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FM Sitharaman’s infra play in Budget 2020 will boost logistics sector; here’s how

  • By Deepal Shah

The budget 2020-21, while laying out a road map to remove the structural rigidities in the vital agriculture sector has given a big boost to the logistics industry most important being the introduction of viability gap funding to set up warehouses to store agricultural products and extension of NABARD refinancing scheme to cover the sector.  This will encourage private sector to play a big role in setting up storage facilities across the country and help better value realization for farmers.

Private sector has so far been hesitant to set up such ventures since their market potential remains untested and debt financing hard to come since project viability could not be assured by the promoters on a standalone basis.  This gap in funding, also called as viability gap funding-a one-time grant to support infrastructure projects that are economically justified but fall short of financial viability-will now encourage private firms to set up such facilities in spite of uncertainty about the internal rate of return (IRRs).

The proposal to use land owned by FCI and Warehousing Corporation of India to set up new storage facilities is also a welcome decision since such capacities is likely to build on a PPP mode. Such steps are sure to go a long way in the growth of logistics sector going forward.

Further the massive infrastructure play will pan out as a growth multiplier for logistics firms since private sector has been identified as a key partner in the Rs 103 crore investment programme by the Government under the ambitious National Infrastructure Pipeline (NIP) unveiled by the Government.  The NIP has identified around 6,500 projects across different verticals to be developed on a public-private-partnership (PPP) model. The Rs 1.7 lakh crore plan for developing transport infrastructure that includes the accelerated development of highways is another big positive for the logistics sector.  Also the plan to monetize 12 lots of highway bundles in FY 21 will go a long way in enhancing private. This will benefit the private players who are active in the segment in a big way in enhancing private sector's reach in the space. On the whole this Budget will make 2020 a decade for infrastructure.

  • Deepal Shah is Chief Financial Officer, Allcargo Logistics Ltd. Views expressed are the author’s own.