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CHAPTER 3

THEORETICAL FRAME WORK OF LOGISTICS

INDUSTRY IN INDIA – AN OVERVIEW

3.1 INTRODUCTION

In olden days logistics was local, involving storage and material

movement from one city to another city by train or truck. The lowering of

trade barriers by various countries, combined with rapid advances in global

transportation and information technology, has led to the proliferation of

global manufacturing networks. Now manufacturing and services are global

to take advantage of low cost wage structures and also to reach the local

markets. In global manufacturing of this kind, components may be sourced

from several countries, assembled in yet another country, and distributed to

the customers all over the world. Information transfer regarding the location

and status of moving inventory, payments and also the customs paper work

plays a big role in efficient logistics. These networks are not generally under

single ownership but are group formations of independent companies in

alliance for a specific and special purpose. They compete with similar

cooperating networks. Such networks are common in all industrial sectors

including the automobile, pharmaceutical, aero-space, electronics, computer,

food, and apparel industries. Thus, logistics and supply chain management are

of fundamental importance to any economy.

Since logistics involves global movement of materials, information

and funds from country to country, it requires excellent state – of - the - art

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country infrastructure such as Airports, Seaports, Internet and other IT and

finance related facilities. Having good logistics infrastructure culture becomes

a prerequisite for attracting global manufacturing and service companies in

the country.

Increasing globalization and competitive pressures have forced

businesses in all the sectors of global economy to focus on the improvement

of their operations. Logistics aims not only to reduce their costs but also to

attain greater differentiation in their service offerings. In fact, the success of

today’s market leaders such as Wal-Mart, Dell, Cisco and Toyota is primarily

based on their superior operational and logistics capabilities. Also, several

successful countries have developed world class infrastructural facilities in

terms of physical facilities such as airports and sea ports and also in terms of

the IT infrastructure. India should proactively attract investments by

following the Supply Chain Cluster Paradigm, where in all the stakeholders in

the supply chain such as manufacturers, logistics providers, financial

institutions, etc., are co located in the region, creating a value chain of

excellence which is difficult to replicate. The facilities in the cluster can be

built simultaneously through careful planning rather than sequentially.

Logistics is defined as the broad range of activities concerned with

effective and efficient movement of semi-finished or finished goods from one

business to another and from manufacturers/distributors/retailers to the end

consumers. The activities within the sphere of logistics include freight

transportation, warehousing, material handling, protective packaging,

inventory control; order processing, marketing, forecasting, and customer

service. The Council of Logistics Management (CLM) has also formulated

the following definition of logistics with a flow and process orientation.

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“The process of planning, implementing, and controlling the

efficient, cost-effective flow and storage of raw materials, in-process

inventory, finished goods, and related information and financials from point

of origin to point of consumption for the purpose of conforming to customer

requirements”

3.2 COMPONENTS OF LOGISTICS SYSTEM

Components of Logistics System (CLS) provide an overview of the

logistics system. Logistics services, information systems and

infrastructure/resources are the three components of this system and these are

closely linked. The interaction of these three main components in the

Logistics system is interpreted as follows. Logistics services support the

movement of materials and products from inputs through production to

consumers, as well as associated waste disposal and reverse flows. They

include activities undertaken in-house by the users of the services (e.g.

storage or inventory control at a manufacturer’s plant) and the operations of

external service providers. Logistics services comprise physical activities (e.g.

transport, storage) as well as non-physical activities (e.g. supply chain design,

selection of contractors, freightage negotiations). Most activities of logistics

services are bi-direction. Information systems include modeling and

management of decision making. The important issues which are concluded

in the information system are tracking and tracing. They provide essential

data and consultation in each step of the interaction among logistics services

and the target stations. Infrastructure comprises human resources, financial

resources, packaging materials, warehouses, transport and communications.

Most fixed capital is for building those infrastructures. They conantrate on

foundations and basements within logistics systems. Figure 3.1 Overview of

Logistics System (source: BTRE, 2001).

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Figure 3.1 Overview of Logistics System (source: BTRE, 2001)

3.3 LOGISTICS INDUSTRY CHARACTERISTICS

1. The Indian logistics sector is fragmented. Two-third of the

total trucks are owned and operated by transporters with fleets

smaller than five trucks. The result is intense competition, low

freight rates and thin profitability.

2. The logistics cost in India is still high when compared with

developed markets owing to a non-conducive policy

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environment, extensive industry fragmentation and

infrastructure inadequacy.

3. The sector employs (directly and indirectly) about 40 million

people.

4. The sector sees on increased productivity through growing

investments in GPS tracking, radio frequency identification,

online analytics and new supply chain tools.

5. The entry of global logistics players in India is helping local

companies to benchmark against global standards.

3.4 CATEGORIES OF LOGISTICS INDUSTRY

The logistics industry in the country is divided into across the

following categories:

3.4.1 Express Cargo

The need for quick service has catalyzed the growth of India’s $1.6

billion express service cargo industry, growing at a rate of 20-25% and is

expected to be more than double by 2012. Globalization has prompted Indian

companies to integrate their supply chains with international markets,

increasing the demand for relevant logistics services. According to the

Planning Commission, India’s air cargo movements would grow at over

CAGR of 11.5% from 2007-08 to 2011-12.

3.4.2 Multimodal Transport Operator

The annual size of India’s multimodal transportation segment is

around three million containers, still considered to be nascent with an

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attractive potential. This industry is considered attractive as it is not capital

intensive, does not require considerable working capital and generates a

reasonable return-on-employed capital.

3.4.3 Warehousing

Warehousing accounts for about 20% of the Indian logistics industry

and occupies around 40 million sq. ft. The development of the modern retail

sector, escalating growth in commodity markets and a paradigm shift in

consumer preference from fresh to processed foods have necessitated storage

expansion. Special Economic Zone (SEZ) development is an another primary

warehousing driver as modern warehouses have moved beyond traditional

stocking and loading to other value-added services (packaging, labeling,

bundling and cross docking). The warehousing business, growing at 35-40%

annually, is expected to become a $55 billion industry in three to four years

with more than 50 million sq. ft in warehousing space and more than a

hundred logistics parks.

3.4.4 Third Party Logistics

Thirty Party Logistics manages the logistics activities of the third

parties. The $58-million Indian 3PL industry caters to around 55% of Indian

companies that outsource logistic services like supply chain management and

warehousing. 3PL reinforces supply chain management, widens market share,

reduces conventional logistic costs and makes it possible for companies to

expand into new markets, increasing logistics challenges. India’s outsourcing

of third party logistics (3PL) is expected to grow into a $90 million business

by 2012.

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3.4.5 Road Transportation

A railway has remained a dominant mode of transport in India over

the past few decades, but recently a roadway has gained a significant share

(more than 60% - inland transportation), while railways has lost its market

share due to the following reasons:

Greater coverage when compared to any other mode of

transport.

Higher flexibility in terms of door-to door delivery, giving it

an edge despite higher effect.

Lower risk of handling loss, due to lesser loading and

unloading of goods investments made by the government in

the National Highway Development Projects (NHDP).

3.4.6 Railways

Indian Railways moved around 850 million tones of freight in 2008

compared to 785 million tones in 2007 and targets 1,100 million tones by the

end of the Eleventh Plan. Although railways are more energy-efficient and

environment-friendly, they face stiff competition from the road sector.

3.4.7 Air Cargo

The air transport sector contributes over 0.2% to India’s GDP at

constant prices (1999-2000). The air cargo business expanded at nearly 19%

during the 2006-08 period, overtaking ocean freight (10.3%) and rail freight

(9.2%). India’s leading trading partner regions are Europe, Asia, the Middle

East and North America. India’s air cargo movement is expected to grow at

over 11.5% CAGR from 2007-08 to (13.5%) 2011-12, owing to rapid

international air cargo traffic growth fuelled by a growth in export of gems

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and jewellery, special chemicals and high-value pharmaceuticals (Source:

Planning Commission). The IATA predicts that 57% of the world's air freight

would move to Asia by 2011, India playing a major role..

3.4.8 Ocean Cargo

The Indian shipping industry is the backbone of the country’s EXIM

trade. With 12 major and 187 minor ports as well as a 750-km coastline,

ocean freight is an important economy driver. In turn, this has impacted the

country’s port development, leading to the global ownership and management

of port terminals. The surging Asian and Indian economies have grown up

containerised vessel demand in recent years, bolstered by a strong demand for

shipping raw materials and the export of finished goods in the world’s second

fastest growing economy. According to recent estimates, the growth rate of

Indian ports would be around 160% in 2011-12. Cargo handling in major

ports is expected to grow at 7.7 per cent till 2011-12 and cargo movement is

estimated to reach 877 million tons by 2011-12.

3.4.9 Growth drivers

India’s logistic services sector is expected to develop on account of

growth in the organized retail, manufacturing and infrastructure sectors.

Besides, new generation companies outsource reverse logistics, inventory

management; order processing, distribution and labeling and packaging,

widening logistics service requirements.

3.5 ORIGIN AND DEVELOPMENT OF LOGISTICS INDUSTRY

Logistics was initially a military activity, concerned with getting

soldiers and munitions to the battlefront in time for flight, but it is now seen

as an integral part of the modern production process. The main background of

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its development is that, the recession of America in the 1950’s caused the

industry to place importance on goods circulations. The term, logistics, was

initially developed in the context of military activities in the late 18th and

early 19th centuries and it launched the military logistics of World War II. The

probable origin of the term is from Greek logistikos, meaning ‘skilled in

calculating’. (BTRE, 2001) Military definitions typically incorporate the

supply, movement and quartering of troops in a set. And now, a number of

researches were taken and made logistics applications from military activities

to business activities. Business logistics was not an academic subject until the

1960s. A key element of logistics, the trade-off between transport and

inventory costs, was formally recognized in economics at least as early as the

mid-1880s. (BTRE, 2001) Based on the American experience, the

development of logistics could be divided into four categories, viz, showing

the following Figure 3.2.

Figure 3.2 Logistics historical development

Before the 1950S, logistics was under the dormant condition.

Production was the main part of the managers concerned, and industry

logistics was once regarded as “necessary evil” in this period. During the

1950s to and 1960s, applying new ideas of administration on business was a

tendency. Drucker (2001), who thought Logistics was The Economy’s Dark

Continent, regarded the procedure of physical distribution after producing

products as the most possible development area in American businesses but

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also the most neglected area. Lewis’s study (cited in Chang, 1998) in 1956 on

the role of air transportation in physical distribution was the application of

“total cost concept” and it pointed out the notions of trade-off between

inventory and transportation. From 1970s onwards, more and more

applications and researches of logistics appeared. Due to petroleum price rise

in 1973, the effects of logistics activities on enterprises grew. Slow growth of

market, pressure of high stagflation, release of transportation control, and

competitions of the third world on products and materials all increased the

significance of logistics system on planning and business at that time. The

further tendency of logistics in the early 21st century is Logistics Alliance,

Third Party Logistics (TPL) and Globalised Logistics. Logistics circulation is

an essential of business activities and sustaining competitiveness. However, to

conduct and manage a large company is cost consuming and not economic.

Therefore, alliance of international industries could save working costs and

cooperation with TPL could specialize in logistics area.

3.6 GLOBAL LOGISTICS INDUSTRY

Currently the annual logistics cost of the world is about $ 3.5

trillion. For any country, the annual logistics cost varies between 9% and 20%

of the GDP, the figure for the US being about 9%. The global logistics market

sizes in 1992, 1996 and 2000 were US$ 10 billion, $ 25 billion and $ 56

billion, respectively. In 2003 and 2004, the corresponding figures were $ 270

billion and $ 333 billion, registering high growth rates. Though, most of the

large LSPs are headquartered in Europe, the US logistics market is the largest

in the world capturing one-third of the world logistics market. In 2003, it was

about $ 80 billion. In 2004, it grew up to $ 89 billion, and in 2005, it

registered an impressive growth rate of 16% to cross the $ 100 billion mark

for the first time and reach $ 103.7 billion (Foster and Armstrong, 2004, 2005,

2006). However, considering the fact that the logistics market in the US is

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about 10% of its annual logistics cost (Foster and Armstrong, 2006), there is

still immense potential for the growth of 3PL in the US in particular, and in

the world in general.

3.7 THE LOGISTCS INDUSTRY IN INDIA

Logistics is fundamental to the performance of the economy and is

crucial in matching the production of goods to the industrial demand

(as inputs) and households (as private consumption). Logistics activities

represent a substantial value added economic process. The competitive supply

of logistics services is also critical in to contributing the efficient and effective

industrial activity through innovative logistical solutions and reducing the

cost of goods and services to households. The major logistics functions for the

Indian industries include transportation, warehousing, freight forwarding and

other value-added operations like Management Information Systems (MIS).

Of these functions, transportation and freight forwarding have been

traditionally outsourced to external service providers with relevant expertise

and infrastructure. Apart from the traditional transport service providers who

provide transportation services to the industry, the fast emergence of 3PL and

4PL which provide end-to-end logistics solutions indicates that companies are

leaving the logistics functions to the experts and focus on their core

competencies. The warehousing and MIS functions have been mostly

managed in-house by the industries. The spread of organised retail industry

necessitates the specialised logistics functions, specialised transportation like

refrigerated vehicles, operation of hub and spoke model for distribution, JIT

logistics, etc. Therefore, delivering the right product at the right time, at the

right place and at the right cost helps to achieve better logistics efficiency.

The logistics performance or efficiency can be measured by the cost, time and

service quality.

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Logistics has been becoming efficient only since the globalization

wave of the early 1990s and hence, the businesses supported by it, worldwide,

have been pushed for competitive balance-sheets, providing consumers a

better product/service and yet adding value to its investors. Triggering intense

competition, globalization coupled with liberalization, forced both private and

public firms to commit themselves to make available to their customers the

right material of right condition, at the right time and place at the lowest cost.

The World Bank, in a recent survey Connecting to Compete: Trade

Logistics in the Global Economy, has developed a Logistics Performance

Index (LPI) that can serve as a benchmarking tool for measuring performance

of businesses along a country‘s logistics supply chain. The Bank study asserts

that countries that are able to connect to the global logistics web would not

only have access to vast new markets but also remain a part of the global

trade growth. The report avers that it is not the income of nations but their

undergoing trade expansion that determines their logistics efficiency, as the

survey shows that nations with increasing trade (imports and exports) to GDP

emerged as the out-performers on the LPI scale relative to their income levels.

It also warns that those countries whose links with the global logistics chain

are weak are bound to face large and growing costs of exclusion from

international trade. India trails behind China on important indices such as

customs procedures, overall infrastructure quality, international shipment,

logistics competence and tracking of shipments, but is ahead of the latter on

the domestic logistics efficiency front. Healthy economic growth in India is

increasingly supported by robust industrial growth. One of the relatively

lesser known but significant sectors that support almost all industrial activity -

the logistics sector - is also witnessing this growth as a follow through.

However, not withstanding its importance and size ( 4 trillion), it has

traditionally not been accorded the attention it deserves as a separate sector in

itself.

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Extensive fragmentation meant the incapacity of industry players to

develop the industry as a whole and poor support infrastructure, such as roads,

ports and telecom, led to a situation where the opportunity to create value is

limited. However, much of this is changing with the government now

demonstrating a strong commitment towards providing an enabling

infrastructure and creating conducive regulations. There is a significant

current and planned investment in infrastructure to the tune of ( 15 trillion)

over the next few years and an increased emphasis on public-private

partnership. At the same time, regulations around rationalization of tax

structures and prevention of overloading for example are creating an

environment of positive change. Players now gave the opportunity to leverage

economics of scale, complemented with better infrastructure, to provide

integrated logistics solutions which are cost effective. In addition, the

evolving business landscape and increasing competition across industries, is

creating the need for more efficient and reliable logistics services than what

exist today. For example, rapid growth of organized retail and the need to

reach out to the large untapped rural markets in India are necessitating

development of strong back end and front end supply networks.

Fundamentally, a fragmented industry with low average scale - and

consequent limited investment and market development capability - is worst

placed to serve these needs. It is not surprising, therefore, there is a frantic

pace of consolidation and organic growth that the industry is witnessing while

logistics service providers are struggling to keep pace with the growth,

logistics service users with limited or no outsourcings are finding it

increasingly difficult and or undesirable to manage this non-core activity in

house. The result is a wide need gap that is seemingly widening much faster

than it is being filled. It is in this context that capability development of

logistics service providers assumes critical importance. While rapid

development across all dimensions of organizational capability will be

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required to achieve and sustain demand growth, Logistics, being a service

industry, manpower capabilities assumes utmost 5 importances. The sector

currently employs about 40 million people, a number that will rise rapidly

with exponential growth expectations in the sector. A look at the financials of

a set of 80 logistics companies in India across sectors reveals that manpower

spends comprise 8-10 percent of overall sales of the sector. This roughly

translates to about an INR 500 billion spend on logistics manpower in the

country annually. Only about 13 -14 percent of the overall manpower costs

are spent on non salary, manpower development items (welfare, training etc.).

This share for the unorganized companies would expectedly be much less. As

against this leading global logistics companies spend around 20 percent of

their employee expenditure on non-salary items. This lack of focus on

developing manpower and skills for the logistics sector has resulted in a

significant gap in the numbers and quality of manpower in the sector. This

gap, unless addressed urgently, is likely to be a key impediment in the growth

of the logistics sector in India, and in consequence, could impact growth in

industry and manufacturing sectors as well. This underscores the need for

identifying areas where such manpower and skill gaps are critical, and

developing focused action plans to improve the situation. In the next section,

we analyze each segment of the Logistics sector in India to identify the skill

gaps that exist in each. These gaps are then prioritized to identify key focus

areas, and the action that needs to be taken to bridge the gaps.

3.8 SIZE OF THE LOGISTICS MARKET IN INDIA

Indian Supply Chain and Logistics Industry is more than $ 100

Billion in size and is the backbone of Indian Economy. Our industry is

growing at a rate of 8-10% annually and has been a crucial contributor for the

growth and development of the Indian economy. In the near future,

Traditional Logistics Services like Transportation and Warehousing would

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continue to grow at a good rate. However, the big ticket growth would come

from the Value Added Logistics Services (VALS) in the near future. At

present, Outsourced Logistics accounts for only one-third of the total

Logistics market in India, which is a significantly lower proportion vis-à-vis

the developed markets. Growth in this industry is currently being driven in

India by over $ 300 billion worth of infrastructure investments, the phased

introduction of Value Added Tax (VAT), the development of organized Retail

and Agro-processing industries, along with a strong manufacturing growth. In

addition, we expect strong Foreign Direct Investment (FDI) inflows in the

Indian markets, which would lead to increased market opportunities for the

providers of Third-Party Logistics in India. Therefore, India possesses

substantial opportunities for growth in the Supply Chain & Logistics industry

in the coming years.

3.9 MAJOR PARTICIPANTS IN THE INDIAN LOGISTICS

INDUSTRY

The major participants in the Indian logistics industry are listed out

below

3.9.1 TNT Express

This company is a key leader in the international market in the

sector of global express services. The company ensures safe and on time

delivery of documents, freight and parcels. The company offers time and day

definite delivery in about 200 nations across the world. It operates 47 jet

freighter aircraft and 26,000 road vehicles and has a network of 2,300

companies.

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3.9.2 AFL

One among the acknowledged leaders among the logistics

companies in India is AFL. Through its domain of logistics services, the

company has delivered world class service in India. In 1979, the company

introduced the first ever courier service by forming an alliance with DHL

World Wide Express. The company offers services like Logistics and

warehousing, Courier Company and Custom Consultant.

3.9.3 DHL

This company is one among the major logistics companies in India.

It is globally a market leader in overland transport, air freight and

international express. The company ranks No.1 in the world in the contract

Logistics and Ocean Freight. The biggest Logistics and express network in the

world has a network in about 220 territories and countries, 72,000 vehicles,

350 Aircrafts, 36 hubs and 4,700 bases.

3.9.4 Blue Dart

This Logistics Company is South Asia's top integrated express, a

Package Distribution and Courier Company. The domestic network of the

company covers about 21,340 locations and provides service to 220 countries

sales alliance with DHL. It provides the best service like Free Pick up from

the location, regulatory clearances, real time tracking, free computerized

proof of delivery etc.

3.9.5 GATI

The company is a key leader in the arena of express cargo delivery

and a significant one in the supply chain management solutions and

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distribution in India, since 1989. This company provides services like Ware

Housing and Express Cargo. Logistics Solutions of the company are

Warehousing and Supply Chain Management. The Distribution Solutions of

the company are Gati Surface Express, Gati Coast to Coast and Gati Air

Express etc.

3.9.6 Self-Express

It is one of the largest express companies in India. This company

offers the best and integrated logistics solutions. In 2002, the Limca Book of

Records declared the company as the Largest Logistics Service Provider in

India. The company has a network over 550 locations in 28 states and in 7

countries.

3.9.7 Ashok Leyland

The leading provider of logistic vehicles for the Indian Army is

Ashok Leyland. It is a key leader in the tractor-tailers and multi axle trucks.

This company manufactures buses, trucks, engines and special application

vehicles in India. It is promoting a new company called Ashley Transport

Services Ltd., for exchange of information and integrated services related to

logistics in order to tackle the business of freight contractors.

3.9.8 Agarwal Packers and Movers

This popular Indian logistics company provides logistic services like

the home shifting, car packing etc. across India. The company believes in

keeping technology and people and of course heart and soul in the movement

of the individuals respective items. It offers quality service in transportation

and packing.

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3.9.9 DTDC

The biggest Domestic Delivery Network Company is DTDC. It

offers high class delivery service in about 3700 Indian locations and 240

international locations. It dispatches about 10 million parcels in a month. It

also offers low cost for bigger parcels to US, UK, India, Nepal, Dubai and

other places across the world.

3.9.10 First Flight

This logistics company in India specializes in courier services

worldwide. The multi-tracking programs of the company are Domestic,

International, First Wheels, First Wings and many others. The overseas

offices of the company are in Malaysia, Singapore, UK, US, UAE, Quatar and

Oman.

3.10 REASONS FOR THE DEVELOPMENT OF LOGISTICS

Logistics has forced the business organization to revaluate their

business process and the way of delivering the products and services to their

customers. The intense competition and facing the worldwide competition,

the improvement of logistics system should be advanced by both private and

government companies. Weeld and Roszemeijer (Ho, 1997) discerned three

revolutions in business that have substantial impacts on the purchasing and

supply strategies of the manufacturing sectors. These three revolutions are:

(1) the globalisation of trade; (2) the upcoming of the information era;

(3) more demanding consumers and their continuously changing consumer

preferences.

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The main characteristics of future logistics development are:

Government role: To keep competitiveness of industries, the

government has to lead the way to assist the logistics

industries. For instance, the idea of freight village of city

logistics provides the environment to promote logistics

efficiency and to reduce operation costs. However, it involves

large amount of investments and some problems relating to

laws and national policies. Without the lead and support of

government, achieving the plan is difficult.

Growth of international goods transport: The up-growth of

international freight transport is contributed by several factors.

Firstly, the blossoming of E-commerce pushes ahead the

international business activities. Secondly, the change of

production strategy needs international cooperation, e.g.

importing the semi-finished products from countries with

cheaper human resources to those with higher technology to

assemble the final goods. Thirdly, the pressure of globalised

market, such as World Trade Organization (WTO), pushes

local industries to promote themselves to reach an

international standard and face the worldwide competition.

Improvement of services: Providing a good customer service

becomes a necessary requirement or business operation facing

the intense competition with the global market. The quality of

services is the main factor to affect consuming behavior

among the enterprises with high similarity. The service

systems, at present involve several developed techniques, such

as Efficient Consumer Response (ECR) and Quick Response

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(QR). In the near future, more new techniques would be

applied in providing better services for customers.

Revolution of logistics operation: IT techniques and its

products bring efficiency and fluency to the logistics systems.

Radio Frequency ID (RFID) is one of these techniques. The

main difference between the bar-code system and the RFID is

that RFID does not need the action of scanning the barcode on

goods whereas it is necessary to scan barcode in the barcode

system. RFID could save manual operation time dramatically.

RFID systems could sense the amount of goods input in the

tags automatically and immediately when the costumers push

their trolley through the exit (Carroll, 2004).

Shorter product life cycle: With the current trend, the

merchandise design is changing day by day. Therefore the

product life cycle becomes outdated within a short period

especially with the products related to computer science

technology. To confront the impacts, logistics system must

improve its efficiency and reliability of goods delivery.

Otherwise an inappropriate logistics system would hinder the

competitiveness of new products and the business profits.

Improvement of logistics facilities: The advancement and

development of logistics are based on several techniques and

complete theories. High-tech facilities and systems, e.g. ITS,

could bring more possibilities and advantages to logistics. For

example, the improvement of related facilities, e.g. Forklift

Trucks, is necessary for transport efficiency. In the future,

factory automation is the main target for the whole supply-

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chain procedures. It could help to improve efficiency and also

reduce the operation costs.

Channel cooperation between companies: In order to save

the logistics costs, a key concept is necessary to maximize the

usage of available transport capacity. Integrating the logistics

demands between numerous departments helps to achieve this

purpose. In practice, a conglomerate could develop its own

logistics service for the branches. For some medium size

companies, they could co-operate transport channels with

others.

Specialized logistics delivery: One of the notable trends of

logistics industries is the specialized delivery service. For

instance, delivering fresh food from the place of origin needs

low-temperature containers. Computer chips, gases and

petroleum need particular conveyances to carry. These

demands are rising since the products became more and more

delicate.

Logistics centres: The development of logistics centres is

good for promoting Logistics industry and for the

development of national economic system. As the Logistics

centres could successfully shorten the distance between

production and marketing vertically it can integrate various

industries horizontally as well as it can decrease the costs.

Governments can propose special areas for storehouses and

logistics to reduce land acquisition. The future logistics will

co-operate e-commerce, the Internet and the newly door-to-

door service to create new business prospects.

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Freight transport: The alliance between middle and small

size delivery companies is an important trend in the future.

The strategy could help to expand service areas and increase

service quality, and meanwhile raise the loads of single trips

to reduce delivery costs.

3.11 CHALLENGES OF LOGISTICS INDUSTRY

The following problems which are existing in the Indian Logistics

Industry make it unattractive for investments and also create entry barriers for

the new entrants.

Logistics is a high-cost, low-margin business. The problem

and the real threat to the organized players is the unfair

competition with unorganized players, who are all exempted

from paying taxes and following operating norms stipulated in

the Motor Vehicles Act such as quality of drivers and

vehicles, volume and weight restrictions, etc.

Economies of scale is absent in the Indian logistics industry.

Even the organized sector that contributes to more than 1% of

the logistics cost, the marketing system of Logistics Industry

highly fragmented. Existence of the differential sales tax

structure is also brought in diseconomies of scale. Though

VAT (Value Added Tax) has been implemented since April 1,

2005, failure in implementation of a uniform VAT structure

across different states in India has let the problem persist even

today.

Apart from the non-uniform tax structure, Indian LSPs have to

pay numerous other taxes, octrois, and face multiple check

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posts and police harassment. High costs of operation and delay

are involved in compliance with varying documentation

requirements of different states of India which make the

business unattractive. On an average, a vehicle on Indian road

loses 24-48 hours in complying with paperwork and

formalities at different check posts en route to a destination.

Fuel worth $ 2.5 billion is spent on waiting at check posts

annually. A vehicle that costs $ 30,000 pays $ 7,500 per

annum in the form of various taxes, which include the excise

duty on fuel. This is why freight cost is a major factor of

increasing the cost of a product in India.

There is a lack of trust and awareness among Indian shippers

with regard to outsourcing logistics. The volume of

outsourcing by Indian shippers is presently 10% low

compared to the same for the developed countries. The

unwillingness to outsource logistics on part of Indian shippers

may be attributed to skepticism about the possible benefits,

perceived risk, losing control of sensitive organizational

information, and vested interest in keeping Logistics activities

in-house.

Indian shippers expect LSPs to own quality assets to provide

more value-added services to act as an integrated service

provider, to institute world-class information systems for more

visibility and to be in real-time tracking of shipments. Though,

they pay little attention to timely payments that leave LSPs

short of adequate working capital, they are unwilling to match

the same with increased billings.

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Indian freight forwarders face stiff competition from multi-

national freight forwarders for International Freight

Movement. MNCs, because of their size and operations in

many countries, are able to offer low freight rates and to

extend credit for long periods. Indian freight forwarders, on

the other hand, because of their smaller size and lack of access

to cheap capital, are not able to match the same. Moreover,

clients of MNCs often want to deal with a single service

provider especially for FOB (Free on Board) shipments which

most of the time happens with the multi-national freight

forwarders. This is a sort of non-tariff barrier imposed on

Indian freight forwarders.

Poor physical and communications infrastructure is an another

deterrent which discourages the Indian investors’ interest to

invest in the Logistics sector. Road transportation accounts for

more than 60% of inland transportation of goods, and

highways that constitute 1.4% of the total road network carry

40% of the freight movement by roadways. Slow movement

of cargo due to bad road conditions, multiple check posts and

documentation requirements, congestion at seaports due to

inadequate infrastructure, bureaucracy, red-tappizm and delay

in government clearances coupled with unreliable power

supply and slow banking transactions, make it difficult for

exporters to meet the deadlines for their international

customers. To expedite shipments, they have to book

airfreight, which along the cost of shipments, make them

uncompetitive in international markets. Moreover, many large

shipping liners avoid Indian ports for its high cost and long

turnaround times which causes delays in loading/unloading

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the products and hence Indian exporters have to resort to

transshipments at ports such as Singapore, Dubai and

Colombo.

Low penetration of IT and lack of proper communications

infrastructure result in delays, lack of visibility and real-time

tracking ability. Unavailability and absence of a seamless flow

of information among the constituents of LSPs create a lot of

uncertainty, unnecessary paperwork and delays, lack of

transparency in terms of cost structures and service delivery.

For example, a shipper has to pay a higher freight rate if it

cannot ensure return load. At present, there is no real-time

process by which a shipper may know about the availability of

the trucks and going rates at the destination marketed,

therefore it has to pay more. The market information available

to both the shipper and the service provider, the service

provider’s cost structure would have been transparent to the

shipper and it would have ended paying the actual market rate.

Since most of the LSPs are of relatively small in size, they

cannot provide the entire range of services. However, shippers

would like the service providers to offer more value-added

services and a single-stop solution to all their logistical

problems. The inability of service providers to go beyond

basic services and provide value-added services such as small

repair work, kitting/dekitting, packaging/labeling, order

processing, distribution, customer support, etc. has not been

able to motivate shippers to go for outsourcing in a big way.

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Service tax levied on logistics service fees (currently 12.36%

with educational cess) may make outsourcing costly and

outweigh the possible benefits.

There is a lack of skilled and knowledgeable manpower in the

logistics sector. Management graduates do not consider

logistics as a prime job. To improve the status of the industry,

service providers have to move beyond the level of brokers

and truckers to attract and retain talent.

3.12 MARKET FOR LOGISTICS INDUSTRY

The business is expected to grow for the following reasons:

India is the only economy projected to grow at over 5% annually

through to 2050 (Source: Goldman Sachs) India’s overall retail sector is

expected to grow at a 10% CAGR to $833 billion by 2013 and $1.3 trillion by

2018 (Source: IBEF). Many Japanese, French and American automobile

companies have established manufacturing bases in India for onward export.

India’s cumulative exports grew 3.4% in 2008-09: from $163,132 million to

$168,704 million which is 16.9% in rupee terms. Cumulative 2008-09 imports

increased 14.3% in dollar terms from $251,654 million to $287,759 million

which is 29% in rupee terms. The country's share in global trade is expected

to grow from 1.5% to 5% by 2020, indicating opportunities in the logistics

industry. With the government’s infrastructural development initiatives like

Golden Quadrilateral Project (investment in East-west and North-south

Corridors, connecting four major metros), Rail Freight Corridor, Free Trade

and Warehousing Zones (FTWZ) with 100% FDI and PPP in infrastructure

development in ports and roads, it is expected that investments in the logistics

sector will increase. The cumulative incidence of the excise duty and State

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VAT works out from 22% to 24% of the retail sales price. With the

introduction of GST in 2010, the aggregate incidence of tax will be lower,

strengthening the logistics industry, especially warehousing.

Businesses are emphasizing their core competencies and

outsourcing support and incidental activities, increasing the demand for 3PL.

The population of the country increased by 1.6 crore to 115.4 crore in 2008-

09. The per capita growth income from 12.2% to 25.3% in 2008-09, indicates

an increase in disposable income, which will lead to a higher demand of

eatables/food, which, in turn, will propel the demand for warehousing and

supply chain solutions. India’s freight industry is expected to grow at 10

percent by 2014 and the air freight sector is set to expand by 8.5 percent by

2020. India’s Logistics Sector is projected to grow from Rs 4,000 billion to

Rs 5,000 billion by 2010 and to Rs 7,500 billion by 2012 (Source:

Assocham). It is supported by a rapid growth in the manufacturing and

service sectors, substantial domestic and international freight growth,

consumption proliferating in Tier II and Tier III cities and the government’s

proposal to invest $17 billion in the transportation infrastructure by 2010.

3.13 LOGISTICS INDUSTRY – A PARADIGM SHIFT

In the new millennium, globalization is making national economy

more and more integrated into the global economy. World trade is expanding

at an exponential rate. Technologies are advancing and becoming an

integrating force. Customer demand value for their money. Marketers are

experiencing Competitive pressure. Businesses are struggling not only for

growth but also for survival. This has forced business organization around the

world to re-evaluate their business processes and the way they deliver the

products and services to their customers. The intense competition and

proliferation of the product and service varieties have resulted in volatility in

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market demand, and hence it has become necessary for companies to manage

uncertainty. Business firms around the world have started looking beyond the

organizational boundaries to improve upon cost, quality, reliability,

responsiveness, and relationships to manage uncertainty. In order to survive

and remain profitable, both manufacturing organization and trading

companies worldwide concentrate on the core competencies and are

outsourcing peripheral processes and intermediate products. Global buying

and sourcing practices have undergone total change over the past few years.

This has resulted in international supply chains and innovative logistics

management practices that are vastly superior, both qualitatively and in terms

of scale economics. Products today are sourced from different parts of the

world. They are assembled at different locations, shipped to various

destinations to ensure greater customer satisfaction and to eliminate

unnecessary time and cost from the supply chain cycle. These trends resulted

in numerous marketing opportunities worldwide through expanded global

supply chains and enhanced competitiveness. The pursuit of growth and the

need to access new markets have been propelling companies around the world

to search for a sustainable competitive advantage. This has led the companies

to greater customer consciousness and to the need for cost effectiveness. The

global nature of business has forced companies to recognize critical role of

back-end operations of a logistics supply chain in today’s dynamic business

environment. As business firms are focusing on production, marketing,

finance, a greater attention is required to achieve customer satisfaction

through effective and efficient logistics. Due to advancement in information

and communication technologies, logistics has become an integral part of e-

commerce and e-business. Like an army on a war front, the business warriors

on a market front are powerless without a proper logistics backup. Logistics is

a source for core competency and a tool for developing competitively

advantaging today’s customer-driven, market-oriented economies. Hence,

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business firms today cannot afford to ignore the crucial role of logistics in the

supply chain of a business. If this is ignored, there will be a trouble for the

business firm not only for the growth but also for survival.

3.14 PROFILE OF THE STUDY AREA

Tamilnadu State is situated at the South Eastern extremity of the

Indian Peninsula bounded on the north by Karnataka and Andhra Pradesh, on

the east by Bay of Bengal, on the South by the Indian Ocean and on the West

by Kerala State. The State can be divided broadly into two natural divisions

(a) the Coastal plains of South India and (b) the hilly western area. Parallel to

the coast it is gradually rising from the broad strip of plain country. It can

further be subdivided into coromandel plains comprising of the districts of

Kancheepuram, Thiruvallur, Cuddalore and Vellore.

The alluvial plains of the Cauvery Delta extending over Thanjavur

and part of Tiruchirapally districts, and dry southern plains in Madurai,

Dindigul, Ramanathapuram, Sivaganga, Virudhunagar, Tirunelveli and

Tuticorin districts. It extends a little beyond Western Ghats in Kanyakumari

District. The Cauvery Delta presents some extremely distinctive physical and

human features. Its power being a main factor in the remarkable growth, the

towns of Tamilnadu have witnessed. It is associated intimately with the life of

all its border regions. In the east, the low country 500 feet below, varies from

50 to 80 miles in width. This plain extends almost up to the feet of the Ghats

and only minor elevation can be found here and there. For instance the

Valanad hills. The Eastern Ghats enters the State from Andhra Pradesh in the

north cuts across the State and merge with The Nilgiris Hills on the Western

Ghats. The region is bounded on South-West by the crest of the Cardamom

hills and on the North-West by the slopes of the plateau. The region is in the

form of a Rhombus and the longer diagonal of its stretches from the Pulicat

lake in the north to Cape Comorin in the South and the shorter diagonal from

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the Palghat in the west to point calimere in the east. The State has an

uninterrupted coastline of 922 Kms. It includes the coastline of Pondicherry

and Karaikkal. The coastline has a lengthy boundary on the east. Not a single

natural harbour capable of accommodating ocean - going vessels can be found

on the coast. Madras City has an artificial harbour. While it is a major Port

and Tuticorin a medium one, several smaller ports like Cuddalore,

Nagapattinam and Colochel are also found in Tamil Nadu.

3.14.1 Location

The State Tamil Nadu is geographically located between 8°5' and

13°35' North latitude and between 76°14' and 80°21' East longitude. It is

situated at the South Eastern extremity of the Indian Peninsula bounded on the

north by Karnataka and Andhra Pradesh on the east by Bay of Bengal, on the

South by the Indian Ocean and on the West by Kerala State.

3.14.2 Soil and Rainfall

The soil of the state varies from red sandy to black and alluvial. The

state in general has a semi arid climate with scanty rainfall. The normal

rainfall of the state is 945.0 mm.

3.14.3 Climate

Tamilnadu has an equatorial, tropical climate in the inland and an

equatorial, maritime climate in its coastal regions. In the inland, the

temperature may go to extreme in some places while it tends to be moderate

in the coastal areas. By and large, the average temperature for most parts of

the state ranges between 28°C and 40°C in the summer season and between

18°C and 26°C in the short-lived winter seasons. In the more hilly terrain, the

maximum temperature may be as low as 26°C and the minimum temperaturemay go down to 3°C.

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3.14.4 Administrative Set – Up

Tamil Nadu State has at present 32 Districts, which in turn are

further bifurcated into smaller divisions and sub-divisions, including a total of

16,317 villages. The state capital, Madras now renamed, as Chennai is the

fourth largest city in the Indian Sub-continent and 30th largest city in the

world. It extends over an area of 174 sq. km. District Collector is the Head of

the District Administration. Districts are divided into Taluks for the purpose

of Revenue Administration. Tahsildar is the Head of Taluk Level

Administration. Taluks consist of a group of Revenue Villages. Development

administration in a district is co-ordinated by the Panchayat Unions (also

called as Blocks) for the rural areas. Panchayat Unions consist of a group of

Panchayat Villages. In the case of urban areas, the development

administration is taken care by the urban local bodies. The urban local bodies

are called as Municipal Corporations. Municipalities and Town Panchayats

depend on the size of the town. The names of the districts are as follows:

Table 3.1 The Name of the Districts

Sl.No.

District Name

No.ofTaluks

No.ofBlocks

No.of TownPanchayats

No.ofMunicipalities

MunicipalCorporations

1 Ariyalur 3 6 2 2 -2 Chennai

(TN State HQ) 5Nil

(UrbanDistrict)

- - Chennai

3 Coimbatore 6 12 44 7 Coimbatore4 Cuddalore 6 13 16 5 -5 Dharmapuri 5 8 10 1 -6 Dindigul 8 14 24 3 -7 Erode 5 14 53 11 Erode8 Kancheepuram 8 13 24 10 -9 Kanniyakumari

(HQ at Nagercoil)4 9 56 4 -

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Table 3.1 (Continued)

10 Karur 4 8 11 4 -11 Krishnagiri 5 10 7 2 -12 Madurai 7 13 12 6 Madurai13 Nagapattinam 7 11 8 4 -14 Namakkal 4 15 19 5 -15 Perambalur 3 4 4 1 -16 Pudukkottai 9 13 8 2 -17 Ramanathapuram 7 11 7 4 -18 Salem 9 20 33 4 Salem19 Sivaganga 6 12 12 3 -20 Thanjavur 8 14 22 321 The Nilgiries

(HQ atUdhagamandalam)

6 4 11 4 -

22 Theni 5 8 22 6 -23 Thiruvallur 8 14 13 12 -24 Thiruvarur 7 10 7 4 -25 Thoothukudi 8 12 19 3 -26 Tiruchirappalli 8 14 17 3 Tiruchirappalli27 Tirunelveli 11 19 36 7 Tirunelveli28 Tiruppur 6 13 17 7 Tiruppur29 Tiruvannamalai 7 18 10 4 -30 Vellore 8 20 22 14 -31 Villupuram 8 22 15 3 -32 Virudhunagar 8 11 9 7 -

3.14.5 Demographic profile of Tamil Nadu State

As per 2011 census, the total population of the Tamilnadu state was

72, 138,958 which constitutes about 6.07 percent of the total population of

India. The density of population is around 555 persons per sq. km as against

the 679 in the nation. The decadal growth rate of population of Tamil Nadu is

11.7% as against 21.5% for the country. Of Tamil Nadu’s total population of

62.41 million, 56% reside in the rural areas. The population of scheduled

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caste and scheduled tribes constitutes 36.04 percent of the total population of

the state. As per the 2011 census, the occupational pattern of the state shows

that there are 47,38,819 cultivators and 60,62,786 agricultural labours. Out of

the total 2,787,8282 workers, 2574844 workers have been engaged in the

allied agricultural activities and 1,269,5119 workers have been engaged in

non- agricultural industries such as cottage and household industries, trade

and commerce.

3.15 RIVERS

The agricultural activity in the state is well supported by some

perennial rivers. The Western Ghats form complete water shed and no river

pierces through them. The main stream viz., Paralliyar and Vattaseri

Phazhayar are 37 and 23 miles respectively in length and fall in the Arabian

Sea. All the other rivers are east flowing rivers. The Eastern Ghats are not a

complete watershed and as a result the river pierces through them and notable

among them is the river Cauvery.

3.15.1 Cauvery

The river is 475 miles long and drains an area of 28,000 square

miles. It takes its origin on the Brahmagiri in Coorg in the Western Ghats.

After travelling some distance in Karnataka State, the river enters Tamil

Nadu. Across the river a huge reservoir called the Mettur Dam has been

constructed. Near Tiruchirapalli, there is a Dam called “Grand Dam”. The

Cauvery has been so well utilised that its drainage channel, the Coleroon is

always dry. The tributaries of the river Cauvery are Bhavani, Amaravathi and

Noyal.

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3.15.2 Vaigai

This is the second most important river in Tamil Nadu. It originates

process from Varushanad hills and receives much of the drainage from the

upper and lower plains. The river has been dammed in Madurai close to Theni

and there is also a dam at Anaipatti in Manamadurai.

3.15.3 Thamiraparani

This river which is 70 miles long, rises in the southern portion of the

Western Ghats and drains an area equal to 1937 Square miles. The valley of

the river contains some of the richest lands in the State. The chief tributaries

of the river are Ramanadhi, Ghatana, Pachaiyar and Chittar.

3.15.4 Palar

The river Palar rises in Nandi Hills of Kolar, Karnataka State. It is

182 miles long and runs through Chingleput and North Arcot districts. Its

chief tributaries are Cheyyar and Ponni.

3.15.5 Ponniyar

This river rises very near to Nandi Hills in Karnataka State. It enters

Tamil Nadu near Dharmapuri and rust 200 miles before joining sea near

Pondicherry with a drainage area of 620 square miles. The river has no delta

on its mouth.

3.15.6 Vellar

This river raises in Kalrayan hills flows in the eastern districts and

joins the Sea near Port- Nova. The length of the river is 134 miles and drains

an area of 266 square miles.

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3.15.7 Small Rivers

Among the small rivers worth mentioning in the context is

Couralayar, which flows from the surplus waters of Kaveripakkam tank. The

river runs through Chennai City and joins the sea.

3.16 AGRICULTURE

Agriculture and allied activities, the single largest sector, act as a

growth engine by ensuring food and nutritional security to the masses besides

providing raw-materials to agro-based industries and also providing

employment and thereby income to the rural folk of the State and Indian

Economy. Agriculture in TamilNadu has undergone major structural changes

in terms of the share of allied sectors in agriculture. The Share of Agriculture

and allied activities in Gross Domestic Product (GDP) accounted for 17.1

percent during 2008-09. Agriculture and logging alone had shared 16.3

percent and the share of Forestry and Fishing accounted for 0.7 percent and

0.8 percent respectively. The share of agriculture sector in providing

employment accounted for 52 percent at the national level and the

performance of agriculture sector is a helping hand for the growth engine of

the Indian Economy. Tamil Nadu shares about 4 percent in respect of the

geographical area, 7 percent of population and 3 percent of water resources of

the country. The gross cropped area in 2008-09 accounted for about 39

percent of the total geographical area, of which 56 percent of the land was

irrigated. The contribution of agriculture (including allied activities) of the

State to the Gross State Domestic Product (GSDP) at Constant prices

accounts for 9.4 percent in 2008-09. However, the agriculture sector ensures

household food security and brings forth equity in distribution of income and

wealth which would result in the reduction of poverty. For achieving the

target of 4 percent of agricultural growth as envisaged in the XI Five Year

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Plan Period (2007-2012), agriculture is being focused on the State since 2007-

08. Following table summaries the agricultural production in Tamilnadu:

Table 3.2 Types of Crops Grown

Crops

Index No. of Crops

Area Production Productivity

I Food Crops A . Cereals

1 Paddy 93.1 77.6 83.32 Cholam 63.2 45.5 72.13 Cumbu 36.2 37.4 103.14 Ragi 64.0 42.4 66.45 Maize 530.5 390.2 73.66 Korra 26.2 29.2 111.37 Varagu 15.2 14.7 96.28 Samai 38.1 30.8 80.9

A: Total Cereals 86.0 76.1 82.7B . Pulses

9 Bengal Gram 84.3 88.2 104.710 Red gram 35.2 35.8 101.711 Green Gram 112.1 85.2 76.112 Black Gram 83.1 56.3 67.713 Horse Gram 48.7 37.5 77.1 Total Pulses 73.6 58.4 71.2

Total Food Grains(A+B)

84.0 75.3 82.2

C. Spices & Condiments14 Chilly 66.6 77.1 115.715 Garlic 41.5 42.2 101.816 Coriander 46.0 60.1 130.417 Turmeric 163.2 161.1 98.818 Tamarind 134.6 139.8 103.819 Arecanut 176.6 243.0 137.6

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Table 3.2 (Continued)

20 Cardamom 87.7 89.1 101.921 Ginger 97.6 101.0 20.722 Pepper 130.7 145.0 110.9

Total 80.4 122.9 82.9D . Fruits & Vegetables

23 Banana 126.9 195.2 153.924 Mango 202.1 146.6 72.625 Cashew nut 142.7 83.1 58.126 Potato 93.0 61.0 65.627 Tapioca 155.6 169.9 109.228 Sweet Potato 59.9 62.6 104.529 Onion 119.1 117.8 99.0

Total 150.4 176.5 127.430 Sugarcane 143.1 142.5 99.7

Total Food Crops 91.6 108.9 97.6II Non - Food Crops

E . Oil Seeds31 Groundnut 5387 64.0 118.832 Gingelly 46.6 49.0 105.233 Coconut 187.5 185.8 99.134 Sunflower 54.3 93.2 171.735 Castor 29.2 31.1 106.5

Total 69.8 104.5 106.4F. Plantation Crops

36 Tea 117.3 31.3 26.637 Coffee 93.0 116.1 124.838 Rubber 90.7 198.2 218.4

Total 105.4 65.2 59.4G . Others

39 Cotton 43.6 39.1 89.540 Tobacco 61.4 63.6 103.7

Total Non Food Crops 68.5 99.8 101.5Source: Season and Crop Report of Tamilnadu 2010-2011, Directorate of

Economics and Statistics, Chennai.

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3.17 ANIMAL HUSBANDRY

The Animal Husbandry Department has contributed immensely to

live-stock development in Tamilnadu. The livelihoods of most rural and low

income communities in Tamilnadu are to a large extent based on agriculture

/livestock/poultry. The animal husbandry sector plays a vital role in providing

subsidiary employment to rural folk and guaranteed household income to

landless agricultural labourers, small and marginal farmers. The majority of

livestock population in the State is concentrated in villages. Animal

Husbandry also contributes to many other social spin offs like slowdown of

rural- urban migration, the empowerment of women and protection of the

environment. Livestock and poultry sectors are increasingly important in the

growth of agriculture in Tamil Nadu.

3.18 TRADE AND INDUSTRY

Tamil Nadu is well ahead in the industrial activities through

dispersing industrialization. The State attracts foreign direct investment to

strengthen the capital in the industrial sector. To promote the industrial

activities in dynamic, the State is creating a favorable industrial climate in the

State by announcing Industrial Policies, IT Policies from time to time and

provides industrial assistances to the entrepreneurs.

Tamil Nadu Gross Domestic Product for 2011 is estimated at $

97.970 Billion in current prices. The state experienced a GDP growth rate of

12.1% for 2007-08. It was the third largest economy (2007–2008) among all

states in India, and also the most industrialized state in India. It ranks third in

Foreign Direct Investment meant (FDI) approvals (cumulative 1991–2002) of

225,826 million ($5,000 million), next to Maharashtra and Delhi constituting

9.12% of the total FDI in the country. The per capita income in 2007–2008

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for the state was 43,000 ranking second among the South Indian states and

steadily been above the national average.

According to the 2001 Census, Tamil Nadu has the highest level of

urbanization (43.86%) in India, accounting for 6% of India’s total population

and 9.6% of the urban population and it is the most urbanized state in India.

Services contribute to 45% of the economic activity in the state, followed by

manufacturing at 34% and agriculture at 21%. Government is the major

investor in the state with 51% of total investments, followed by private Indian

investors at 29.9% and foreign private investors at 14.9%. Tamil Nadu has a

network of about 113 industrial parks and estates offering developed plots

with supporting infrastructure. According to the publications of the Tamil

Nadu government the Gross State Domestic Product at Current Prices (Base

year 1999–2000) for the year 2008–2009 is 339,212 crores. The current

percapita income is 51, 097.

3.19 EDUCATIONAL FACILITIES

Tamil Nadu is one of the most literate states in India. Tamil Nadu

has performed reasonably well in terms of literacy growth during the decade

2001–2011. The state's literacy rate increased from 73.47% in 2001 to 80.3%

in 2011 which is above the national average. A survey conducted by the

Industry body Assocham ranks Tamil Nadu a top among Indian states with

about 100% Gross Enrollment Ratio (GER) in primary and upper primary

education. One of the basic limitations for the improvement in education in

the state is the rate of lack of teachers in public schools, which at 21.4% is

significant. The analysis of primary school education in the state by Pratham

shows a low drop-off rate but poor quality of state education compared to

other states. Tamil Nadu has 40 universities, 20 Medical Colleges, 455

Engineering Colleges, 449 Polytechnic Colleges and 1150 Arts and Science

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Colleges, 34335 Elementary Schools, 5167 High Schools, 5054 Higher

Secondary Schools and 5000 Hospitals some of the notable Educational

Institutes present in Tamil Nadu are as follows:

Table 3.3 The Notable Educational Institutions in Tamil Nadu

S.No. The Name of the Institution/University Place1 Amrita Vishwa Vidyapeetham Coimbatore

2 Anna University Chennai

3 College of Engineering Guindy

4 Coimbatore Institute of Technology Coimbatore

5 Ethirai College for Women Chennai

6 IIT Madras Chennai

7 Loyola College Chennai8 Madras Medical College Chennai

9 Madras Christian College Chennai

10 Madurai Medical College Madurai

11 NIT Trichy

12 PSG College of Technology Coimbatore

13 SRM University Chennai

14 St.Xavier College Palayamkotai15 Thigarajar College of Engineering Maduari

16 The American College Maduari

17 Tamil University Thanjavur

18 Thanjavur Medical College Thanjavur

19 Tamil Nadu Agricultural University Coimbatore

20 Thigarajar College of Engineering Maduari

21 Thirunelveli Medical College Thirunelveli22 V.O.C.College Tuticorin

Sourse: TamilNadu-Government.

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INDIA POLITICAL MAP

77

TAMIL NADU MAP

3.20 CONCLUSION

It is well understood that logistics is the driver for the growth of

Indian economy. The financing effect of supply chain system can enhance its

effectiveness and gain the appreciation of capital flow and man of system's

financing amount. Also, this area is a complex operating system with dynamic

features. The current slow development of domestic financial services to

some extent affects the development of modern logistics. Also there are

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several limitations in the application of the logistic financial rating theory, as

it requires the continuous financial data to follow a logistics distribution,

some of the conclusions tell that design of intermediation warehouses,

application of international settlement and ways to build logistics banks will

be the focus in the future development of logistics. Also, logistics finance

business has an important significance for setting the financing difficulties of

small and medium sized enterprises.

Logistics finance cannot only solve manufacturing firm's bottleneck

problem of financing, but also the condition for banking industry’s financial

innovation. But, with the development of logistics, the firms in the logistics

chain, especially the choices small and medium enterprises, find it very

difficult to get the financial support from the bank. Also, this area is an

innovative financial solution. This logistic finance, as a new service business

is gradually rising, involving 3 main entities namely small & medium sized

enterprises, logistic enterprises and banks.

Also, inventory pledge financing is the core mode of Logistic and

supply chain finance in which can effectively solve financial bottlenecks in

supply chain.

Though, the Indian logistic industry suffers from the challenges of

high-cost and low-mergers Business, absence of economics of scale, payment

of numerous taxes, lack of trust and awareness among Indian shippers, poor

physical and communication infrastructure low penetration of IT.