Infrastructure Challenges for Logistics in India and Overcoming Them

For India to become a $5 trillion economy by 2027, the country needs a highly efficient and robust logistics and transport infrastructure. This strategic capacity building will not only boost economic growth in the short term but also enhance long-term development on the shoulders of local manufacturing and global exports.

Currently, India’s supply chain and logistics sector faces many challenges, from fragmented warehousing operations to inadequate road infrastructure and urban congestion, that stand in the way of smooth operations and productivity.

Despite these obstacles, however, the sector remains resilient. Here we explore key logistics infrastructure challenges and how the sector is overcoming them progressively to deliver streamlined, scalable, and sustainable solutions.

Fragmentation and Unorganised Players

The Indian warehousing industry is dominated by numerous unorganised operators, who collectively manage a significant share of storage facilities. They often own standalone, uncompliant facilities and lack the resources to invest in modern technologies, advanced infrastructure, or standardised practices, which leads to operational inefficiencies, inconsistent service quality, and limits in scalability. About 35-40% of India’s warehousing sector is classified as Grade A while the rest is dominated by the fragmented players.

Many domestic (national and regional) and global institutional logistics and real estate firms have identified this as an opportunity to step in and consolidate operations by acquiring smaller entities and upgrading them to match world class.. Additionally, government initiatives, such as the GST reducing state-level tax complications, have been instrumental in encouraging the transition from fragmented regional operators to more centralised, organised warehousing hubs.

Additionally, the emergence of secondary warehousing markets in Tier-II and Tier-III cities offers another growth avenue. Policies are also becoming favourable for private investment in logistics, logistics real estate, renewable energy, and data centers to decrease government expenditure on warehousing infrastructure and support economic growth.

Positive trends are seen in the absorption of Grade A facilities in 2024, according to a recent Knight Frank report. According to industry experts, Grade A warehouses account for 60-70 per cent of total warehousing market demand while contributing 40 per cent of pan-India stock. The vacancy rates for Grade A warehouses are projected to remain below 5 per cent in the coming years.

Road & Port Infrastructure Challenges

India’s logistics industry heavily relies on road transport, which accounts for around 60% of the freight movement in the country. However, poor road and port infrastructure, coupled with urban congestion, significantly hampers the efficiency of logistics operations. Delays caused by traffic congestion on urban roads cost the Indian economy an estimated $22 billion annually in fuel and lost productivity.

India is actively addressing these challenges through large-scale infrastructure development initiatives. The government has increased capital allocated to logistics infrastructure projects. It has committed a record 11.11 trillion rupees ($132.85 billion) on infrastructure in the financial year ending March 2025. Through the Logistics Efficiency Enhancement Programme (LEEP), India aims to improve freight transport efficiency with infrastructure technology and process interventions The Bharatmala Pariyojana, a $130 billion highway development program, aims to enhance road connectivity and improve the efficiency of freight movement across the country. Under this program, 35 multi-modal logistics parks (MMLPs) have been developed to provide world-class infrastructure for warehousing, connectivity, and value-added services and integrate them with the transport modes. Simultaneously, the government’s focus on infrastructure development through the PM Gati Shakti National Master Plan is improving connectivity across industrial parks and freight corridors, boosting the efficiency of logistics operations.

The new warehousing policy introduced in 2021 aims to reduce transportation and logistics costs by encouraging the development of warehouse clusters outside city centres and along highways through public-private partnerships (PPPs). The Make in India campaign and Production Linked Incentive (PLI) schemes have further accelerated investments in warehousing infrastructure, fostering the growth of modern, Grade-A facilities.

In the private sector, logistics companies are also leveraging technology to further enhance freight transport efficiency. The use of route optimisation software and predictive analytics helps minimise delays and reduce fuel consumption.

Land Acquisition Challenges

Procuring large tracts of land for warehouses, multi-modal parks, and logistics hubs is difficult due to high costs, fragmented ownership, and complex legal procedures. Acquiring land in urban and semi-urban areas can take years, delaying projects and driving up costs.

The recent surge in land acquisition for real estate development in India’s urban and rural areas has caused a land rush and increased competition for strategic land parcels.

Challenges in land acquisition in the satellite areas of Tier I cities result from high land prices and landowners who are unwilling to negotiate on pricing. Private firms are required to negotiate with multiple owners, which causes delays and they can’t negotiate from a position of advantage. Obtaining land approval is another major challenge, and the opacity of clear land titles is an even bigger risk for companies looking to acquire land in India.

To counter this, the National Logistics Policy (NLP) aims to introduce land reforms, provide faster clearances, and bring in digital mapping tools. It also seeks to establish a single-window e-logistics market and streamline coordination between the Union and State governments.

To address these challenges, several initiatives are underway.

Economic Pressures and Market Dynamics

The warehousing and logistics sector in India faces mounting pressure from rising operational costs, due to inflation and volatile fuel prices. Diesel prices account for up to 60% of logistics costs in India, making freight companies particularly vulnerable to price hikes. Furthermore, intense competition limits the ability of operators to pass on these increased costs to customers, eroding profit margins. Smaller operators, in particular, struggle to stay afloat under such financial strain.

Government’s introduction of the GST has simplified tax structures with the aim to reduce the overall cost of warehousing and transportation.

Third party logistics companies are transitioning to asset-light models by outsourcing fleet and warehouse management. This strategy allows them to reduce fixed costs and focus on core operations. Additionally, the adoption of green logistics practices, such as the use of electric vehicles (EVs) and renewable energy in warehouses, is helping companies cut down on fuel and energy costs.

Skilled Labour Shortages

While the logistics industry in India is grappling with rising input costs on one hand, including fuel, electricity, and wages, simultaneously, there is also a significant shortage of skilled labour, particularly in advanced roles like warehouse automation and supply chain analytics. Only 4.7% of the 22 million employees in the logistics sector are formally skilled. Additionally, the logistics sector faces a separate 20% deficit in truck drivers, with only 80,000 available compared to the 100,000 needed. The aging logistics workforce is further leaving a gap as experienced professionals retire leaving behind a younger talent who is deterred by the perception of logistics as less appealing and lucrative compared to tech or finance sectors.

To address these issues, public and private entities are investing in skill development programs. Universities and online platforms are beginning to expand access through certification programs and industry partnerships, including Logistics Sector Skill Council (LSSC) initiatives, under the National Skill Development Corporation. This initiative provides specialised training for roles like warehouse supervisors, truck drivers, and supply chain managers. The Union Budget further announced a centrally sponsored skilling scheme as part of the Prime Minister’s package, targeting 2 million youth with Rs 60,000 crore in funding. Several logistics companies like have their own training centres, on-the-job programs, and leadership development initiatives to address skill gaps.

To combat the rising manpower costs, attrition and skill gaps, businesses are embracing automation and technology. Autonomous guided vehicles (AGVs), robotic systems, and artificial intelligence (AI)-driven analytics are becoming increasingly common in Indian warehouses. These technologies reduce dependency on manual labour, enhance efficiency, and minimise errors, ultimately leading to cost savings.

Regulatory Pressures and Supply Chain Disruptions

The logistics industry in India operates on a complex regulatory framework that frequently changes, adding compliance costs and operational complexities. Disruptions caused by events like the COVID-19 pandemic and geopolitical tensions have been an eye-opener by exposing vulnerabilities in global supply chains which can significantly impact logistics operations.

To tackle these challenges, the Indian government is planning to streamline regulatory processes through the single window interface for trade (SWIFT), which will simplify customs clearance for import-export businesses. The adoption of electronic logging systems (ELDs) and vehicle tracking has also made compliance easier for logistics operators.

The overall supply chain resilience is being improved through diversification strategies. Companies are reducing dependence on a single geographic location for manufacturing plants and procuring finished goods by building local supplier networks. For example, India’s Production Linked Incentive (PLI) scheme encourages the manufacturing of goods domestically, reducing reliance on imports.

The Takeaway

The challenges might be many, but the Indian logistics sector is progressing ahead undeterred. It has emerged as a popular location for global logistics providers to set up base and the sector has received a favourable domestic boost as well by the remarkable growth of the Indian economy. With the sector attracting the highest number of investments—well surpassing major sectors such as aviation, metals, and consumer durables—and the growth of domestic retail and manufacturing industry are all signs pointing towards the logistics sector’s bright future. By addressing the current challenges it faces, through collaboration between public initiatives and private enterprise innovation, the Indian logistics sector is poised to not only overcome existing barriers but successfully emerge as a benchmark for efficiency, sustainability, and resiliency in the global supply chain ecosystem.