As India prepares for the Union Budget 2026-27, the logistics sector is emerging as a critical pillar of economic growth. With the economy valued at USD 4.2 trillion and projected to double by 2030, policymakers and industry leaders are increasingly recognising logistics efficiency as central to sustaining a manufacturing revival, export competitiveness, and consumption-led growth.
India’s logistics costs, though improving, are still estimated at 14–15 per cent of gross domestic product (GDP), compared with 8–9 per cent in developed economies. While integrated planning under PM Gati Shakti has begun to yield results, structural inefficiencies across modes continue to inflate costs, underscoring the need for sharper execution and targeted reforms.
Cost Pressures And Compliance Challenges
Logistics costs in India remain high at an estimated 14–15 per cent of GDP, compared with 8–9 per cent globally, driven by fuel volatility, rising insurance and maintenance costs. Despite GST digitisation and ULIP improving visibility, compliance complexity and limited access to sector-specific financing continue to constrain efficiency and investment.
“Fuel volatility, along with increasing insurance and maintenance expenses, continues to impact margins across the logistics sector directly,” said Aneel Gambhir, Chief Financial Officer of DTDC Express. He noted that interstate and cross-border shipments still involve multiple layers of documentation and checks, creating avoidable delays in a time-sensitive industry.
Gambhir added that limited access to tailored financing slows investments in fleet modernisation, automation and warehousing, and said budget 2026 should focus on GST rationalisation, smoother digital compliance and targeted credit support.
India’s logistics performance has improved, with its World Bank Logistics Performance Index ranking rising to 38th in 2023 from 44th in 2018. However, modal fragmentation persists. Air cargo, despite supporting high-value exports, remains constrained by limited 20x7 clearances, uneven availability of partner government agencies, manpower shortages and infrastructure gaps beyond metro airports.
“Budget 2026 can be a defining inflexion point for accelerating India’s logistics transformation under PM Gati Shakti,” said Balfour Manuel, Managing Director at Blue Dart. He said deeper integration across air, road, rail and multimodal networks, supported by unified digital platforms, is critical to improving predictability and turnaround times.
Manuel added that sustained investments in airport infrastructure, cargo handling capacity and regional air connectivity would be essential for supporting time-sensitive, high-value shipments and improving ease of doing business for exporters and MSMEs.
Infrastructure, Tax Clarity and Digital Integration
Government capital expenditure on infrastructure has risen steadily over the past three years, with allocations reaching Rs 11.11 lakh crore in FY25 (3.4 per cent of GDP) and an estimated Rs 11.21 lakh crore in FY26. Projects such as the Dedicated Freight Corridors and Bharatmala have begun reducing transit times on key routes.
However, delays in completing remaining DFC stretches, port dwell times averaging around 4.2 days, and fragmented digital systems across terminals continue to constrain end-to-end efficiency.
“The upcoming Union Budget must combine infrastructure investment with policy simplification,” said Bhavik Vora, Partner and Transportation & Logistics Industry Leader at Grant Thornton Bharat. He said completing the remaining Dedicated Freight Corridor stretches and accelerating rail-linked multimodal logistics parks would be critical to cutting transit times.
Vora also called for GST clarity for multimodal services, phased track-and-trace rollout and digital integration across ports, ICDs and rail terminals to reduce dwell time and compliance burdens.
India’s freight movement remains predominantly road-led, with road transport accounting for nearly 65 per cent of freight traffic, while rail and coastal shipping together handle a significantly smaller share. This modal imbalance, driven by rail bottlenecks and weak first- and last-mile connectivity, raises both logistics costs and carbon intensity.
“As India advances its manufacturing and supply-chain ambitions, Budget 2026 should prioritise execution-led reforms with clear carbon-reduction outcomes,” said Nikhil Agarwal, President of CJ Darcl Logistics. He said faster multimodal integration, particularly higher rail and coastal share, can lower logistics costs while delivering measurable emission reductions.
Agarwal added that investments in driver training, safety and rest infrastructure are equally critical to improving reliability and addressing the growing shortage of skilled drivers.
Warehousing, Formalisation And Investment Climate
India’s warehousing stock has expanded beyond 400 million square feet, according to industry estimates, with nearly half of new demand coming from Tier II and Tier III cities, driven by manufacturing and e-commerce growth. This shift is increasing the need for organised, compliant and decentralised warehouses closer to demand centres to reduce delivery times, improve inventory efficiency and support sector formalisation.
Ramnath Subramaniam, Joint Managing Director of TVS ILP, said policy consistency, regulatory clarity and incentives that encourage formalisation are essential to sustaining investment momentum in logistics and industrial infrastructure.
He added that continued support for built-to-suit logistics parks, infrastructure-led connectivity and faster, digitised approvals can lower operating costs for occupiers, improve asset performance and enhance the sector’s attractiveness for long-term domestic capital allocation.
Despite higher infrastructure spending, rail freight transit times remain 2–3 days longer than road on several corridors due to procedural delays, terminal constraints and weak first- and last-mile connectivity. Rapid growth in e-commerce and quick commerce has further exposed gaps in urban logistics planning, increasing congestion, delivery variability and operating costs.
“Costs fall when freight movement becomes more reliable, with lower transit variability and better asset utilisation,” said Dr Ashvini Jakhar, Founder and CEO of Prozo. He said execution-led infrastructure, decentralised warehousing and simplified approvals are essential to improving predictability.
Jakhar added that urban logistics must be treated as a planned utility, with aligned municipal regulations and clearer labour frameworks to sustain last-mile reliability.
Technology, AI And The Long-term Vision
Digital platforms such as GST digitisation and ULIP have improved supply-chain visibility, while programmes like LEAP, IPRS 3.0 and PMKVY 4.0 are enabling AI-led optimisation and workforce skilling. However, adoption of advanced technologies, including IoT-based carbon accounting and EV fleets, remains uneven due to cost pressures, infrastructure gaps and limited access to financing.
“For India to emerge as the world’s third-largest economy, the Union Budget must adopt a unified, outcome-driven approach,” said Soham Chokshi, Co-founder and CEO of Shipsy. He said integrating infrastructure investment with Make in India and India’s AI and engineering talent can unlock productivity gains, reduce systemic inefficiencies and strengthen exports, while advancing the broader vision of Viksit Bharat.
With nearly 65 per cent of global growth expected to come from emerging markets over the next decade, industry leaders see India’s logistics sector entering a multi-decade expansion phase. Ahead of budget 2026, the emphasis is on treating logistics as a long-term growth asset, supported by disciplined execution, sustained infrastructure investment and policy continuity to strengthen India’s global supply-chain position and advance the vision of Viksit Bharat. |
