This Asian Development Blog article explores how enhancing multimodal transport, standardization, and digital integration can significantly improve the logistics sectors in Bangladesh, India, and Nepal. Though India has seen significant growth in its logistics and manufacturing sectors through infrastructure improvements and policy reforms, all three countries continue to face similar challenges such as overburdened roads and a lack of standardization in warehousing. Addressing these issues is crucial for economic development, environmental sustainability, and regional integration. By adopting strategies like multimodal infrastructure development and digital technologies, these countries can enhance supply chain resilience, reduce costs, and boost export competitiveness, ultimately contributing to economic growth and job creation. 

Get Moving: Smarter Logistics Can Boost Efficiency and Cut Costs in South Asia

Enhancing multimodal transport, standardization, and digital integration can improve efficiency, reduce costs, and strengthen manufacturing in India, Bangladesh, and Nepal’s logistics sectors.

The logistics sectors of India, Bangladesh, and Nepal face remarkably similar constraints that are central to their governments’ plans to expand the industries that rely heavily on logistics.

In each country, roads – the most heavily used form of transport – are overburdened, leading to a variety of problems, including slow and unpredictable delivery times. A lack of standardization in warehousing facilities means time is wasted on unpacking and repacking pallets to fit shelving racks following different standards.

Insufficient multimodal infrastructure means that cargo cannot easily move between trains, trucks, and ships. These hindrances affect both economies and the environment alike, in that an inefficient logistics sector is a cost borne by both consumers, in the form of higher product prices, and the environment, in the form of added emissions from idling vehicles.

India, for its part, has made the most progress in recent years toward alleviating logistics inefficiencies in the service of its broader economy, particularly in manufacturing.

India’s logistics sector, once plagued by inefficiencies, is undergoing a positive transformation. With a market size of approximately $200 billion, India transports 4.6 billion tons of freight annually.

The sector is projected to double in size by 2030, driven by aggressive expansion in road, rail, shipping and air freight. Recent improvements in road infrastructure, dedicated freight corridors and use of technological advancements in the logistics supply chain have set the stage for a more efficient logistics network.

India's logistics sector now includes all key components needed for a modern economy, such as seamless transport across different modes (road, rail, air, and sea), efficient customs processing for domestic and international trade, and better management of ports, airports, and land borders.

From that and other significant policy reforms, India's manufacturing sector has been on a steady growth trajectory, underpinned by significant policy and infrastructural reforms including in its logistics sector. India continues to experience rapid growth in its Manufacturing Purchasing Managers' Index (PMI).

The latest Manufacturing PMI for December 2024 remains firmly within the expansionary zone, fueled by new business gains and robust demand. According to the RBI's Industrial Outlook Survey, manufacturing firms anticipate further enhancements in Q4 FY25 and Q1 FY26.

India's export landscape has also undergone substantial growth, with merchandise and services exports increasing significantly over the past two decades. Goods exports rose from $48.5 billion in 2000 to $467.5 billion in 2022.

Despite the recent very large outlays in infrastructure and policy reforms, India's logistics sector is still confronted by several challenges also faced by Nepal and Bangladesh, where heavy investment in infrastructure is also still needed.

Like India, the logistics sectors of Bangladesh and Nepal need greater consolidation for regulatory bodies in the logistics sector, overarching standardization, and better institutional coordination. In Bangladesh, congestion in external trade is an additional complication.

The development of the logistics sector has a profound impact on economic competitiveness and the environment. Improved logistics efficiency enhances supply chain resilience, reduces transaction costs, and boosts export competitiveness.

The integration of digital technologies and standardized processes facilitates smoother movement of goods, which is crucial for manufacturing growth and reduced greenhouse gas emissions.

Logistics sector reforms are also expected to create substantial employment opportunities, both in urban and rural areas. The increased demand for skilled logistics workers, driven by private sector investments and process efficiency, will contribute to job creation.

Additionally, the digitization and automation of logistics processes will generate new types of employment, aligning with the evolving needs of the sector.

Historically, Bangladesh has not fared well in the competitiveness and logistics rankings. For example, in the 2019 World Economic Forum’s Global Competitiveness Index, Bangladesh ranked 105th out of 141 countries, lagging other Asian nations such as India (68), Viet Nam (67), and Indonesia (50). Bangladesh ranked 88th of 139 in World Bank’s 2023 Logistics Performance Index, while India ranked 38th globally, up from 44th in 2019.

Bangladesh heavily relies on road-based cargo movement, with railways accounting for only about 4% of passenger and freight transport. Given the country’s dense population, expanding the road network poses significant challenges.

Therefore, shifting to rail transport and upgrading the rail network, including gauge conversion, could significantly enhance the logistics sector, improving efficiency in cargo evacuation and greener movement of goods.

Further, development of a multi-modal logistics park will be essential to facilitate freight aggregation and distribution, multimodal freight transport, integrated storage and warehousing, technology support, and value-added services. All of this contributes to a reduction in transit time and a streamlining of export processes.

Problems in Nepal are much more fundamental and revolve around basic infrastructure such as roads. Nepal, with its unique geographical challenges, can benefit from India’s experience in logistics sector reforms. Nepal should adopt a strategic approach to infrastructure development, focusing on improving road and rail connectivity to facilitate the movement of goods.

They also need to establish institutional arrangements for logistics planning at the national and local levels. Nepal can also leverage digitization and process reforms to enhance the efficiency and reliability of its logistics network. Logistics sector development is critical for paving the way for the economic diversification that Bangladesh and Nepal need as they transition away from least developed country status.

The transformation of the logistics sector is pivotal in fostering regional integration and economic development across South Asia.