one of the leading players in the fruit and vegetable production. As the second largest producer, India is known as the fruit and vegetable basket of the world. Less than 2% of the F&V produced in India is processed

Processed fruits & vegetables product line Major export destinations Leading Indian states in production Facts

2. Dairy products Dairy Product line Milk Packaged liquid milk, ethnic sweets, curd & curd products, cheese, butter, ghee, milk powder, infant milk food, whitener, condensed milk, malted milk food and Ice Cream Bangladesh, Algeria, U.A.E., Yemen Arab Republic & Egypt Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh, West Bengal India ranks 1st in the world in terms of milk production Around 35% of the milk production in India is processed Milk sector contributes approximately a fifth of the income generated by agriculture and allied sectors Dairy Cooperatives account for the major share of processed liquid milk marketed in the India Milk is processed and marketed by 170 Milk Producers Cooperative Unions, which federate into 15 State Cooperative Milk Marketing Federations

Major destinations Leading Indian states in production Facts

3. Edible oil Edible oil Product line Major export destinations Groundnut, mustard, sesame, safflower, linseed, Niger seed, castor seed, soyabean, coconut and sunflower Oil, oil cakes, refined oil Europe, Japan, South East Asia, Europe, Indonesia

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3. Edible oil Leading Indian states in production Oilseeds are mainly grown in central and southern regions of Madhya Pradesh, Gujarat, Rajasthan, Andhra Pradesh and Karnataka. Mustard/rapeseed in the north east, groundnut in the west, soyabean in the north, coconut oil in the south India is worlds fourth largest vegetable oil economy India is the third largest consumer Groundnut, soybean and mustard together form about 85 % of the countrys oil seed production.

Facts

4. Meat and poultry Meat and poultry Product line Major export destinations Leading Indian states in production Facts Buffalo meat, Goat & mutton, poultry Frozen and packed mainly in fresh form (Buffalo, Goat, Sheep and poultry products) France, Germany, China, Italy, Japan, Jordan, Angola, Kuwait, Malaysia, Netherlands, Oman, Philippines, Portugal, Qatar, Saudi Arabia, Seychelles , Spain, U.A.E., U.K., U.S.A & Yemen Arab Rep. Tamil Nadu, Kerala, Madhya Pradesh and Karnataka At 485 million, India has the worlds largest livestock population- accounting for over 55% and 16% of the worlds buffalo and cattle populations respectively (the worlds largest bovine population). It ranks second in goats, third in sheep and camels, and seventh in poultry populations in the world. India ranks among the top six egg producing countries and ranks among the top five chicken producing countries. India has always been free from the dreaded Mad Cow Disease (BSE) and has been free from Rinderpest since 1995. There has not been a single incidence of Contagious Bovine Pleuro Pneumonia (CBPP) in India during the previous 12 years.

5. Fisheries Fisheries Product line Fish, prawns, tuna, cuttlefish, squids, octopus, red snappers, ribbon fish, mackerel, lobster, cat fish Chilled & frozen (shrimps, tuna, crustaceans, mollusks), dry, salted, brined, steamed, boiled, flesh Frozen and canned products mainly in flesh form (Rohu, Katla, prawns etc.) USA, Japan, China, Singapore, Germany, Saudi Arabia, UK, UAE, Australia & Russia Gujarat, Tamil Nadu, Andhra Pradesh, Maharashtra, Andaman & Nicobar, Orissa The processing in India is entirely export oriented India is the third largest fish producer in the world and is second in inland fish production. India has a natural advantage with a long coastline of 8,118 km constituting 3937 fishing villages.

Major export destinations Leading Indian states in production Facts

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6. Non alcoholic beverages Non alcoholic beverages Product line Major export destinations Leading Indian states in production Facts Tea, coffee, soft aerated drinks, mineral water and other forms of non alcoholic beverages Loose, packed USA, Germany, Saudi Arabia, UK & UAE Tea- Assam, West Bengal, Kerala, Tamil Nadu Coffee Karnataka, Kerala & Tamil Nadu India is the largest tea producer and fourth largest exporter in the world India is fifth largest coffee producer in the world The soft drinks constitute the 3rd largest packaged food regularly consumed after packed tea and packed biscuits.

7. Alcoholic beverages Alcoholic beverages Product line Major export destinations Leading Indian states in production Facts Beer, wine, country liquor and Indian Made Foreign Liquor (IMFL) Beer, wine, country liquor, Indian Made Foreign Liquor (IMFL), rum, gin, vodka etc. USA, Europe, Chile, South Africa Maharashtra, Karnataka, Kerala, Tamil Nadu, Andhra Pradesh, Goa, Haryana Liquor industry has been under strict government control Whisky, gin and rum accounts for almost 90% of the market share It is expected that the segment will grow by over 7% till 2015

8. Confectionery Confectionery Product line Sugar, cocoa Hard boiled candies & toffees, clairs, chewing gum, bubble gum, mints and lozenges. Chocolate bars, mint & gums, chocolate gums, sugar confectionery, Sugar boiled confectionery, hard boiled candies, toffees, chocolates and other sugar-based candies USA, Europe, West Asia, African countries, Brazil, Russia Haryana, Uttar Pradesh India is the largest producer of sugar in the world The confectionery market is expected to grow at over 5% till 2014-15.

Major export destinations Leading Indian states in production Facts

9. Grains processing Grains processing Product line Rice, wheat, maize, jowar, bajra Flour, bakeries, biscuits, starch, glucose, cornflakes, malted foods, vermicelli, pasta food, beer and malt extracts, grain based alcohol, Non- basmati rice,

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9. Grains processing Major export destinations Leading Indian states in production Facts 10. Floriculture & seeds Floriculture Product line Major export destinations Leading Indian states in production Facts Flowers, seeds Cactus, cut flowers, mushroom, roses, other live flowers etc U.S.A., Japan, U.K., Netherlands & Germany Karnataka, Andhra Pradesh, Tamil Nadu, West Bengal, Maharashtra, Rajasthan Present status and growing trade is still in infancy. Floriculture & Seeds in India is being viewed as a high growth Industry. Commercial floriculture has gained importance over the years. Indian floriculture industry has been shifting from traditional flowers to cut flowers for export purposes. basmati rice, wheat and other cereals U.S.A, U.K, Nepal, Sri Lanka, U.A.E. Indonesia, Maldives, Kuwait, Yemen Arab Rep. Nigeria, Bangladesh, South Africa, Ivory Coast, Philippines, Sudan, Myanmar, Benin, Thailand & Pakistan Punjab, Haryana, Uttar Pradesh, Rajasthan, Andhra Pradesh This segment is expected to grow at over 6% till 2015.

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Annexure 5: Recommendations for the FPI


Reorganisation of state agricultural board and standardisation of investment process The Government of India has announced the creation of Agriculture Export Zone (AEZ) implemented by the Ministry of Commerce, through the Agriculture and Processed Food Export Development Authority (APEDA), New Delhi the nodal agency. Under this scheme more than 60 zones covering 35 crops of various fruits, vegetables, spices, cashew, tea, basmati rice, medicinal plants, pulses etc., have been identified for promotion. With a view to attract private investment in development of these zones there is a need to have a uniform state level board which can be termed as State Agriculture and processed food board covering the various states (this can be achieved by reorganising the existing state board in a common structure formulated by APEDA). This would make it more effective, cohesive and user friendly for investors to understand and process investment in multi zones covering different states in one application.

Setting up of State focused body at APEDA - ASB for domestic and supporting infrastructure development Food processing industry requires an evolving frame work to be setup with domestic focus, with regulation covering user-friendly, hygiene, safety and quality standards, preventing adulteration, wastage and encouraging growth. The frame work would look at the challenges, from the preharvesting stage till the final processing stage covering the farmer or the producer of fruits, vegetables and also include the final consumer. This would be only achieved with the active and lead participation of the states; hence the framework would include a body formed with the various state boards and APEDA with the main objective of promoting food wealth of the economy involving the local farmer. This would be sought to be achieved by better co-ordination and evolving the states, to identify products based on their natural advantage in which they can play a leading role and act a Champions. The body can be called the APEDA State board- (ASB) Policy based on the zone identified to create large capacity private investment food parks which would act as a catalyst for growth in the region. Policy should cover involvement of small farmers in contract farming under the private food park, with the food park providing required training and support. Guidelines for the food park created in various states should also cover common supporting infrastructure like cold storage, bottling plant etc which would not only process the local available fruits but also be in a position to receive bulk material from other states for packing and distribution in their zone. The APEDA State board (ASB) would also initiate projects to be funded by the central government and the respective states, to supplement the efforts of the private investor by developing supporting infrastructure .This would also cover the setting up of R & D labs, research and training institute, providing courses covering food industry, with specialized courses in certain food products in which the state is declared as the champion. This will enable gradual coverage of all fruits, vegetable and other processing eatables for research and development, starting from varieties in which India has an advantage, distributed among the various states based on their natural advantage and traditional knowledge. Portals can be developed and maintained by the respective champion states for the fruit in which they are specializing to market and educate (example www.mango.org ) this would lay a strong foundation for development of institutes covering the whole country which would lead to harvesting the untapped potential of this sector.

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Development of Dairy sector Dairy development is directly connected with the welfare of the landless and women population hence has a larger social economical affect on the economy. As animal husbandry is a state subject, there is a need to have a common integrated approach between various states, to upgrade and develop their breeding capacity of good livestock .This can be achieved by APEDA State Board (ASB) cell (suggested earlier) which would have representatives of all the states to have a common understanding and uniform model for development. Such interaction would also encourage learning and training programs between states. The dairy policy can be dived in three major components and implemented by APEDA ASB cell. States which have grazing land masses but low milk production can be given assistance to reorganize and upgrade their animal husbandry department. Help of registered non governmental organizations (NGO)can also be taken, to increase the livestock count of milk producing animals, which can be sold (at subsidized rate )to landless and people below the poverty line, after training them in animal health care and milk collection and management. States like Orissa, Andhra Pradesh, Maharashtra, Bihar and West Bengal can be considered for this scheme. This would help in increasing the milk production levels and developing a dairy culture with creation of supporting infrastructure. States which have good milk production but lack dairy development like Uttar Pradesh, Rajasthan, Punjab and Andhra Pradesh can be assisted through similar body with a different scheme which creates awareness about benefits of co-operative dairy development, provides training at mass levels in milk management and provides milk coolers and encourages joint ventures diary development with established Indian companies. This will help in better milk collection, increasing earnings and social welfare. States like Gujarat which have created successful dairy development can be assisted by encouraging value addition and research in high value products. Expertise of co-operative can also be used for training and developing similar models in other states.

Infrastructure development Each Taluka should have post harvesting storage facility which should be minimum 3 numbers of 20 mt capacity each (20 mt X 3 compartments ) with + 4/ + 5 degree temperature moderation . As many regions still lack uninterrupted electric supply, a country wide innovation contest can be held in which packaging institutes and students can also participate to make prototype of such cold storage systems which smaller capacity also ,which can run on alternative fuel including solar energy. This will give us new products and concepts, which can be further developed by our professional institutes to come up with a final design, which can be developed, patented and mass produced to cover the rural food processing scenario. The first priority for this sector would be to develop innovative cost effective pre and post harvesting techniques, by involving various institutes specializing in handling, packing and agroeducation. Example; A simple cost effective nylon net can be designed to be spread below the fruit tree midair to cover and catch the fruits which fall. This can be tried for high value fruits. Food processing industry requires large capacity and huge investment to cover pan India locations. GoI should encourage companies with tax and other benefits, to setup large scale integrated food parks. Such parks would have all required facility in-house, mandated by the policy and would

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encourage development of support facility and collection of perishable cargo from the region. This would lead to better value creation and realization, leading to more cash crop plantations benefiting the rural population. Rural thrust Industries creating products and adding value from crops like bajra, jowar and barley should be encouraged with incentives for expansion and to create new capacity in selected identified areas. This would help in better utilizing of shallow land helping the poor and marginalized farmer .Malt based industries can add value by producing products used in breweries, distilleries, confectionery, pharmaceuticals.

Meat Products India's export of meat and meat products reached Rs. 3,224 crores during 2006-07. Frozen bovine meat dominated the exports with a contribution of over 97%. The demand for bovine meat in international market has sparked a sudden increase in the meat exports from India. The main markets for Indian bovine meat are Malaysia, Philippines, Mauritius, and Gulf countries. (Source: Directorate General of Foreign Trade, 2007) Meat exports is a segment which requires high investment(up to 100 crores) due to the process involved with chilling plant and cold storages, with supporting infrastructure to monitor the health of the livestock, to ensure that they are disease free and the meat is fit for export meeting the required health quality parameters. Buffalo (bovine) meat is a segment where India has an advantage due to the large livestock of buffaloes (Largest in the world with around half of the worlds buffalo population). States (based on their buffalo population) can be asked to identify locations where modern animal abattoirs can be setup. Based on the proposals received from the states a feasibility study can be conducted by APEDA to arrive at the capacity and expected stock in livestock requirement. The feasibility study would also include an environment assessment for effluent treatment, with availability of large amount of water, power and land for packing plants where retail packing can also be made to add value to the final product. Guidelines considering the Indian sensitivity should be drawn up, which would cover the transportation vehicles, timing and health standards and methods to be followed .A policy in which the major buyers of meat especially in the UAE can be targeted to invest and develop modern abattoirs can be formulated. The company setting up the abattoir would also be required to incorporate a balance of social benefit along with scientific management and upgrading of generic resources of livestock. The main abattoir meat plant could be located in a remote location and connected by various offices across the state, with mobile animal hospital units to provide health care and treatment to the animals to ensure disease free and healthy livestock.

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Annexure 6: Food laws


Various food laws applicable to food and related products in India
Prevention of Food Adulteration Act (PFA), 1954 and Rules (Ministry of Health & Family Welfare): Covers specifications related to food colour, preservatives, pesticide residues, packaging and labelling, and regulation of sales. The Standards of Weights and Measures Act, 1976, and Standards of Weights and Measures (Packaged Commodities) Rules, 1977: Designed to establish fair trade practices with respect to packaged commodities Agriculture Produce (Grading & Marking) Act (Ministry of Rural Development). Essential Commodities Act, 1955 (Ministry of Food & Consumer Affairs). Fruit Products Order (FPO), 1995: Specifications and quality control requirements regarding the production and marketing of processed fruits and vegetables, sweetened aerated water, vinegar, and synethic syrups. Meat Food Products Order, 1973 (MFPO): Administers the permissible quantity of heavy metals, preservatives, and insecticide residues for meat products Milk and Milk Products Order, 1992: Regulates the production, distribution, and supply of milk products; establishes sanitary requirements for dairies, machinery, and premises; and sets quality control standards for milk and milk products. The Food Safety and Standards Act, 2006: In August 2006, the Government of India had passed a new legislation Food Safety and Standards Act. The Act proposes establishment of a new authority, the Food Safety and Standards Authority, reorganisation of scientific support pertaining to the food chain through the establishment of an independent risk assessment body and a new Food Law, merging eight separate Acts. o The Infant Milk Substitutes, Feeding Bottles and Infant Foods (Regulation of Production, Supply and Distribution) Act, 1992 and Rules 1993. o The Insecticide Act, 1968. o Export (Quality Control and Inspection) Act, 1963. o Environment Protection Act, 1986. o Pollution Control (Ministry of Environment and Forests). o Industrial Licenses. o BIS Act, 1986. o VOP (Control) Order 1947. o SEO (Control) Order -1967.

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Annexure 7: Licensed FPI units in the country


The detailed list of licensed units under various states as on 1st Jan 2008

Sl. No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

State Maharashtra Uttar Pradesh Tamil Nadu Kerala Gujarat Karnataka Delhi Haryana Punjab West Bengal Andhra Pradesh Rajasthan Himachal Pradesh Jammu &Kashmir Madhya Pradesh Uttaranchal Goa

No. of licenses 1240 638 577 483 461 409 394 372 336 325 321 244 154 128 127 120 108

Sl. No 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33

State Bihar Assam Orissa Jharkhand Chhattisgarh Pondicherry Chandigarh Manipur Meghalaya Dadra Nagar Havali & Daman Diu Nagaland Andaman & Nicobar Tripura Sikkim Mizoram Arunachal Pradesh

No. of licenses 52 48 38 30 25 22 20 14 11 10 8 7 6 3 3 2 6437

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Annexure 8: Competitor countries in food processing


Brazil The food industry in Brazil is one of the economic driving forces in Brazil. It accounts for 20% of all industrial establishments, 12% of industrial jobs, 14% of production value and around 25% of Brazilian exports. The products exported include wheat, bananas, apples, soybeans, maize, coffee, animal products like chicken meat, beef, pork and processed food like sugar ( raw and refined), chicken meat, oil of soybeans, orange juice ( concentrated), beef and pork. The Brazilian packaged foods and meats market grew by 4.6% in 2007 to reach a value of US$ 71 billion. In 2012, the Brazilian packaged foods and meats market is forecast to have a value of $87.4 billion, an increase of 23.1% since 2007. Agribusiness is a matter of survival for Brazil and the focus is on creation of large farms to grow crops for export. Brazil is spending millions of dollars on research to transform savanna scrubland, into productive farmland. It is using the World Trade Organization and other international trade agreements to challenge U.S. and European subsidies and open up markets. The Brazilian food industry adheres to Good Hygienic Practices (GHPs), whose implementation is ensured by official regulations of National Agency of Sanitary Monitoring (ANVISA) of the Ministry of Health. In addition, the exporting companies also adhere to Hazard Analysis Critical Control Point (HACCP) and Good Agricultural Practices (GAP) norms. In addition, there are specific technical training and academic education provided in the field of food technology. These training programs are full time courses and range between 2 to 3 years with around 58 B.Sc programs, 31 M.Sc programs and 19 PhD programs catering to food technology courses. Australia Indian wine manufacturers face major competition from Australia. Australian wine has won an international reputation for quality and value. Wine grape growing and winemaking are carried out in each of the six states and two mainland territories of Australia. In 200607, sales of Australian wine totalled approximately 1.23 billion litres of which 449 million litres were sold domestically and 786 million litres were exported. Australian wine exports were worth $2.87 billion. Australias largest wine export market in 200607 was the United Kingdom (269 million litres, worth $977 million), closely followed by the United States (215 million litres, worth $856 million). Other leading destinations for Australian wines included Canada, Germany and New Zealand. Australia maintains national standards for wine that are administered by both the state and territory governments. Federal regulations focus on quality control. The Australian federal government assists the industry by improving the trade environment (redressing barriers to trade) and by improving the domestic economic operating environment. The Australian Wine and Brandy Corporation promote and control the export of wine and brandy. The Grape and Wine Research and Development Corporation is the body responsible for investing in grape and wine research and development, on behalf of the Australian wine industry and the Australian community. Australias reputation as one of the most technologically advanced wine-producing nations owes much to the industrys emphasis on research and development. A number of Australian universities and other tertiary education institutions offer courses in viticulture and oenology.

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In addition, Australian government supports in the branding of their wines in a very proactive manner by directing its consulates across the globe to order and serve only Australian wine at their consulate centres. Kenya One of the competitors for India in tea is Kenya, which is the largest exporter of tea in the world. Tea production in Kenya has expanded dramatically in the last 10-12 years and it has replaced coffee as the highest foreign exchange earner. Kenyan tea has also consistently been certified as meeting the highest standards set by various world bodies. This is because, the planting materials released to growers are carefully selected by Kenyan scientists to ensure only high quality, high yielding and pest and disease resistant elite clones are planted Tea is grown on the slopes of highlands within the altitudes of between 1500 to 2700 m, above sea level These regions are endowed with an ideal climate for tea growing. The tropical volcanic soils are rich in nutrients and give the tea a unique flavour and character. The rainfall in these regions ranges between 1200-2700 mm annually. Currently, about 62% of the total crop in the country is produced by the smallholder growers who process and market their crop through their own management agency, Kenya Tea Development Agency (KTDA) Ltd., which is the largest single producer of tea in the world. The balance of 38% is produced by the large scale estates, which are managed by major multinational firms associated with tea in the world. The main buyers of Kenyan tea are Pakistan who imports about 23% of the total exports followed by the United Kingdom, Egypt and Yemen. The tea industry in Kenya is fully liberalized and the marketing of tea is independently carried out by trade members. However, the Tea Board of Kenya in its capacity as the apex body in the industry plays a pivotal role in strengthening the traditional markets for Kenyan tea as well as diversification into new markets. For this reason the Board is involved in both local and international promotion of Kenyan tea through participation in local and international fairs, symposiums, seminars and as well as subscribing to membership of various Tea Councils and Associations across the world. The tea sub-sector currently offers a number of investment opportunities for those wishing to invest in the industry. Some of these include investment in tea plantations and processing and packaging of tea for export under the Manufacturing Under Bond (MUB) or the Export Processing Zones programs. The attractiveness of Kenya as an investment location for the tea sub-sector is further strengthened by the presence of big multinationals operating in the sector in Kenya Bangladesh In Bangladesh, fisheries are an important sector of the economy and contribute to more than 5% of the countrys Gross Domestic Product (GDP) and more than 6.2% of the foreign exchange earnings. 95% of the total fish products are exported to EU countries, USA and Japan. The balance 5% is exported to the countries in South East Asia and Middle East. Some of the inherent strengths of the Bangladesh shrimp industry include: processing capacity is underutilized willingness to invest in safety and quality improvements vast pool of semi-skilled labour/skilled personnel with over three decades of experience labour force is competitively priced

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production technology is with minimal use of chemicals/ antibiotics and relatively pollution free environment potential to increase volume of production with transfer of technology opportunity to export mixed containers/mixed product

In addition, as indicated earlier, the developed nations are assisting the Bangladesh shrimp industry by providing them with required support in duty rate cut. For e.g the Indian shrimp exports to US and Europe are required to pay an import duty of 10.6% and 4% respectively, while the exports from Bangladesh have zero import duty. In addition, there is no lobby for encouraging the exports of Indian sea food, while there is a strong lobby from the Bangladeshi side.

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Annexure 9: List of respondents


Automobile and Auto components West South Atul Auto Torsion products Captain Tractors Andromeda Energy Decora Auto Forge Shakthi automotive Group ECHJAY Ind RSM Autokast Ltd. Gati auto Pricol Limited General Motors Avasarla Harsha Engineers Rapsri Hindustan VST tillers and tractors Composites Bosch Kadavani Forge Deplhi automations Kalyani Carpenter Vishnu Forge Matric Metallics Ramind Cold Forge Private Nikoo Forge Limited Orbit Bearings Rane Engine Valve Ltd P.M Diesels MMG India Pvt. Ltd Panchnath Auto Rambal ltd. PDF Rolex Rings Simpson & co. Ltd. Silver Forge Power System (Madras) Vikrant Auto Pvt.. Ltd. Gatge Patil Mahindra Intertrade Apollo Tyres North Eicher motors KDR Auto Maruti Suzuki Onassis Auto Saini auto spares Windsor Exports Auto Ignition Ltd. Bajaj Motors Benda Amtek Ltd./ Amtek Auto Ltd . Clutch Auto Ltd. Hella India Lighting Ltd. Indication Instruments Ltd J B M Auto Ltd. Jamna Auto Knorr bremse India Ltd. Life long India Ltd. Lumax Industries Ltd. Mark Exhaust System. Ltd. Bharat Gears Ltd. Escorts East Karsons Leadstone Energy Waxpol industries Deepak industries East Coast Enteprisers Ltd. Dum Dum Foundry Eng P. Ltd Torsa Calcutta Iron Foundry Balmukand Sponz & Iron Ltd KSE Electrical Pvt. Ltd Calcutta Spring Ltd A.k.V. International Charu Enterprise Graphite India Auro Industries

Chemicals West Ashok Organics Base Metal Inorganics Ceraflux Chloritech Industries Ciba Chemicals Excel Industries Limited Filtra Catalysts GACL Gayathri Chemicals Gujarat Flourochemicals Universal drugs & chemicals GSFC Heaubach Color P Ltd. Jubilant Org Lubrizoll Sandhya Nanvati Coramandal Kutch Chemicals Lanxess Metrochem industries Navin chemicals Sabri chemicals Saurastra solid Somaiya Organo Sujag Fine Chemicals

South Bakelite Hylam Pragati Organics Fenoplast Limited Bhagirada Chemicals Sree Rayalaseema Y M chemicals Fleming laboratory Akzo Nobel Coating Karnataka soaps and detergents Nipa Chemicals Ltd. Sai Mirra Innopharm Pvt. Ltd Astrra Chemicals Lab Chemicals Lalchand Bhimraj Kawarlal & Co Pondy Oxides& Chemicals Ltd Grasse International Surfactants & Allied Chemicals Pvt Ltd. H.Chandanmal & Co.

North Chemico chemicals Indai Glycols Insecticides India MP Dyechem Qualikem Chemicals S.D Agro Sanchi Chemicals Sharp Menthol India Pvt. Ltd. FCL Technology Product Ltd Ganpati Plast Fab Ltd Mewar Polytex Ltd. K.G. Petro Chem Ltd. Asian Peroxide Ltd. Kanpur Plastipack Ltd. Max Speciality products India Ltd. Sigma Minerals Limited Jalpac India Ltd. Pearl Polymers Ltd. Cosmo films Ltd. Goldane laminates Ltd. Bharat Rasayan ltd. Polyplex Corporation Ltd Macino Plastics Ltd Global Drilling Ltd.

East Export Linkers Allied Udyog Pvt. Ltd. Adhesive Devostik JG Chemicals Bengal Chemicals & Pharmeacuticals Ltd Bicco Agro Products Pvt Ltd Reliance Dyes & Chemicals Co DIC Chemicals Ltd Vinmay Pvt. Ltd. Eastern Naptha Chem Ltd Kanoria Chemicals & Industries Ltd Anjana Minerals Company Alfa (India) Amro Feo Trading (P) Ltd Assam State Fertilizers & Chemicals Ltd Meteor Private Limited HJI Prop.GMMCO ltd Jyothy Laboratories Ltd Emamami HiTEch Mica Singhania & Sons Gimpex

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Chemicals West Super chemicals Swati chemicals Tarak Chemicals Transmetal Transpek Silox Rashtriya Chemicals & Fertilizers Ltd Sumitomo Corporation India Pvt Ltd

South

North Dauraa Organics Marvel Vinyls Limited Mawana Sugar Ltd Punjab Chemical Ind

East

Processed Food West Adani foods Aum Agri Freeze Foods Baba Group Foods & Ins Parle group Sula wines Kisan Dehydration Modern foods Nina foods Rasna Inter Saraf foods Temptation foods Allansons Ant international exports Eurofruits MM Poonjajiaji Champagne Indage Cadburys Renuka Sugars Indian Extractions Ltd

South Bambino Agro Industries Avanti feeds Creamline Dairy Heritage foods Shakthi Sugars Tea association of TN Amalgam foods Cherukattu Industries Cochin Frozen Sea food association Baby marine Paragon foods Prima Agro Lotus chocolate Sneha Florist Sagar Grandhi Export Pvt. Ltd. Asians pacific Corporation Five Star Marin Export Pvt. Ltd Scant export ltd. Goldmarine Exports Pvt Ltd Sri Sakthi Marine Products Pvt. Ltd Sharat Industries Limited Trident trade house Nila Sea Food Pvt. Ltd. Cresent Sea Food Mohan mutta Export .Pvt. Ltd SSF Limited Farm Suzanne Pvt. Ltd Welcome Fisheries ltd.

North Darshan foods Guruji foods Haldiram foods Imperial malt Temptation Paras Dairy Shiv Global Surya Foods Modern Dairies Ltd. Rana Sugar td. SBEC Sugar Ltd. Milk Food Ltd. Surya Foods Agro Ltd. Sudarshan Overseas Ltd. Domino Pizzas Pvt. Ltd. Shri BANKEY Behari Foods Kejriwal and Co. Paam Eatables Ltd. Param dairy Ltd. Field Fresh Foods Pvt Ltd. DAV Exports Sita Shree Foods Kohinoor Foods Ltd. Pioneer Agro Extracts Ltd. Mohaan foods Ltd. Herman Milk Food Ltd. Kla Rice India (p) Ltd.

East Chamong Tea Exports Ambo Exports Anmol Biscuits Ltd Assam Company Ltd Bengani Exports (India) Pvt Ltd Calcutta Seafoods Digha Sea Food Exports Radharam Sohanlal Ralli Singh and Grand Sons Pvt Ltd Reform Flour Mills Bengal Tea and Fabrics Ltd Star Tea Company (P) Ltd S.R. Trading MPS Food Products Iran Tea Trading Co. Pvt Ltd A. Tosh & Sons Ltd Elque & Co PS Trading Dinmay Exim Avenue (P) Ltd Teekay Marines Pvt Ltd Singhania Rungajuna Tea & Industries Pvt Ltd Madhu Jayanti International Ltd Balaji Agro Pvt. Ltd Bay Sea Food (P) Ltd S.K. Exports (P) Ltd Konark Aquatics & Exports Private Limited Falcon Marine Exports Ltd Kanco Enterprises Ltd

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Textiles and Apparels West Ajantha Universal Fabrics Alok industries Asarwa mills Avani exports Dinesh mills Jayshri impex Kanan Knitwear Mafatlal Industries Nandan Exim Ltd. Orbit Fabrics NRC Limited Raymond Ventura Textiles Bombay Dyeing Century Textiles Siyaram Silk Mills Mandhana Industries Ltd

South Suryalatha Spinning mills Rajvir industries Sanghi group Priyadarshini textiles GTN industries Chitra Impex Suryakiran International Suryalakshmi Cotton mills Suryajyothi spinning mills Suryavamshi spinning mills CAV cotton mills Prathishta textiles Super spinning mills Aruna textiles Harshini textiles Kanpiram mills Shivam Texyarn Lakshmi mills Veejay Lakshmi mills Ramakrishna mills Kaiser knitting company Aspinwall textile Patsping textile Kitex garments Covema filaments Aravind mills Himatsingka limited Natural textile Texport overseas Synergy lifestyle Madura garments Sonal garments

North Bharat exports overseas F.A Exports Handicraft & handloom exports Indorama synthetics Century Textiles Jyothi overseas LNJ Bhilwara Prathiba Syntex Ramesh Textiles Shivalik Global STI Ginni Filaments Ltd Ashnoor Textiles Ltd Bhandari Hoseory export Aarti International Overseas Carpets Ltd T T Limited Riba Textiles Ltd. Malwa Fridastries. Ltd M/S Young man Wollen Mills Oswal Wollen Mills Ltd. Rana patycoat ltd. Vallabh Group. Sharman Woolen Mill Ltd. S L P Industries Abhishek Industries Nahar Fiber's Ltd. Ganga Acrowools ltd. D C M Shriram Aacrulic Limmited. H.P. Cotton Textile Mills Ltd. Garg Acrylic Ltd.

East J J Exporters Eastern silk Eastern Traders R A International Delta Industries Limited Spincan Manufacturing Company The Naihati Jute Mills Company Ltd Bengal Tea and Fabrics Ltd Bengal Waterproof Limited M.R. Industries & Export Roquitte & Company D P Mitass Boutique ARN-N-ITA Handloom Export Co Cheviot Company Ltd Budge Budge Co Ltd Lalchand Dharamchand Tejijut Kamarhati Jute Co Ltd Uniworth Ltd Reliance Jute Mills (International) Ltd A. Enterprise A1 Champdany Industries Ltd Syndicate Apparel Jais Expo (India) New Hosiery Impex (P) Ltd Kurlon Ltd Pacific Jute Ltd Vibgyor Inc Dulal choudhury (Muga Bastra) Rhino Bamboo

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Others West Shriram Temp EICL Ion Exchange Textile Committee Geeta Shipping Global Saga Logistics Nagarkot Logistics Bombay Customs House Agents' Association Mumbai Port Trust Murmugao Port Trust Rank Shipping Agency Pvt Ltd R & Y Logistics Pvt Ltd

South CONCOR ICD - Hyd CWC ICD SIMA Tirupur Textile Association Eroor ICD Chettinad ICD

North CONCOR - Pitampur Inlogistics Automotive Tyre Manufacturers' Association, (ATMA) Carpet Export Promotional Council (CEPC) Automotive component Manufacturers Association of India ACMA Apparel Export Promotion Council (AEPC) The Agricultural and Processed Food Products Export Development Authority (APEDA)

East TKM Global Logistics EXIM Bank Scanwell Logistics India Pvt Ltd Innovative Logistics CAPEXIL

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Annexure 10: Clarifications to the queries on the Final Report indicated by NMCC
1. Query 1 the identification and relocation( if any) of ICDs and cost effective multi-mode transportation model for moving raw materials and / or finished products of T&G needs to be dealt with in details with respect to the identified textile cluster

Clarification 1 The textile industry of India operates largely in the form of clusters. The major textile clusters so identified and their distance from the nearest ICD is indicated in the table below-

Sr. No 1. 2.

Cluster Location Guntur Nagari

State Andhra Pradesh Andhra Pradesh Gujarat Gujarat

Product Specialization Power loom & Ginning Power looms Weaving process Ready Made Garments Power looms weaving Process Hand loom & Made-ups

Nearest ICD/ CFS Domestic rail ICD terminal at Guntur Combined ( EXIM + Domestic) ICD rail Terminal at Tondiarpet near Chennai at a distance of around 100 kms EXIM ICD rail Terminal at Sabarmati, Ahmedabad Combined ICD rail Terminal at Ankleshwar (60 kms North of Surat). Presence of rail ICD terminals at Tughlakabad ( distance of 109 kms) Dadri ( distance of 123 kms) Riwari ( distance of 154 kms) Presence of EXIM rail ICD terminal at Dhandarikalan ( Ludhiana) Combined ICD rail terminal at Jodhpur (Bhagat Ki Kothi) Presence of ICD rail terminal at Kanakpura in Jaipur( distance of around 13 kms) ICD rail terminal at Kanpur ICD rail terminal at Miraj ( at a distance of 16 kms )

3. 4.

Ahmedabad Surat

5.

Panipat

Haryana

6. 7. 8. 9. 10.

Ludhiana Jodhpur Jaipur/ Sangner Kanpur Ichalkaranji

Punjab Rajasthan Rajasthan Uttar Pradesh Maharashtra

Woolen Knitwear Hand Processing Apparel Manufacturing Defense related Textiles Power looms weavingProcess

Annexure 10 contains additional points on the 2009 report titled Logistics Cost Study and have been included based on the request of NMCC . These additional details have been derived from the feedback on the report received by NMCC from some of the key stakeholders
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11. 12. 13. 14.

Kannur Agartala Kolkata Bhubaneswar

Kerala Tripura West Bengal Orissa

Hand looms Hand looms Cotton Hosiery Hand looms

Around 151 kms away from Mangalore Port. Around 583 kms away from Amingaon ICD Terminal ICD terminal at Cossipore, Kolkata Nearest ICD terminal at Balasore ( distance of 200 kms) However Paradip port is situated at a distance of around 100 kms from Bhubaneswar Domestic ICD terminal at Salem EXIM rail ICD terminal at Tirupur EXIM rail ICD Terminal at Tirupur situated at a distance of 93 kms EXIM rail ICD terminal at Tirupur situated at a distance of 55 kms from Surampatti

15. 16. 17. 18.

Salem Tirupur Karur SuramPatti

Tamil Nadu Tamil Nadu Tamil Nadu Tamil Nadu

Power looms Cotton Knitwear Home Textile Power looms

From the above table it is reflected that most of the textile clusters have an ICD to facilitate their cost effective EXIM and domestic movement. Barring for the textile cluster of Agartala, for which the nearest ICD is at Amingaon (at a distance of around 583 kms); the other textile clusters are strategically located quite close to an ICD. For some of the major textile cluster locations including Tirupur, Ludhiana, Ahmedabad, Guntur, and Jaipur; the ICD is present in the very location of the town/ industrial area where the textile cluster is situated. This provides a strategic fit helping in the reduction of the logistics cost thereby improving the overall production cost and subsequently the export competitiveness of the textile clusters products. For some of the textile cluster locations which do not have an ICD located nearby e.g. Kannur and Bhubaneswar, the same is off-set with the presence of a major port at a distance of 150 km and 100 kms respectively. In this case, the last mile connectivity is undertaken by road. Accordingly the need for an ICD to be re-located to cater to the particular textile cluster may not arise, given the proximity of these textile clusters to the ICDs in their region and / or to the gateway ports. The only exception to the above is the textile cluster at Agartala, for which the nearest ICD is at Amingaon, which caters to a bulk of the tea cargo originating from Assam. Relocation of Amingaon to Agartala would not be a prudent move. Accordingly to cater to the Agartala cluster, a new ICD would then be required to establish. However developing an ICD requires huge tracts of land, rail connectivity, commitment of two way cargo generation, etc. Hence a separate cost- benefit analysis study has to be undertaken to justify for the establishment of an ICD in the vicinity of Agartala.

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2. Query 2 The procedural issues at customs depots at ports/ airports/ road tax issues need to be identified and prioritized for resolving by the respective actors. The proposed logistics policy should delineate the must do items and by whom it should be done as far as possible

Clarification 2 - During the course of the study, various issues related to Customs were obtained from the various stakeholders contacted. The same has already been documented in the main section of the study report. Some of the major Must-Do issues related to customs depots at ports / airports / road have been enumerated in the table below Sr. No 1. Parameter Interpretation of customs law Issues Each Customs officer has his own interpretation of the customs law thereby causing problems/ delays with the processing of the shipments Suggestions Need to simplify procedures and do away with ambiguity. Not to provide / vest discretionary powers to the customs officials, since then he interprets the rules as per his convenience. It may be prudent if the government do away with the payment of the required taxes at the point of exports and provide the exporters the direct benefit of the taxes, than have an elaborate procedure to have the charges reversed, which is not only time consuming but also involves lot of administrative and Entity responsible Member ( Customs & Export Promotion) and Member (Personnel & Vigilance), CBEC

2.

Excise refunds

The Excise department does not provide any refund payments for the month of January, February and March citing year end closing

Member ( Central Excise), CBEC

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Sr. No

Parameter

Issues

Suggestions other resources' time which cannot be quantified It is important to have standardization of forms and procedures that should be followed and accepted by the officials. This will help in avoiding any ambiguity in acceptance of forms issued by an officer from the Excise Department and not accepted by another set of Excise officials Such piecemeal refund only adds to the administration work for both the government and exporters without providing any immediate relief. What is important that the exemption should be straightaway given instead of paying tax and subsequent claiming the refund The government needs to fine tune the policy and inform the ground staff for the proper

Entity responsible

3.

Standardization of Excise forms

While filing for the excise bond, the necessary clearance is not obtained smoothly and is not given on time. The No Objection formats issued by the Excise Superintendent is sometimes not accepted by the Range officers , saying that the format is not proper even though it has been issued by the same department

Member ( Central Excise), CBEC

4.

Refund of service tax on commission paid to foreign buyers and agents

5.

Focus market schemes

Through Notification number 17 / 2008 dated 1st April, 2008 indicates refund of service tax shall be restricted to actual amount of service tax paid or service tax calculated on two per cent of FOB value of export goods, whichever is less. The actual service tax amount paid by the exporters, amount to anywhere between 10 to 15% of the FoB value. With regards to the Focus Market Scheme, there is no proper notification provided to the actual ground staff

Director General ( Service Tax), CBEC

Member ( Customs & Export Promotion), CBEC

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Sr. No

Parameter

Issues regarding how the incentives and benefits should be provided It has been observed that there would be 1520 CHAs gather around one Customs official table, each coaxing the Customs official to clear his papers. This leads to confusion and also delays customs clearance. Though service tax is exempted for exports transaction, exporters are still paying for it.

Suggestions implementation

Entity responsible

6.

Clearance of customs documents

A token number system shall be implemented to avoid queues / scrambles In Customs office

Member ( Customs & Export Promotion), CBEC

7.

Service tax

8.

Issue of Excise B1 bond

The Excise B1 bond was earlier issued for five years. It has been changed and now the same is issued for one year

17

9.

Bottlenecks at the Petrapole Benapole (

At present there is no agreement between Bangladesh and India

Clarity is required on Service tax issues especially with regard to the service tax incurred by the CHA , transporter etc for providing services for exports It has been suggested by the exporters that issuance of the B1 bond may be increased to five years again. This would enable them to save precious administrative time for various export transactions Need for a formal agreement between Bangladesh and

Director General ( Service Tax), CBEC

Member ( Central Excise), CBEC

Member ( Customs & Export

17

The exporter can execute B-1 bond for export of goods without payment of excise duty. The bond can be with surety or security or only guarantee. The bond should be at least equal to the duty chargeable on the goods, with such surety or security as the excise officer may approve. The bond can be executed with the Maritime Commissioners or Assistant / Deputy Commissioner under whose jurisdiction the factory is situated or Assistant / Deputy Commissioner (Export) as officer authorized by Board.

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Sr. No

Parameter IndiaBangladesh) border

Issues for freight and vehicles movement by road. Thus, trade has to be transshipped at the border. This transshipment of cargo is carried out either by unloading the cargo in the warehouses of the other country or directly from one vehicle to another in at the no-mans land at Benapole (Bangladesh). At Petrapole (India), Customs checking is done at a place other than within the terminal premises, which results in delays and increased transaction costs. Excise and customs official should be knowledgeable about the products they handle and avoid time delays

Suggestions India to lay down guidelines for freight and vehicles movement by road

Entity responsible Promotion), CBEC and Ministry of External Affairs

10.

Training of Customs & Excise officials

Proper technical training to the officers to be imparted

11.

Overtime charges

According to exporters, Customs charge overtime charges after 7 pm. Respondent feels that Customs should not charge the overtime charges and should be on the regular scale. According to exporters, rejection and call back consignments from the customers is charged customs duty and import duty

There should not be any overtime charges for any transactions

Member ( Customs & Export Promotion) and Member (Personnel & Vigilance), CBEC Member ( Customs & Export Promotion), CBEC

12.

Duties on rejected export goods

This issue needs to be jointly resolved by DGFT, CBEC and the concerned ministries

DGFT and Member ( Customs & Export Promotion), CBEC

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Sr. No 13.

Parameter Difficulties in obtaining export benefits

Issues The shipper has to pay the import duty to get his raw material cleared and he obtains the benefits only after he has exported the required quantity under the advanced license scheme. The shippers are supposed to obtain their Export Promotion (E.P) certificate after the 3rd to 4th week of the shipment. But the actual time period may take around 3 months. To avail the benefits, the shipper has to approach the DGFT, based on the E.P certificate issued by the customs. DGFT does not check the physical copy of the E.P certificate. The EP certificate issued by the customs is uploaded on the main server, from where the DGFT accesses and views the certificate. Similarly the Advanced license issued by the DGFT is again uploaded on the server for the Customs to view and take the necessary steps with the shipper concerned. However the uploading

Suggestions Need for Customs to issue and upload the Export Certificate within rd th 3 to 4 week of the export shipment. Need to have a better server connection for easily uploading and viewing of certificates between DGFT and Customs

Entity responsible DGFT and Member ( Customs & Export Promotion), CBEC

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Sr. No

Parameter

Issues of the E.P certificate and / or the advanced license never happens in a timely manner, thus delaying the shipper in obtaining his incentives dues. In addition, the shipper also has to invest in time and other resources to follow up with the customs / DGFT on the uploading of the necessary documents.

Suggestions

Entity responsible

3. Query 3 The need for a Regulatory authority at state level logistics also to be elaborated to have smooth co-ordination with the national Logistics Authority The same has been incorporated at the end of Chapter 13 under the section Need for State Logistics Authority 4. Query 4 The emerging Dedicated Freight Corridors by railways, Delhi Mumbai Industrial corridor ( DMIC), network of SEZ and the ICDs, the new and emerging ports etc are to be grouped in a Future Logistics scenario section with a long term perspective may be incorporated to improve the benchmark value of the study The same has been incorporated at the end of Chapter 14 under the section Future Logistics Scenario

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Bibliography
www.acmainfo.com www.atmaindia.org www.chemicals.nic.in www.chemicalweekly.com www.concorindia.com www.cpmai.net www.daad.de www.dateyvs.com www.dfat.gov.au www.epzakenya.com www.fadaweb.com www.fibre2fashion.com www.ficcci.com www.gujaratchemicalassociation.org www.hil-india.com www.icmaindia.com www.indian-chemicals.com www.indiandairyassociation.com www.ipa.nic.in www.kolkataporttrust.gov.in www.ncrup.up.nic.in www.siamindia.com www.teonline.com www.texprocil.com www.texmin.nic.in www.thefishsite.com www.vibrantgujarat.com www.wikipedia.com www.wto.org

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