In our previous blog, we explained How does transport affect selling in India?. Here we will focus on developing warehousing infrastructure in India. We write a separate blog about this as it is one of the popular question asked by foreign companies who import goods in India, looking for a warehouse in India, sell in India, developing & managing the distributor network in India. This particular blog helps you to understand infrastructure status to warehouse and logistics in India & What is the status of FDI.
Developing warehousing infrastructure
Warehousing infrastructure is on high priority for the government. Based on the ongoing development of road infrastructure in the suburban belt, measures are being taken to build integrated logistics hubs across the national highways and expressways.
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This infrastructure is under construction and will be operational within next five years across the industrial corridor of the country, including the states of Delhi, Haryana, Rajasthan, Maharashtra, Madhya Pradesh, and Gujarat from the west side of India, and West Bengal, Odisha, Andhra Pradesh, and Tamil Nadu from the east.
Realization of the benefits of these developments will be over the next ten years, as these projects will generate employment for residents and as a result, will assist in decongestion of cities plagued by job-related population migration.
FDI Status To Warehousing And Logistics Sector
Logistics and warehousing indispensable role in the transportation of goods across the country also the manufacturing sector is amongst the major occupiers of warehousing space and both sectors are complementary to each other. In order to aid the manufacturing and warehousing sectors, the government has announced plans to set up multimodal logistics parks at 34 locations across India, which have the highest freight movement at an investment of INR 2 trillion.
100% foreign direct investment (FDI) in the storage and warehousing sector under the automatic route has been permitted for several years. In addition to this, the government has recently announced infrastructure status to the logistics industry. This decision will enable companies in the logistics and warehousing sector to access funds at a lower cost, longer tenure, and enhanced limits. Companies would now be accounted for lesser cash outflows due to debt and interest repayments in the initial years unlike earlier, as the debt financing can be taken with longer repayment tenure.
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It would also enable them to raise larger amounts of funds as external commercial borrowings (ECB), borrow longer tenure funds from insurance companies, pension funds, sovereign funds and also make them eligible to borrow from the India Infrastructure Financing Co. Ltd (IIFCL). Moreover, even the banks would be able to lend to this sector with lower provisioning requirements than earlier. The approval process also gets simplified. The Government of India has set out certain conditions that need to be met for a project to be classified under infrastructure status.
The government has defined “logistics infrastructure” to include a multimodal logistics park comprising an Inland Container Depot (ICD) with a minimum investment of INR 50 crore and minimum area of 10 acres, cold chain facility with a minimum investment of INR 15 crore and minimum area of 20,000 sq ft and/or a warehousing facility with a minimum investment of INR 25 crore and minimum area of 100,000 sq ft. Institutional players will not invest in unorganized and small warehouses; they generally invest or set up large warehouses and huge logistics parks. Currently, the new facilities that are being built by institutional players are generally of large sizes, bigger than the minimum requirements as specified above and hence, they would stand to benefit from the infrastructure status.