Although the talks about India becoming a $ 5 trillion economy by 2024 seemed a distant dream until some time ago, the Union Budget 2021 laid the right foundation for India to shape its growth trajectory.
In addition to providing additional assistance to the states for capital expenditure, the government has pushed back the economic growth system that has fueled infrastructure spending, with increased allocations to the sector.
In addition to budget allocations, the government has proposed to set up a Development Finance Corporation (DFI) to raise money for existing assets of public sector undertakings and reinvest them in greenfield infrastructure projects. In addition, to attract retail and foreign investment into the Indian infrastructure space, the government has proposed to abolish tax at source on REITs and invitations, along with the issuance of zero-coupon bonds by infrastructure companies.
All of the above measures can provide more jobs and provide connections to other industries that are part of the global manufacturing footprint.
While infrastructure is the lever that provides economic growth, warehouses and logistics are the backbone of all infrastructure growth. With the rapid infrastructure development, the warehouse and logistics sector is expected to grow even faster.
Given the needs of global manufacturers, there is a huge need for Grade-A warehouse and logistics facilities in the country. The Indian warehousing sector is at a reflective stage and is expected to grow at more than 20% CAGR. Of these, Grade-A warehouse stock is growing at 35% CAGR with a vacancy rate of less than 10%. Demand for institutional-grade warehouses currently exceeds supply.
As India’s current warehouse stock is less than 0.1 sq ft per capita, it still has significant growth potential, which is very attractive to large investors with a long-term capital commitment, with significant growth headroom available.
In addition, significant tailwinds in the economy have also positively impacted the sector. Since the implementation of GST in 2017, the sector has received an inflow of around Rs 6. 3.6 billion, indicating investor sentiment in the sector, which has a lot of potential for further growth.
The Kovid-19 pandemic has boosted demand for e-commerce across the country and is likely to grow further. E-commerce players need three times as much warehouse space as traditional retail players, which further accelerates warehouse demand. Moreover, the increase in demand for e-commerce is secular compared to what we have seen before. Companies are looking at warehouse locations in the Tier II & III markets.
Modernization and availability of tech-enabled warehouse facilities is an area with huge growth potential. This is the only major factor in drawing up large manufacturing companies. The use of the latest technologies such as AI, supply chain digitization, IoT, blockchain, robotics and drones to increase the efficiency of processes is an expectation from grade-A warehouses.
As land becomes an expensive and highly critical input, the construction of quality warehousing facilities becomes more capital. While the need for capital is a reality, investors are likely to own a portion of this growing pie.
With so many infra projects financially supported in the coming months, the latest budget will actually have its heart in the right place. The proposal to release the National Logistics Policy soon will help solve the long-standing problem of reducing logistics costs. It is imperative to implement projects on time and costs to really reap the financial benefits.
(Anshul Singhal Managing Director, Welspun One Logistics Parks. Views are personal)