Nishanth Naidu Vadduri

RCG School of Infrastructure Design and management

Indian Institute of Technology Kharagpur

Warehousing in India
Modern warehousing forms an integral part of the supply chain where goods are not only stored
for safekeeping, but several value-advance processes are implemented to process inventories,
thereby minimising obsolescence and reducing wastage. Warehouses are being used for critical
functions such as stockpiling, product mixing, value addition, distribution and customer service.
Traditionally, warehousing in India has featured small unit sizes. Although indigenous
constraint based innovation has taken place at various levels, the lack of world class standards
and specifications poses a significant challenge to other growth sectors that rely on logistics and
warehousing. An indirect tax structure has incentivised companies in India to maintain separate
warehouses in different states.
With the growth of organised warehousing and an expected simplification of existing tax
structure, warehousing in India is witnessing a paradigm shift towards large logistics parks with
state-of-the art facilities.

Growth of the Warehousing Industry

The growth of the Indian warehousing sector is primarily driven by the industrial growth
of the country. While the Indian economy is predominantly driven by the service-based industry,
manufacturing also acts as a key growth driver for economic activity. Both services and
manufacturing have thus far been the key demand generators for warehousing space in India.

While export/import (EXIM) cargo, agriculture and manufacturing (textile and auto / auto
ancillary) have been identified as traditional growth drivers that have contributed to the demand
for warehouse space in India, new growth drivers such as organised retail, information
technology, telecommunications and healthcare are the sunshine industries that have been
identified with huge growth potential after economic liberalisation. With the growth of the above
mentioned industries Source: As Mentioned and advent of technological advancements, the
demand for organised and automated warehouses is likely to be the future of warehousing in
India.

Growth of Infrastructure

Infrastructure serves as a key facilitator for the growth of warehousing industry in India.
Rising industry challenges owing to the lack of world class infrastructure have exerted
tremendous pressure on the Indian government, and hence, infrastructure has remained the key
area of focus during the union budget 2009-10. For the transport sector, funding earmarked for
the national highways development program increased by 23%, while funding for railways has
increased by close to 45%. In the power sector, allocations for the power development program
have increased by 160%. According to the Planning Commission, USD 494 billion of
investments are proposed for the Eleventh Plan period (2007-12), which would significantly
increase the share invested in infrastructure. Apart from the increase in government funding for
infrastructure projects, the Indian government also initiated public private partnerships (PPPs) to
drive fresh investments in infrastructure projects.

Road Infrastructure

Since a major portion of freight movement in India is transported via roadways, road
infrastructure plays a crucial role in the growth of logistics and warehousing industry. The Indian
government has recently initiated a project to connect the North-South and East-West Corridors
through world class road infrastructure. As this project will significantly bring down the logistics
costs, it is likely to act as one of the key growth facilitator for the logistics and warehousing
sectors. The project would consist of a 7,300-km-long corridor connecting Kashmir to
Kanyakumari and Silchar to Porbandhar. While the North-South expressway will go from
Jammu to Kanyakumari through Delhi, Bhopal, Hyderabad, Bangalore and Coimbatore, the
East-West expressway will run from Silchar to Somnath through Kolkata. Apart from the above-
mentioned projects, the National Highway Authority of India (NHAI), under its national
highway development program (NHDP), has undertaken a major and challenging project to
connect the major ports of India. This initiative will act as a key driver for the multi-modal and
inter-modal connectivity.
Air Infrastructure

According to Airports Authority of India (AAI), the Indian air cargo in terms of volume is
expected to grow at a CAGR of 11.5% from 2007-08 to 2011-12.Of this, the CAGR of
international air cargo is expected to be 12.2% while domestic air cargo would be 10.15%.The
total air freight traffic (international and domestic) in India handled as of June 2009 has
increased by 4% over June 2008. However, the total air freight handled worldwide in June 2009
dropped by 14% compared to June 2008 with international and domestic freights dropping
significantly by 16.5% and 5.8%, respectively. Although the decline in international freight was
mainly attributed to the collapse of the global export trade, it was interesting to note that there
was an increase in Indian freight traffic, which indicates a higher growth after the economic
recovery.

The Landscape of Indian Warehousing

Locating a Warehouse
As with the other real estate sectors, the maxim ‘location, location, location’ still holds true for
warehousing. Optimal warehousing locations depend on the proximity to major demand-supply
hubs, quality of infrastructure, availability and quality of transport, geo-political stability and
operational costs. In the Jones Lang LaSalle Meghraj - CII Warehousing Survey, respondents
were also asked to rank various parameters that they would consider when selecting a warehouse
(Figure 7)

The results of the survey indicate that industry stakeholders perceive proximity to demand and
supply hubs, along with quality infrastructure, to be of paramount importance over other factors
when selecting a warehousing location. Access to markets, suppliers and manufacturing units
were considered extremely important, as were proximity to road, rail and air networks.
Availability of skilled labour, manpower and warehousing space costs, and proximity to ports
were considered less important. However, experts feel that going forward, as the industry
becomes more organized and technology is extensively used in operations, the availability and
costs of skilled labour would gain in importance.

Warehousing Attractiveness Index

India has a vast geographical spread covering about 3.3 million sq km with a coastline of
7,517 km. Due to the large expanse of landmass, there are geographical disparities that have
shaped regional demographics and the development of various locations. There are
infrastructural advantages and limitations that have also contributed to variations in regional
growth, thereby creating a differential demand map for warehousing at various locations. The
Jones Lang LaSalle Meghraj Warehousing Attractiveness Index maps various locations in India,
assessing their potential and gaps for organized warehousing. Encompassing over 50 city-level
and state-level parameters, the rankings have been formulated through an analytic hierarchy
process (AHP), wherein the final index is ascertained through several simpler independent sub-
indices

The major factors that determine the potential of a location for its attractiveness for warehousing
have been categorised into two indices – Facilitators Index and Demand Index. The primary
facilitators identified for warehousing are infrastructure, policy support, labour availability and
costs. The Demand Index is generated through several economic and demographic indicators.
Economic indicators include several parameters for growth of agriculture and industries, and
demographic parameters include the consumption and income demographics of the region.
Current capabilities as well as possible development trajectory due to ongoing and proposed
projects have been considered while creating the sub-indices. Our analysis covers 37major
Indian cities, aggregating to a total population of 143 million. These cities were selected on the
basis of their geo-political and demographic importance in the urban fabric of the country. On
the basis of the analysis, the cities have been ranked and grouped into Primary, Secondary and
Tertiary hubs (Figure 9).
Primary Hubs
The primary hubs are the major metropolitan cities in India - three of which have the most active
ports and airports of India. With excellent multi-modal connectivity to other regions of the
country, six of the seven cities lie on the Golden Quadrilateral, he most expansive network of
expressways in the country. As the administrative capital of their respective states, they are the
most urbanized locations in their region and have a large resident population. With a huge labour
pool and industrial districts in the periphery, these cities score as established locations for
warehousing. Functioning as primary hubs in the supply chain, they also support the secondary
hubs in vicinity. Availability and cost of land is a concern in these cities as massive urbanisation
has resulted in expansion of city limits and escalation in land prices.
Secondary Hubs
Well connected by primary infrastructure arteries, a majority of secondary hubs are situated in
the western and southern zone of India. They serve as regional industrial hubs and are important
locations in terms of access to markets and manufacturing units. With sizeable catchments of
urban and rural population, they are attractive emerging locations for warehousing. Secondary
hubs support tertiary hubs to some extent.

Tertiary Hubs
While some tertiary hubs are strong markets, the lack of quality infrastructure has hindered their
development either as warehousing or industrial hubs. Agriculture forms a significant share of
warehousing demand at some of these locations. With the expected growth of organised retail,
warehousing space would be increasingly required at these locations, which also serve as
important linkages to rural locations at the heart of India. With plenty of labour and land
available at rational costs, good infrastructural connectivity can propel some of these locations to
become attractive warehousing hubs in the future.
Regional Demand for Warehousing

Retail goods contribute a significant share of the warehousing demand at all the primary hubs
due to their sizeable demographics and consumption EXIM cargo generates considerable
demand for warehousing in the port cities of Mumbai, Kolkata and Chennai. NCR-Delhi also
enjoys warehousing demand from a variety trade activities (Figure 13). Due to the location of
automotive industries, warehousing demand for automobiles and auto-ancillary products is
prominent in Chennai, NCR-Delhi, Mumbai, Pune and Ahmedabad. These cities are also sizable
markets for automobile sales. India’s eastern region is rich in minerals, textile and agri-prodiucts.
Having a large population, this region has strong consumption activity, which further creates
demand for warehousing space. A significant amount of cargo originates from India’s south and
west regions due to a large number of established industrial hubs and sea ports. Hence, the flow
of cargo traffic from India’s south and west regions to its east and north regions is much higher
than in the reverse direction.

Emergence of logistics parks

Several major logistics parks are currently under development across the country around the
major logistics hubs of Mumbai, Bangalore, Chennai, Hyderabad and NCR. Speciality logistics
parks catering to industries such as agriculture, automotive, electronic hardware and aero-
industry are under various phases of development across the country. Various rail-linked and
multi-modal logistics parks are also being constructed. About 861 acres of land have been
identified as Free Trade Warehousing Zones (FTWZs) in India, which have been envisaged as
global trading hubs in the international supply chain (Figure 14). Principally governed by the
Special Economic Zone (SEZ) Act 2005 and SEZ Rules 2006, 100% foreign direct investment
has been permitted into FTWZs.
Temperature-Controlled Storage

Temperature-controlled storage is used primarily for fruits and vegetables, meat and marine
products, floriculture, dairy products, ice creams and confectionery. According to the KPMG
Assocham report released in August 2009, there is a shortage of 10 million tonnes of cold
storage for agri-produce in India. India currently has around 21.7 million tonnes of cold storage
against a requirement of over 31 million tonnes. As a result, more than 30% of agri-produce is
lost in fields post harvesting