The warehousing industry in India is highly fragmented with around 90% controlled by unorganised players with area less than 10,000 sq ft. In the earlier tax regime, most companies had to maintain small warehouses in every state to save on taxes resulting in high inventory holding cost. However, after the introduction of GST the scenario has changed rapidly; companies can now make storage decisions based on logistical efficiencies rather than tax efficiency. The industry is consolidating, and warehousing clusters have evolved on huge land parcels nearer to industrial hubs.There is a growing preference for Grade A and B warehouses with all modern amenities and backed by technology.
The total warehousing space in India of Grade A and B quality in major eight cities/clusters are around 238 mn sq ft as at the end of 2020 as per research report publishedby JLL India. The same has grown at a CAGR of around 21% over the period 2015 to 2020. Despite the pandemic around 27 mn sq ft was added in 2020 and 35 mn sq ft was expected to be added in FY21 (as per the JLL report) depicting the resilient nature of the industry.
Sector drawing significant long-term investments
The sector has drawn huge investments from 2017 onwards after the implementation of the GST. Institutional investment commitments of USD 6.5 billion was received post GST till FY20 and another USD 10 bn is expected till FY25. The pandemic inadvertently has created a huge demand for warehousing space, led by online retailers. Investors are also looking for an alternative asset class beyond commercial offices and shopping malls.Traditionally, 3PL and manufacturing sectors comprised bulk of the warehousing consumption with e-commerce at the third spot. The trend has already shifted towards e-commerce. The share of online retailers in warehousing space consumption has rose to 23% in FY20, from 14% in FY19 and is expected to further surge to 40% over medium term. Post Covid also, the demand for warehousing is expected to be driven by e-commerce, 3PL and pharma sector and will be aided by demand pickup in manufacturing, auto and engineering sector.
Technological advancement key to improve the competitiveness of the sector
India is at a nascent stage as far as technology is concerned in warehousing. However, with increasing investments from global private equity players and increase in preference towards Grade A and B warehouse the focus on technology is increasing. The big 3PL players are better placed in this regard. Covid also has acted as a catalyst and shown the Indian warehousing and logistics the importance of technology.
Several technological advances have been made in recent times to ensure optimum utilization of resources, tracking of consignments and seamless distribution of cargo such as Automatic Identification and Data Capture (AIDC) Technology, Quick response (QR) code, RFID, etc. Adoption of Warehouse Management System (WMS) and other IT-driven solutions are gaining importance. More usage of technology is expected to improve the competitiveness of the warehousing industry.
Various policy initiatives aiding the growth
The Government is assisting for the growth of the sector. Introduction of GST, 100% FDI allowance has already helped the sector. Many State Governments also offer incentives in the form of subsidies on interest and capital along with waiver of stamp duty to set up warehousing space in their states. The draft logistics policy has various provisions that is expected to aid in further growth of the sector. To provide fillip to the agro-warehousing sector the Government plans to create storage capacity of 10 million MT out of which only 1.25 million MT was constructed till FY19. The Government is also driving the development of Multi Modal Logistics Parks (MMLP). Land acquisition is one of the major challenges faced by Private sector for development of green field warehouses. To mitigate this government agencies can aggregate large land parcels at suitable manufacturing hubs, which are free from encumbrances. This can be made available for the private sector at a fair market value.
Tier II and III cities is expected to drive the future growth
The sector, which was mainly concentrated in and around the major cities, had started penetrating to tier II and III cities. Rising consumerism and the emergence of e-commerce has created a need for faster deliveries even in tier II and III cities. Further, restricted movement due to the lockdown in major cities has resulted into the need for diversifying the location. Cities like Madurai, Hosur, Nellore and Coimbatore in the south, Ludhiana, Lucknow, Jaipur, Indore in the North, and Patna, Siliguri and Guwahati in the East are emerging as preferred destination.
The warehousing industry is projected to come out of the coronavirus pandemic stronger than the pre-Covid times. The growth rate in the medium term is likely to surpass even pre-Covid rates as companies will want to stock up inventory to avoid supply shortage and e-commerce firms will want to cater to de-centralised consumption.Thedemand for Grade A and B warehousing space is expected to grow at a CAGR of 10-15% in medium term.
Investment activity which was muted in 2020-21 due to slower decision-making by investors on account of the pandemic is expected to pick up backed by inflow from both foreign and domestic investors.