Industry Report

Knight Frank Industry Report 2008
Research
Industry Report
2008
Industry Report 2008 Knight Frank
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Knight Frank Industry Report 2008 01
Contents
Executive summary ...................................................................................................................2
Overview ...................................................................................................................................4
• Industrial Park/Industrial Estate.................................................................................................................................................................5
• Special Economic Zone ............................................................................................................................................................................6
• Logistics and Warehousing.......................................................................................................................................................................7
Industrial sector ........................................................................................................................9

• North.......................................................................................................................................................................................................9
• East........................................................................................................................................................................................................10
• South.....................................................................................................................................................................................................10
• West ......................................................................................................................................................................................................12
Special Economic Zone............................................................................................................14
Logistics and Warehousing .....................................................................................................17

• Investment scenario in logistics sector....................................................................................................................................................17
• Regulatory framework governing logistics and warehousing operations in India.....................................................................................18
• North.....................................................................................................................................................................................................19
• East........................................................................................................................................................................................................21
• South.....................................................................................................................................................................................................22
• West ......................................................................................................................................................................................................24
• Brief on major infrastructure projects in India .........................................................................................................................................26
• Case Study: Transport Corporation of India Limited (TCI).......................................................................................................................30
Outlook ....................................................................................................................................33
Glossary ...................................................................................................................................38
Bibliography ............................................................................................................................39
Annexure .................................................................................................................................40
State comparison chart .............................................................................................................................................................................40
02 Industry Report 2008 Knight Frank
Executive Summary
India has emerged as one of the prime investment destinations of the world in recent years. Led by strong economic growth, India today stands as the
10th largest economy in the world and 4th largest in terms of Purchasing Power Parity. The country has a large reservoir of skilled manpower at
internationally competitive cost owing to the presence of a number of technical and management institutions of global standards. This, coupled with a
large entrepreneurial base and a diversified manufacturing structure, makes it easy to attract investments into the country.
A vibrant economy with a large democratic setup, a broad based legal framework including arbitration and an independent judicial system along with a
vast network of bank branches, financial institutions and well-organised capital and money markets makes India a favourable destination for
investments. More importantly, India has always met its international financial obligations as per schedule and has never been a defaulter. Strategic
location of the country for the third world markets particularly for the rapidly growing South and South East Asian countries together with a supportive
infrastructure base helps in generating a healthy environment for Foreign Direct Investments (FDI) inflow into the country.
The Indian economy is predicted to become one of the world's largest by 2050 A.D, this is based on a strong GDP growth rate of above 8% initiated by
a rebound in Indian agriculture and presently being boosted by a boom in manufacturing and service industries. As many as 15 industries out of 17
have shown positive growth in February since the past year. Jute, vegetable, fibre and textile sectors showed the highest growth of 86.4% followed by
18.8% in leather and fur products, and 18.2% in metal products and parts category. The power sector is witnessing a steady growth of 9.8%, while the
manufacturing sector is witnessing a slight slowdown in growth, which was 8.6% in February 2008 as against 12% during the same period last year.
Capital goods, the key sector for industrial growth, grew at 10.4% in February as against 2.1% in January, in 2008. In the first 11 months of 2007-08,
the growth in this sector was 17.5%, compared to 18.3% in the same period last year.
In order to further improve the country's export and attract FDI, the concept of Special Economic Zones (SEZs) was introduced in 2000 by the
government. SEZs are pockets of manufacturing excellence which also contribute tremendously to the generation of employment and eventually to the
economic growth of the country. The SEZ policy framework comprise attractive package of incentives, including several fiscal concessions for the
developers of the SEZ and the units to be set up in these SEZs. It has been observed that the private sector has limited experience in development of
these zones, hence most projects are developed under the public-private partnership format, where the state governments concerned jointly market the
zone along with the private developer. India's advantage lies in its strong economic growth prospects, availability of large and skilled workforce,
comparative advantage in several industries, a strong policy framework, availability of supporting ancillary industries, strong growth in the external
sector and a huge domestic market. These factors, combined with a proactive government in marketing the SEZs, will go a long way in providing the
much-needed momentum in development of SEZs and in attaining the objective of boosting India's exports and attracting export related FDI.
Logistics and warehousing is another segment which have been witnessing considerable growth in the past couple of years. The sector is expected to
grow at a Compounded Annual Growth Rate (CAGR) of 6.4% from 2005 to 2012. The entry barriers for providing logistics services in India are rather
low and thus increased competition is expected in the near future. With companies keen to outsource their back-end processes, more corporations are
getting into the business of providing organised logistical services by the way of Third Party Logistics (3PL). This segment is expected to grow at a
CAGR of 21.9% from 2005 to 2012. Companies in India generally outsource only a part of their supply chain requirements to a 3PL service provider;
only a small fraction of companies outsource entirely to a 3PL service provider. Most of these companies are multinationals who do not have an
established network in the country and have to outsource their logistics due to the lack of assets. The degree and nature of outsourcing of logistics to a
3PL service provider varies significantly between verticals and depends greatly on the nature of the company. In the automotive sector, the trend of
end-to-end outsourcing is beginning to significantly catch up as companies have realised the benefits of concentrating on core competencies and
delegating the logistics to 3PL service providers.
In recent times, the IT hardware and electronics sectors have also begun outsourcing to 3PL service providers to a great extent. In sectors such as Fast
Moving Consumer Goods (FMCG) and pharmaceuticals, the penetration of the 3PL concept has been fairly low, owing to already strained profit
margins. Added to this, there is a great deal of decentralisation in the supply chains of these sectors, with many stocking points and strategic
distribution centres spread all across the country. A large number of investment funds are contributing to the growth of logistics companies in the
country with current investment figures standing at Rs. 9.14 billion. Going forward, the warehousing facilities of a 3PL provider are expected to be the
differentiating factor for the service providers. The warehousing segment is expected to grow the fastest among all the logistics functions outsourced to
a 3PL service provider. Currently, it accounts for just 8% of the market share. With improvement in the overall infrastructure in the country, there is
good scope for development of warehousing facility corridors across the country. The phasing out of Central Sales Tax (CST) and the implementation of
Value Added Tax (VAT) is expected to give further impetus to the sector.
Currently the industrial sector is considered to be facing a crisis, the implications of which would be felt in SEZ developments, but the effect is yet to
translate into the logistics and warehousing segments. The current slump in industrial production growth figure which has gone down to 3% is much
lower than the figure of 8.6% witnessed in February and does not bode well for the industry as the earlier apprehension of a major slowdown is
gradually turning into reality. These factors have been kept in mind while preparing the research review.
The objective of this review is to understand the market scenario of the industrial sector from a real estate perspective with special focus on SEZs and
Logistics and Warehousing segments. In the process we have analysed the demand-supply dynamics within various sectors throwing light on the
current market scenario as well as outlining the growth prospects for the future.
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The approach followed for the review involved studying established and growing markets within the country with respect to the above mentioned
sectors, primary data survey and analysis along with interaction with representatives of major corporations in the sectors concerned.
Methodology
This report has been divided into three sections namely overview, zonal classification and outlook. The first section is a prelude to the report and gives
an introduction into each of the sectors highlighting key economic aspects giving brief descriptions of the same.
The second section gives an overview of the industrial sector, SEZs and 3PL focusing on their development and salient features. The section is divided
into three segments and each of them has been discussed separately. In the first segment the industrial sector of the country has been divided into four
zones based on its geographical location. It describes each zone in detail, the key industries present and their investment potential, also stating the
indications as to the factors driving these industries. In the second segment the impact of the SEZs is discussed on a pan-India basis with emphasis on its
current status and where it is heading. It also reviews the current regulatory framework with respect to the sector. The third segment gives a snapshot of
the logistics and warehousing sector in the country with a close look on the current market condition and factors driving the sector. Here, like in the first
segment, the sector has been divided into four zones based on geography. A case study of a prominent logistics player has also been included in the
report to illustrate the sector market.
The final segment features the outlook, which analyses the current status and future potential of each of the three sectors with respect to present
economic conditions, business potential and growth. This information has been used to arrive at a comparative analysis of the logistics market potential
among developing economies. It also gives an insight into the strengths and weaknesses of the sectors.
Zones selected for the Industry Report
NORTH ZONE
WEST ZONE
EAST ZONE
SOUTH ZONE
Overview
India has been following a highly protective industrial and foreign trade regime since 1951. The liberalisation of Indian economy started gradually in the
1980's with major structural adjustment programs beginning from 1991. Key economic reforms were undertaken with the objective of transforming
regulated economic development to a competitive regime for accelerating economic growth. With positive indicators such as a stable 8-9% annual
growth, rising foreign exchange reserves, a booming capital market and rapidly expanding FDI inflows, India has emerged as the second fastest
growing major economy in the world.
The Indian economy has been growing at an average growth rate of 8.8% in the last four fiscal years (2003-04 to 2006-07), with the 2006-07 growth
rate of 9.6% being the highest in the last 18 years. Significantly, the industrial and service sectors have been contributing towards a major part of this
growth, suggesting the structural transformation underway in the Indian economy.
Industrial and services sectors have logged in a 10.63% and 11.18% growth rate in 2006-07 respectively, as against 8.02% and 11.01% in 2005-06.
Similarly, manufacturing grew by 8.98% and 12% in 2005-06 and 2006-07 and transport, storage and communication recorded a growth of 14.65%
and 16.64%, respectively.
Another significant feature of the growth process has been the consistently increasing savings and investment rate. While the gross saving rate as a
proportion of GDP has increased from 23.5% in 2001-02 to 34.8% in 2006-07, the investment rate-reflected as the gross capital formation as a
proportion of GDP-has increased from 22.8% in 2001-02 to 35.9% in 2006-07.
Financial reforms, coupled with improved infrastructure, are the key factors for this growth. After agriculture it is the industrial sector which is in a
transformation phase from being labour intensive to technology and efficiency enhancement intensive. India is set to reframe its economic structure
inducing technological advancements along with industrial friendly policies. These initiatives are expected to go a long way in promoting industrial
growth in the country.
Fact file
! Overall industrial production grew by 9% in Q1 and Q2 2007, whereas capital goods production rose by 20.2% compared to 18.6% during same
period in 2006
! Manufacturing grew by 9.6% during Q1 and Q2 2007, on the back of 12.2% growth during same period in 2006-07
! Core infrastructure sector continued its growth rate recording 6% growth in Q1 and Q2 2007
! Exports grew by 21.76% during Q1 and Q2 2007, imports increased by 25.97% in the same period
! Central Statistical Organisation (CSO) expects the economy to grow by 8.7% in 2007-08
! Warehousing and packaging contributes, 26% of the logistics cost in India
! Average escalation in warehousing costs between 2001-2006, has been maximum for the steel industry followed by pharmaceutical and auto
industries
! India spends 13-14% of its GDP on logistics cost, whereas this figure is 7-8% for developed countries
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Industrial Park/Industrial Estate

“Industrial Park” means a project in which plots of developed space or built up space or a combination with common facilities and quality infrastructure
facilities, is developed and made available for the purposes of industrial or commercial activities. Any undertaking which develops, develops and
operates or maintains and operates an industrial park may make an application for notification under clause (iii) of sub-section (4) of section 80-IA of the
Act.
The Central Board of Direct Taxes shall process the application for approval and notification by the Central Government and for this purpose it may call
for reports from other departments or agencies, as it may deem fit.
Table 1: Classification of Industrial Parks

Type of industrial park Minimum Number of units to be provided in
the Industrial Model Town/Industrial
Park/Growth Centre
(i) Industrial Model Town 50 units
(ii) Industrial Park 30 units
(iii) Growth Centre 30 units
Fact file
An industrial park is divided according to the following activities
• Industrial activity
• Common facility
• Commercial activity
• Infrastructural facility
Industrial Park Scheme, 2008

The scheme extends 100% tax holiday on profits derived by an undertaking from the activity of developing, developing
and operating, or maintaining and operating an Industrial Park and is applicable to all Industrial Parks set up between
April 1, 2006 and March 31, 2009.
Criteria for approval

(1) The date of commencement of the Industrial Park should be on or after the 1st day of April 2006 and not later than
31st of March 2009
(2) The area allocated or to be allocated to industrial units shall not be less than 90% of the allocable area
(3) There shall be a minimum of thirty industrial units located in an industrial park
(4) For the purpose of computing the minimum number of industrial units; all units of a person and his associated
enterprises will be treated as a single unit
(5) The minimum constructed floor area shall not be less than 50,000 sq.mt.
(6) No industrial unit, along with the units of an associated enterprise, shall occupy more than 25% of the allocable area
(7) The industrial park should be owned by only one undertaking
(8) Industrial units shall undertake only manufacturing activity as defined in section D of the National Classification, 2004,
Code issued by the Central Statistical Organisation, Department of Statistics
Special Economic Zones (SEZs)

As defined in EXIM Policy 2000, Special Economic Zones (SEZs) in India are defined as:
“A specifically delineated duty-free enclave which shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs”
SEZs in India have evolved from the erstwhile Export Promotion Zones (EPZ) which were introduced in 1965. The first EPZ was set up at Kandla,
Gujarat, followed by another one at Santacruz, Mumbai in 1973. The present shape of SEZs began taking place in the early 1990's, when wide ranging
measures were initiated by the government for revamping and restructuring EPZs. This was continued in the Exim Policy (1997-2002), which formally
introduced the term SEZ, followed by the announcement of SEZ Act of 2005, which supported by the SEZ rules came into effect in 2006.
Given below is a flowchart which highlights the processes involved for the setting up of an SEZ:
Process flowchart for setting up a Special Economic Zone (SEZ)
Application submitted to Chief Secretary of State with details on

· Status report of applicant, nature of SEZ
· Location details of proposed SEZ, infrastructure plan
· Financial details, investment plan (min. outlay Rs.1 billion)
• Environment clearances
• Commitment on exemption of taxes on power, sales tax, duty and cess from DTA products
• Proposal forwarded to Deptt of Commerce, Govt. of India

• Review of proposal by inter-ministerial committee
• Permission
• Approval committee issues LOA (valid for 1 year)

• Entitlement to unit approved in processing zone/FTWZ
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Logistics and Warehousing

Logistics is the management of the flow of goods, information and other resources, including energy and people, between the point of origin and the
point of consumption in order to meet the requirements of consumers (frequently, and originally, military organisations). Logistics involve the
integration of information, transportation, inventory, warehousing and material-handling. Warehouse on the other hand is defined as a commercial
building for storage of goods predominantly used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They come
equipped with loading docks to load and unload trucks or sometimes are loaded directly from railways, airports or seaports. They use cranes and
forklifts for moving goods, which are usually placed on standard pallets.
The logistics and warehousing business is considered to be the backbone of industrial development. The Indian logistics business is valued at Rs.596.82
billion and has been growing at a CAGR of 7-8%. As mentioned earlier, the logistics cost represents 13-14% of the country's GDP. The market is
fragmented with thousands of players offering partial services in logistics; it is estimated that there are about 400 firms capable of providing some level
of integrated service. The economy is expected to grow around 10% over the next ten years and sectors like chemicals, petrochemicals,
pharmaceuticals, metals and metal processing, FMCG, textile, retail and automobile are projected to grow the fastest. New business models are
emerging with the advent of new firms, both domestic and foreign, into the market. As a result of the ensuing competition, linkages with global supply
chains and domestic market growth promise to bring over a sea change in to the logistics industry.
Overview of India's container freight segment

Containerised cargo represents about 30% by value and 55% by volume of India's external trade and this proportion is growing rapidly. Globally,
75-80% of trade by volume happens through containers. India's container cargo traffic is estimated to reach 21 million Twenty feet Equivalent Units
(TEUs), a year by 2016. The estimated growth rate for the same stands at around 18-19%.
Traffic handled at major ports in India

60000
50000
40000
Total Cargo (’000 tonnes)
30000
20000
10000
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April-Dec 2006 April-Dec 2007
Source: Government of West Bengal (Annual Report 2006-07)

Container Traffic volumes have been on the decline for a couple of years but it has now started to move towards its original rate of growth, as witnessed
from the graph below:
Container Traffic Growth in India
20%
18%
16%
14%
Percentage (%)
12%
10%
8%
6%
4%
2%
0%
2003-04 2005-06 2006-07
Container Traffic Growth
Source: News Publications
The reason for the decline in the container traffic movement in the last 2 years can be attributed to the fact that about 56% of the port development
projects announced had not been initiated on time but with development works currently underway port traffic volumes have gone up considerably.
With the increase in movement of container traffic in India and the existing gap between demand and supply for logistics service providers, a large
number of smaller firms have started to aim for a bigger profile. Over the last few years, a large number of PE funds have, invested into many of these
companies. Also companies like VRL Logistics, DRS and Premier Logistics are planning initial public offers.
However, recently a capacity crunch has been hampering external trade, in terms of handling cargo, raising transaction costs and delaying the time
taken for exports and imports. Approximately 95% of the country's external trade by volume, and 70% by value, moves by sea. Notably, the country's
biggest port, Jawaharlal Nehru Port (JNPT), located at Navi Mumbai, accounts for more than 60% of India's container cargo traffic of about 7.5 million
TEUs. The situation here has reached a critical stage in terms of demand surpassing the space required. Similarly, each of the three terminals at JNPT is
operating at 110-120% of their capacity.
Fact file
! According to the World Bank, it costs Rs. 49,196.12 for importing a cargo container into India and Rs.35,137.62 for exporting one from India
! It takes Rs.15,726.23 for importing a container into Singapore while it costs Rs. 16,711.56 for exporting a container from China
! It takes 21 days each for importing or exporting a container into or out of India
! It takes 3 days to import a container into Singapore and just 5 to export one from Denmark
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Industrial Sector
Overview of the Zones
In order to facilitate our study and to aid the reader's understanding, we have divided the country into four zones, namely North zone, South zone,
East zone and West zone. The states which have been short listed for each zone has been done with regard to their industrial presence and potential for
development. After analysing the data received from the respective state industrial development corporations regarding current industrial activity and
the proposed developments/new estates, and also taking into account other favourable factors like good connectivity, proximity to the
consumer market, ease of transportation of the raw materials and good infrastructure, locations with high and medium potential for industrial
development have been concluded for each of the said zones.
North Zone
The states which have been selected from this region are Delhi, Haryana, Uttar Pradesh and Rajasthan. Being the most prosperous economy in the
country, Delhi has benefited significantly from the rapid economic growth in India during the past decade. Its superior infrastructure and proximity to
the central government is a major attraction for foreign and domestic investors to locate themselves in the city. Its status as a city-state provides ample
business and investment opportunities, particularly in the services sector. The industrial sector in the region is currently growing at 5.7% per annum.
• Delhi
Delhi has developed 28 industrial estates through the Delhi State Industrial Development Corporation (DSIDC) and the Industries Department. Besides,
the Delhi government is building an IT park with an initial investment of Rs.692.66 million. It proposes to set up a World Trade Centre to promote
international trade and commerce at the same park. DSIDC plans to develop industry specific industrial estates for apparels, gems and jewellery. The
proposed gem and jewellery park will be spread over 2 acres and will be set up at Okhla. It will be developed through private sector participation. The
government has acquired 2,100 acres of land to develop new industrial estates in Bawana and Holambi Kalan. The new industrial estate at Bawana has
been almost fully developed with the provision of necessary infrastructure. 18,360 plots/flats have been allotted to the industrial units. Further, around
175 hectares of land at Bhorgad has been acquired for development of a new industrial area.
• Haryana
With a Net Domestic Product of over Rs.299.25 billion, Haryana's economy is the 13th largest in the country. Geographically one of the smallest states in
India, covering an area of 1.37%, it enjoys a locational advantage being situated in the National Capital Region (NCR), a prominent trade and
commerce centre. In recent years, the areas of Haryana surrounding Delhi have seen a surge in economic activity with Gurgaon emerging as the
principal suburban township of Delhi. Haryana has developed 103 industrial estates through its development agencies. The industrial estates in the state
are being developed by Haryana State Industrial Development Corporation (HSIDC), Haryana Urban Development Authority (HUDA) and private
developers. To facilitate coordinated development of infrastructure and participation of private sector including FDI, the HSIDC is designated to be the
nodal agency for infrastructure development and it is proposed to redesignate it as 'Haryana State Industrial and Infrastructure Development
Corporation' (HSIIDC).
• Uttar Pradesh (UP)

Uttar Pradesh has 129 industrial areas and ranks third in the number of industrial parks at 89, extending over a total area of 38,000 acres. The state has
developed integrated industrial areas of Noida and Greater Noida in proximity to New Delhi with state-of-the-art industrial and domestic infrastructure.
UP has an Export Promotion Zone at Noida and two others at Moradabad and Kanpur are under implementation. The state has a well-developed
agro-based industry and has four Agro Export Zones fostering better exports of agricultural products. Being the largest producer of sugar cane, UP is
considered to be India's sugar bowl, accounting for 28.03% of the country's total sugar production. Agricultural affluence in the region has led to the
growth of allied industries like cold storages and warehousing. In addition to industrial areas, many centres like Kanpur, Ghaziabad and Lucknow have
their own established traditional industries. The presence of large livestock population has led the leather industry to flourish in the state. Kanpur and
Agra has emerged as the hubs for leather goods in the country. Textile industry is another promising sector in the state. Besides, UP is also the largest
producer of electronic goods and the fourth largest exporter of software products in the country. Notably, UP accounted for nearly 10% of IT and BPO
exports from the country in 2003-04. With a productive and cost effective manpower, the state has attracted some of the largest MNCs to set-up their
manufacturing facilities, companies like Coca-Cola, Pepsi, Glaxo, Daewoo, Honda and Piaggio to name a few. The state with its human resource
potential, proactive policies and commitment to ensure encouraging climate to the investors is poised to emerge as a manufacturing hub in the
country. The state has become a hub for corporate R&D with many domestic players and MNCs establishing their facilities.
• Rajasthan
The key industries in Rajasthan include mineral based industries, textile, tourism and gems and jewellery. Rajasthan enjoys a distinct advantage in these
sectors. It is also the leading producer of cement and metals such as copper, zinc and lead and the largest producer of marble and stones in the
country. Recent discovery of oil and gas in Rajasthan is expected to lead to the development of downstream industries in petroleum and chemicals.
Reforms in the electricity sector in the state are one of the most advanced in the country. Rajasthan is the first state in the country to permit “open
access” in its electricity supply market. While the industrial sector has grown at 6.9% per annum, the growth rate of services was 7.4% during the same
period. Among services, the share of trade and tourism in state's GSDP stands at over 16%. Rajasthan has a network of almost 300 industrial estates
developed by RIICO. These are spread across the state, with many of them focused exclusively on high growth industries such as gems and jewellery,
apparels, agro-processing and biotechnology. These estates provide good infrastructure support to units locating there, including uninterrupted
electricity and water supply, sewerage and common roads.
Table 2: Growth potential for industrial region: North zone

Locations District/City/State Growth Potential
Jamalpur Gurgaon High
Bartal Uttar Pradesh Medium
Kanakpura Jaipur Medium
Palwal Faridabad High
Kanpur Uttar Pradesh High
Ladhowal Uttar Pradesh High
Mandi Govindgarh Ludhiana High
Dhandhari Kalan Ludhiana High
Bawal Gurgaon Medium
Dadri Greater Noida Medium
Source: Knight Frank Research
East Zone
West Bengal is the only state which has been selected from the East zone. The state has the third largest economy in India. Its areas of strength include
petrochemicals, steel, food processing and leather industry. With around 8% of India's population residing here, the state is one of the largest consumer
markets in the country. West Bengal is also one of the few states which have a surplus electricity generation capacity. The state is the largest producer of
vegetables and fruits in the country and offers significant opportunities in the food processing industry. Availability of abundant mineral resources and
proximity to ports gives it a competitive advantage particularly in sectors such as steel.
The West Bengal Industrial Development Co-operation (WBIDC) has developed over 30 industrial estates in various parts of the state. These include
estates in and around Kolkata, Haldia, Duragpur and Asansol. These estates focus on IT/ITES, petrochemicals, chemical based industries and steel based
industries. A total of 1,300 hectares of industrial land is currently available with WBIDC across the state for the establishment of new industrial units.
Table 3: Growth potential for industrial region: East zone

Locations District/City/State Growth Potential
Jalpaiguri West Bengal High
Coochbehar West Bengal Medium
Maldah West Bengal Medium
South 24 Parganas West Bengal High
Howrah West Bengal High
Nadia West Bengal Medium
Medinipur West Bengal High
South Zone
The states selected from the South Zone are Karnataka, Tamil Nadu and Andhra Pradesh.
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• Karnataka
Karnataka is one of the most developed states in south India and is the pioneer in driving the industrial growth in the country. Over the years, the state
has been promoted as the preferred destination for domestic and foreign investment to catalyse industrial growth. For a long time Karnataka has been
consistently pursuing progressive industrial policies to meet the changing needs of the state's economy and industry. During the last century, the state
has had the distinction of building a strong and vibrant industrial base, which combines the intrinsic strengths of large industrial public sector
undertakings, large and medium privately owned industries and a wide and dispersed small-scale sector. Karnataka has demonstrated its strength over a
wide spectrum of sectors in industry and has had outstanding examples of success. In recent times, it has emerged as the knowledge and technology
capital of the country making rapid strides in economical growth. IT and related industries, biotechnology and research and development institutions
have given Karnataka a pride of place in the global market, thereby leading to considerable foreign direct investment both in Bengaluru and in other
parts of the State.
Karnataka, being one among the top five Industrialised states in the country, the state policy aims to achieve a consistent economic growth rate of
8-9% over the next decade. Policy makers propose to create employment opportunities through industrial growth in the state and several sectors have
been identified as thrust areas. The state offers a range of incentives including tax exemptions for investment in these sectors. These sectors are
electronics, telecommunication, informatics, precision tooling and tool room industries, readymade garments including leather garments
(excluding leather tanning), units manufacturing pollution control and effluent treatment plants, equipment and appliances and biotechnology. The
state government plans to establish a corpus called the 'Technology Upgradation Fund' of Rs.448.14 million to encourage technology upgradation in
industries.
Table 4: Growth potential for industrial region: South zone

Location District/City/State Growth Potential
Madhavaram Tamil Nadu High
Sriperumbudur Tamil Nadu High
Hosur Karnataka High
Peenya Karnataka Medium
Hoskote Karnataka High
Medchal Andhra Pradesh Medium
Malkapur Andhra Pradesh High
Vishakapatnam Andhra Pradesh High
Vijaywada Andhra Pradesh High
Belgaum Karnataka High
Mangalore Karnataka Medium
Mysore Karnataka Medium
Madurai Tamil Nadu High
Coimbatore Tamil Nadu Medium
Salem Tamil Nadu Medium
• Tamil Nadu
Tamil Nadu is one of the most industrialised states in India as well as the third largest economy in the country. The State Domestic Product stands at
Rs.1168.06 billion and the current economic growth rate is 6.1%. The exports have been recorded at Rs.275.28 billion of 9% in the past decade. The
state also has a share of 9.1% Market Potential Value in the country, which reflects a high purchasing power and capacity of the market to absorb new
products and services. In recent times, there has been a significant increase in the proportion of population in the middle-income group.
Tamil Nadu also has a well developed manufacturing sector with high value addition in the factories, and accounts for 16% of the total number of
factories in the country. The growth in manufacturing and services sectors has led to the rise in the standard of living of the people in the state and in
turn, has benefited from it.
• Andhra Pradesh
As with the other southern states, Andhra Pradesh has also witnessed high growth within the industrial space. The Andhra Pradesh Industrial policy
2005-10 is aimed at promoting industrialisation in the state. Incentives are being offered to attract investments in this sector. Andhra Pradesh with
272 industrial estates has the second highest number of industrial estates in the country.
Further, it ranks third in worker population and fourth in total number of factories. The state has four growth centres in Bobbili, Jedcherla, Hindupur and
Ongole, and two SEZs in Kakkinada and Vishakapatanam, thereby facilitating a good environment for exports and investments. Development of quality
infrastructure through private participation has been given the highest priority. In line with this objective, the government has constituted the
Infrastructure Authority (IA) for the rapid development of physical and social infrastructure in the state and to attract private sector participation in
designing, financing, construction, operations and maintenance of infrastructure projects. The industrial policy promises 100% stamp duty and transfer
duty reimbursements. Large industries are set to gain with the setting up of the Industrial Promotional Fund which would cater to specific problems on
a case to case basis.
West Zone
The states which have been selected from the west zone are Gujarat and Maharashtra.
• Maharashtra
Maharashtra's economy is the largest among all states in the country. The state recorded a Net State Domestic Product (NSDP) of over
Rs.1506.12 billion in 2003-04. It is a leading industrial state accounting for 20% of the country's investment, 17% of Foreign Direct Investment, 20% of
its industrial output and 40% of its exports. Besides, Maharashtra is a leading producer of oil and gas, petrochemicals, pharmaceuticals and automobiles
in the country. The state's large urban population and growing services sector provide opportunities for investment in tourism, leisure and
entertainment industries. Biotechnology is another emerging sector in the region. Mumbai, the state's capital city, is recognised as the principal
commercial and financial centre of the country. The state boasts of well developed transportation and industrial infrastructure, which is among the best
in the country. The Export Oriented Units (EOUs) enjoy a competitive advantage owing to the presence of the country's largest airport and container
terminal in the state. Maharashtra has two principal ports located at Mumbai and Nhava Sheva, besides having 48 smaller ports along its 720 km
coastline as well. There are 19 industrial clusters/locations identified by the Government of India for infrastructure improvement under the Industrial
Infrastructure Upgradation Scheme (IIUS). IIUS would help the cluster in enhancing its competitiveness by providing quality infrastructure through
public-private partnership.
• Gujarat
Gujarat, India's leading industrial state is a manufacturing powerhouse with world class production capabilities in textiles, petrochemicals,
pharmaceuticals and agro-based products. Situated on the western tip of India, Gujarat has the longest coastline in the country. The state has 41 ports
including India's only chemical handling port located at Dahej at Bharuch district. The state has extensive road, rail and air network. The recently
commissioned Liquefied Natural Gas (LNG) terminals in Dahej stand to augment its capabilities in the power sector and benefit the industry. The state
also has India's largest hydro project, Sardar Sarovar.
Industrial estates have proven to be a popular business model in the region with Jamnagar being the world's largest industrial estate and Kandla being
Asia's first and largest Multi-Product SEZ. The chemical industry in Gujarat accounts for half of the annual investment in the state and contributes to
about 20% of the chemical output in the country, while its gem and jewellery industry processes 80% of the diamonds in the country. The state also
enjoys a significant market presence in the processed food segment.
Gujarat has been keen to leverage its natural resource base and entrepreneurial spirit to maintain its leadership position. To attract investments the state
has set up single window operations at the district level. It is also actively seeking private participation to improve existing infrastructure facilities. In fact,
Gujarat was the first in the country to develop port facilities, estates and roads in conjunction with the private sector.
Table 5: Growth potential for industrial region: West zone

Location District/City/State Growth Potential
Mumbai Maharashtra Medium
Pune Maharashtra High
Nashik Maharashtra High
Nagpur Maharashtra High
Vashi Maharashtra High
Ahmedabad Gujarat Medium
Vadodara Gujarat High
Kandla Gujarat Medium
Surat Gujarat High
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Industrial supply
Table 6: Land banks for industrial use
State Total land area of the Land area under Total available land in
State (’000 acres) Industrial Estates (’000 acres) Industrial Estates (%)
Uttar Pradesh 59,535 41 7
Maharashtra 76,108 137 4
Gujarat 48,433 66 38
Tamil Nadu 32,124 22 11
Andhra Pradesh 67,971 33 NA
Karnataka 47,444 28 26
Haryana 10,873 9 8
Rajasthan 84,569 56 NA
West Bengal 21,992 1.7 1
Table 7: Prime industrial estates (for each state)

Sr. No Name of Industrial Estate Location Area (acres) Rental Values Occupancy
(Rs./sq.m. per month)
Uttar Pradesh
1 Ghaziabad Ghaziabad 3,796 4,605 95%
2 Kanpur Kanpur 2,965 1,038.38 70%
3 Meerut Meerut 703 769 95%
Haryana
1 Panchkula Technology Park Panchkula 79 8,500 49%
2 Gurgaon Gurgaon 780 7,500 95%
3 Karnal Karnal 72.43 1,800 85%
Maharashtra
1 Ranjangaon Ranjangaon 2,313 1,200 99%
2 Sinnar Sinnar 299 500 100%
3 Butibori Butibori 3,750 200 69%
Tamil Nadu
1 Perundurai Perundurai 2,600 296 89%
2 Nilakottai Nilakottai 380 148 47%
3 Gangaikondan Gangaikondan 1,995 124 58%
Gujarat
1 Ankleshwar Ankleshwar 4,029 600 99%
2 Naroda Naroda 907 1,550 99%
3 Pandesara Pandesara 545 1,200 99%
Karnataka
1 Peenya Peenya 1,485 741 100%
2 Hoskote Hoskote 402 296 97%
3 Dharwad Dharwad 2,185 148 75%
Andhra Pradesh
1 Sanathnagar Sanathnagar 88 15,000 NA
2 Warangal Warangal 26 3,000 NA
3 Pedagantyada Pedagantyada 214 3,000 89%
Rajasthan
1 Tapukara Alwar 750 3,100 80%
2 Cyber Park, Jodhpur Jodhpur 6 2,800 Upcoming
3 Bhiwadi Alwar 2,000 2,200 NA
West Bengal
1 Dabgram Jalpaiguri 92 544 91%
2 Kharagpur Kharagpur 227 445 83%
3 Kalyani Phase –III Nadia 77 435 81%

Special Economic Zones (SEZs)

The concept of SEZs was introduced in India in the year 2000 with an idea to attract foreign direct investments and removing regional gaps in
economic development. The policy was introduced to increase India's share of the world trade by facilitating trade friendly measures and improved
infrastructure. One of the main purposes has also been to promote manufacturing hubs within India so that marginal increase in exports and imports in
lesser developed areas of India could boost economic growth of the country.
The main objectives of SEZ act are:

! Generation of additional economic activity with creation of employment opportunities
! Promotion of exports of goods and services
! Promotion of investments from foreign and domestic sources
! Development of infrastructure facilities
As per Indian SEZ policy, any public/private/joint sector or state government or its agencies can set up a SEZ under Special Economic Zone Act
anywhere in India. Approved units under SEZ scheme can be the only operational units in a SEZ. In India, 100% FDI is allowed for all the manufacturing
activities in special economic zones except
! Arms and ammunitions, explosives and allied items of defence equipment, defence aircraft and warships
! Distillation and brewing of alcoholic drinks
! Automatic substances
! Narcotic and psychotropic substances and hazardous chemicals
! Cigarettes/cigars and manufacture tobacco substitutes
SEZ Supply
Since the introduction of the SEZ policy in 2005, more than 500 SEZs have been planned and 366 SEZs have already been formally approved. In terms
of area, the formally approved SEZs cover a total area of 490 sq.km. which forms just 0.016% of total land area of the country. By end of August, 2007,
a total of 142 SEZs had been notified, entailing an envisaged investment of Rs.467.05 billion and employment opportunity for approximately 40,153
people. 176 SEZ have been approved in principle covering 1,571 sq.km. (0.05% of the total land area). It is estimated that by 2008-09, with an
investment of Rs.2,833.19 billion, SEZs will create over 2,100,000 additional jobs and increase the exports by over Rs.100 billion.
Distribution of land for notified SEZs

4%
7%
30%
18%
7%
4%
30%
AP Gujarat Haryana Karnataka Maharashtra Tamilnadu Others
Sector-wise classification of notified SEZs

0.1%
10% 1% 5%
1%
6% 2% 14%
5%
56%
Biotech Electronics Engineering IT/ITES Multiproduct & services Pharmaceuticals Textiles Food Processing Footwear
Others Source: Knight Frank Research
www.knightfrank.com
Table 8: Distribution of SEZs across the various states of India

States Notified SEZs Formally Approved SEZs In-Principally Approved SEZs
Andhra Pradesh 54 72 3
Chandigarh 2 2 0
Chattisgarh 0 1 2
Dadar & Nagar Haveli 0 4 0
Delhi 0 2 0
Goa 3 7 0
Gujarat 18 39 9
Haryana 16 38 17
Himachal Pradesh 0 0 2
Jharkhand 1 1 0
Karnataka 20 41 10
Kerala 8 12 1
Madhya Pradesh 3 13 5
Maharashtra 24 88 37
Nagaland 0 2 0
Orissa 4 9 4
Pondicherry 0 1 0
Punjab 2 7 8
Rajasthan 4 8 9
Tamil Nadu 33 59 12
Uttar Pradesh 8 23 4
Uttarakhand 1 3 0
West Bengal 6 21 13
Total 207 453 136
Source: www.sezindia.nic.in
Free Trade and Warehousing Zones (FTWZ)

Free trade and warehousing zone is a type of SEZ specific to the trade and warehousing segment. The objective of free trade warehousing zones is to
create trade-related infrastructure to facilitate the import and export of goods and services with freedom to carry out trade transactions in the free
currency. These zones would be established in areas close to seaports, airports or dry ports so as to offer easy access by rail and road. These zones will
fall under special category of SEZs with a focus on trade and warehousing. Given below is a flowchart which describes the procedure for setting up of
an FTWZ.
Process flowchart for setting up an FTWZ

Can be set up by public sector undertakings or public limited companies or by joint ventures in technical collaboration with experienced
infrastructure developers
Approval required from Board of Approval (BoA) in the Department of Commerce
Developer shall be issued a letter of permission for development, operation and maintenance.
The developer shall be permitted to sale/lease/rent out warehouses/workshops/office-space

and other facilities in the FTWZ to traders/exporters
Some stipulations
! 100% FDI allowed for the development of these zones
! Minimum area to be developed under FTWZ is 0.5 mn.sq.mts
! Minimum outlay for the development of such zones is Rs.1 billion
! Supplier of material into the FTWZ shall be treated as physical exports for the Domestic Terrific Area (DTA) suppliers
! FTWZs' envisage duty free import of all goods for warehousing
! As far as bond towards customs duty on import is concerned, the units would be subject to similar provisions as are applicable to units in SEZs
! Packing or re-packing without processing and labeling as per customer or marketing requirements could be undertaken within the FTWZ
Exemptions
! Income Tax exemption as per 80 IA of the Income Tax Act
! Exemption from Service Tax
! Free foreign exchange currency transactions
! Other benefits as applicable to units in SEZs
Table 9: List of FTWZs in India

Sr. No Location Name of Developer Area (Ha) Approval Type
1 Village Srinagar and Ravirayal, FAB City SPV (India) Pvt. Ltd 120.06 Formal Approval
Mahewhwaram Mandal, Ranga Reddy
District, Andra Pradesh
2 Dighi Port, Raigad, Maharashtra Balaji Infra Projects Ltd (Port based) 100 Formal Approval
3 Mumbai Chiplun Infra Pvt. Ltd 40 Formal Approval
Formerly M/s FTWZ Ltd.)
4 Mannur Village, Sriperembdur Taluka, J. Matadee Eco Parks Pvt. Ltd 40 Notified
Kancheepuram Dist, Tamil Nadu
5 Vallur Village, Ponneri Taluka, Tirvallur Jafza Chennai Business 136.8 Formal Approval
District, Tamil Nadu parks Pvt. Ltd
6 Greater Noida, Uttar Pradesh Free Trade Warehousing 80 In Principle Approval
Zone Pvt. Ltd
7 Kandla - Gujarat LMJ Warehousing Pvt. Ltd 40 In Principle Approval
8 Kochi FACT & Metals & Minerals 40 In Principle Approval
Trading Corporation (MMTC)
9 Karnataka Shipco Infrastructure 120 In Principle Approval
Pvt. Ltd (SPIL)
10 Village SAI, Taluka Panvel, Maharashtra Arshiya Technologies 68 In Principle Approval
International Ltd
11 Amritsar, Punjab M/s DLF Universal Ltd 40 In Principle Approval
12 Mangalore Suzlon Infrastructure Ltd. 486 In Principle Approval
Source: Knight Frank Research, www.sezindia.nic.in
www.knightfrank.com

The logistics and warehousing sector, especially the much sought after 3PL services, have been witnessing sharp growth in last couple of years. Valued
at Rs.37.86 billion in 2005, the 3PL market in India is projected to grow at a CAGR of 21.9% from 2005 to 2012, reaching Rs.151.27 billion by the end
of 2012. Rapid growth in the Indian manufacturing sector is creating an increasing need for seamless logistics solutions. While the Indian 3PL market is
still very much in its infancy compared to those in other countries, it is experiencing healthy growth and attracting new companies eager to capitalise
on the plentiful opportunities it offers.
Currently, the trend of outsourcing the entire logistics function to a 3PL service provider is visible only in a few sectors in India. In the automotive sector,
for instance, end-to-end outsourcing is becoming increasingly popular as companies realise the benefits of focusing on core competencies and
delegating the logistics to 3PL service providers. Just-In-Time delivery (JIT) to the assembly line is another emerging concept that is gaining acceptance
in this sector. The penetration of 3PL services is particularly high in the automotive sector. Even companies that have traditionally adopted a
conservative business outlook have started outsourcing logistics to 3PL service providers. The IT hardware and electronics sectors are also witnessing a
rise in this trend, while those for fast moving consumer goods (FMCG) and pharmaceuticals have relatively low penetration rates.
Investment scenario in logistics sector

As the Indian economy continues to grow at near double digit rates, the demand for logistics, as well as the sector itself, is rapidly increasing. India is
spending around Rs.4 trillion annually on logistics. The sector which has largely been under-owned and under-rated amongst all other sectors has
recently seen a large amount of interest from the Private Equity (PE) funds. The gestation period in the logistics sector is generally very high as
compared to other sectors. A large number of companies have been looking for opportunities to pick up stakes in the lesser known local logistics
players. From a long term perspective, the sector shall over the years, follow the path of consolidation, in terms of the number of players existing in the
market. The investments that have been made in the sector shall start giving returns only after a period of time however, the recent increase in petrol
and diesel prices has had an adverse impact on the stock market performance of the logistics companies.
Table 10: Investments in the logistics sector

Fund name Amount (Rs. mn) Target Firm
IDFC PE Fund II 1100 Sical Logistics
Kotak PE 1000 DRS Logistics
Clearstone Venture Advisors 160 Elbee Express
Tata Capital N.A Quickjet Cargo
Old Lane Opportunities Funds 1070 Sical Logistics
Blackstone 2420 Allcargo movers
Temasek Holdings 1000 First flight couriers ltd
Bennett Coleman & Company Limited N.A Airex Logistics
Realterm FCH Logistics Advisors Pvt. Ltd * -
Sidbi Venture Capital 88 Direct Logistics
Reliance Capital 500 BLR India
Erdene Capital PLC 854 MJ Logistics
New Vemon 532 Allcargo movers
IDFC PE 400 Delhi Assam roadways
* The fund will be set up through a 50:50 joint venture between Future Capital and US-based logistics and real estate investment company Realterm
Global. The fund will invest between Rs.29.77 billion and Rs.42.53 billion to set up warehouses across India’s seven key cities.
* Realterm FCH will build eight to 10 warehouses, which will also have parking for trucks, petrol pumps, some shops and food. Some warehouses could
cater to specific requirements of the food, pharmaceuticals or fashion industries
1
Source: KPMG
Table 11: Supply statistics of 3PL operators in India

Sr No Name of the Organisation Total built up area (mn sq ft) No of warehouses
Existing Upcoming
1 Gati 0.6 5.0 200
2 Indo Arya 3.6 1.0 36
3 Reliance Logistics 1.0 1.0* 151
4 TCI 6.5 3.5 494
5 DRS Logistics 1.2 3.8 N.A.
6 AFL Dauscher 1.0 N.A 46
7 Safexpress 3.0 7.0 N.A.
8 Prologistics 3.5 3.5 35
TOTAL 20.4 23.8
* Only in the eastern region Source: Knight Frank Research
Regulatory framework governing logistics and warehousing operations in India

The logistics and transportation sector in India has huge potential owing to the liberalisation of the Indian market. It is estimated that Rs.14 trillion
would be spent on infrastructure development like road connectivity, improvement of existing ports, creating new ports from 2005-06 to 2011-12,
amongst others.
The role of warehousing, both as a key physical (asset-based) infrastructure facility and as a systematic process of achieving logistics efficiencies at
various levels of supply chain management is increasingly becoming critical to operational effectiveness. With the rapid growth of both the primary
commodity and end-user retail markets, the need for a long-term industrial policy and well regulated growth of the warehousing infrastructure has
become critical for sustained economic growth. In order to attain the same, the Warehousing (Development & Regulation) Act was enacted in
December 2007.
Key benefits and proposed effects of the Warehousing Act, 2007 on the sector
! The Act enables the banks and other financial institutions to step into the commodities and warehousing sector
! Higher percentage participation from the private sector including development of modern warehousing infrastructure across the country
! Overall elevation of India's agricultural commodities sector, which has lacked adequate and quality warehousing facilities
! Higher transparency infusion into the sector leading to lower costs of financing in rural areas, efficient supply chains, better price-risk management
and rewards for better quality and grading
! Facilitation of the large private investment in warehousing, grading and storage businesses
! Facilitation of the electronic transfer of title
! Regulation of warehousing business by registering of the warehouses issuing negotiable warehouses receipts
In this segment of the report, the division of the zones and the segregation of states in each zone have been done as in the previous section.
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North Zone
With states like Delhi, Haryana, Uttar Pradesh (UP) and Rajasthan, North India is one of the most sought after regions in the country. These states
together received a total FDI of Rs.461.6 billion in between 2000-2007. Delhi-NCR (which includes parts of Haryana, UP and Rajasthan) received a
maximum amount of Rs.441.25 billion as FDI during the same period, the primary reason being the high demand of consumer durables in the region.
The rate of increase of urban population is around 93% for Delhi-NCR, which ensures continual increase in demand for all kinds of goods. This is
supported by the fact that the growth of organised retail segment in Delhi-NCR has been the maximum in India.
According to Knight Frank Research, the following sectors are driving the demand for the 3PL and warehousing segment in the north zone:
Percentage Contribution for Logistic Demand

26% 32%
6%
4%
14%
18%
Auto Component Pharmaceuticals FMCG Cement Textiles IT Components

With large number of infrastructure projects like Delhi-Mumbai Industrial Corridor, Kundli-Manesar-Palwal Expressway, Ganga Expressway,
Taj Expressway, redevelopment of airports at Udaipur, Amritsar, Lucknow, etc. having been announced in the entire northern region, the outlook for the
logistics sector seems bright.
Amongst the notable projects, Adani Logistics is coming up with a mega logistics park (180 acres) at Pataudi Road in Gurgaon. Companies like
DRS Logistics, Gateway District Parks and Prologistics have also come up with large-scale warehouses along the same road. The Garhi Harsaru Inland
Container Depot (ICD) lies in proximity to this stretch. The ICD at Gari Harsaru was bought by Gateway District Parks in 2005 for an amount of
Rs.170 million. This was a strategic move the company made keeping in mind that the area nearby would develop into a logistics and warehousing hub
for Delhi-NCR. The additional edge that this particular stretch has is that there is a culmination of the Kundli-Manesar-Palval Expressway and the rail link
between Delhi and Rewari. Currently most of logistics players are in the process of acquiring land on the Pataudi Road to build large-scale, high-quality
warehousing facilities.
Locations with logistics activity: North zone
SAHARANPUR Uttar Pradesh

WAREHOUSING HUB
MAJOR LINKAGES
STATE BOUNDARY
DISTRICT BOUNDARY
MUZAFFARNAGAR
BIJNOR STATE CAPITAL
BAGHPAT DISTRICT HEADQUARTER
MORADABAD
MEERUT GANGA EXPRESSWAY
JYOTIBA
PHULE
GHAZIABAD NAGAR
PILIBHIT
BAREILY
BULANDSHAHAR
LAKHIMPUR
BUDAUN
ALIGARH SHAHJAHANPUR
MATHURA
BAHRAICH
HATHRAS ETAH
FARRUKHABAD SITAPUR
BALRAMPUR
SHARAVSTI
MAHARAJGANJ
FIROZABAD SIDHARTH
HARDOI NAGAR
MAINPURI KUSHINAGAR
LUCKNOW GORAKHPUR
AURAIYA BASTI
UNNAO BARABANKI DEORIA
KHALIABAD
ETAWAH FAIZABAD
AMBEDKAR
KANPUR RAI BARELI NAGAR MAUNATH
JALAUN BHANAN
AZAMGARH
BALLIA
PRATAPGARH
FATEHPUR
GHAZIPUR
HAMIPRPUR
JHANSI VARANASI
MAHOBA BANDA KAUSHAMBI
GYANPUR
CHITRAKUT ALLAHABAD
CHANDAULI
MIRZAPUR
LALITPUR
SONBHADRA
Rajasthan
HANUMANGARH
GANGANAGAR
GOLDEN QUADRILATERAL
CHURU
JHUNJHUNU
BIKANER
ALWAR
SIKAR
JAISALMER
BHARATPUR
NAGAUR
JODHAPUR DAUSA
JAIPUR DHAULPUR
AJMER TONK KARAULI

BARMER
SAWAI
MADHOPUR
PALI
BHILWARA
BUNDI
EAST-WEST CORRIDOR
JALORE
RAJSAMAND BARAN
SIROHI KOTA
CHITTAURGARH
JHALAWAR
UDAIPUR
WAREHOUSING HUB
STATE BOUNDARY DUNGARPUR

DISTRICT BOUNDARY
STATE CAPITAL BANSWARA
DISTRICT HEADQUARTER
Haryana CHANDIGARH
PANCHKULA
AMBALA
YAMUNANAGAR
KURUKSHETRA
SIRSA KAITHAL
KARNAL
FATEHABAD
JIND PANIPAT
HISAR
SONIPAT
ROHTAK
KUNDLI
BHIWANI DMIC
JHAAJJAR
GURGAON
MAHENDRAGARH
REWARI PATAUDI
FARIDABAD
WAREHOUSING HUB
MEWAT
STATE BOUNDARY
DISTRICT BOUNDARY
STATE CAPITAL
DISTRICT HEADQUARTER GOLDEN QUADRILATERAL TO KOLKATA
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East Zone
The eastern region constitutes about 21% of the total area of India. The prominent states in the region include West Bengal, Orissa, Bihar, Jharkhand
and Assam. Between 2000 and 2007, the total FDI that the region received was approximately Rs.36.1 billion. West Bengal received a maximum of
Rs.31.79 billion as FDI during the same period. The state has over the last 8-10 years experienced large-scale transformation with a focused approach
towards attracting investments. Initiatives like providing single window clearances and facilitating prospective entrepreneurial interest has accelerated
the said process.
According to Knight Frank Research, the classification of the sectors driving the demand for the 3PL and warehousing segment in the eastern zone is
given below:
15%
44%
9%
11%
7%
6% 8%
Steel Food products Electronic goods Textile/Apparels Auto components Petrochemicals FMCG
According to the Government of West Bengal, the growth of the IT sector in West Bengal has been faster than the overall IT sector growth in India. With
locations like Rajarhat and Salt Lake developing into IT/ITES hubs, the demand for organised retailing is on the rise which is also expected to lead to
better quality of road infrastructure. Locations like Siliguri, Bhubhaneshwar, Ranchi, Burdwan, etc. are expected to come up in the future as important
logistics and warehousing hubs for the eastern region.
Some of the proposed infrastructure projects include Eastern Link Highway (stretching around 100 kms between NH-31 and NH-117), upgradation of
NH-34 to 4-lane status (connecting Kolkata with South and North Bengal), modernisation of the Netaji Subhash Chandra Bose airport, etc. Besides,
Dedicated Freight Corridor Corporation of India (DFCCI) has proposed to develop a Dedicated Freight Corridor (DFC) from Ludhiana to Son Nagar
(near Patna), with extensions to Duragapur/Bokaro/Tata Nagar. The corridor is expected to be spread across a total length of 1,280 kms.
Some of the upcoming projects include an FTWZ by Reliance Logistics around the Kona expressway and the Kolkata-Delhi National Highway (NH-2),
Kolkata International Logistics City (KILC, Howrah), and a 200-acre Auto SEZ at Guptamani (Kharagpur). The first phase of the Rs.10 billion KILC is
expected to be ready for handover in another 8-10 months and the entire logistics and distribution hub is expected to be completed in five years.
Locations with logistics activity: East zone

DARJEELING
JALPAIGURI
West Bengal TO SILCHAR
KOCH BIHAR
TO KANPUR
RAIGANJ
BALURGHAT
ENGLISH BAZAR
BEHRAMPUR
TO DELHI
BIRBHUM
BARDDHAMAN KRISHNANAGAR
DURGAPUR
PURULIYA
BANKURA NORTH 24-PARAGANAS
HOOGLY
HOWRAH KOLKATA
SOUTH 24-PARAGANAS
MEDINIPUR
WAREHOUSING HUB
TAMLUK
MAJOR LINKAGES
STATE BOUNDARY TO CHENNAI
DISTRICT BOUNDARY
STATE CAPITAL
South Zone
South India, because of its superior connectivity, owing to the presence of state-of-the-art port facilities and an intricate road and rail network, and
presence of organised markets in the retail sector, has always been considered to be a preferred region for setting up logistical/warehousing units.

10%
11%
35%
9%
15%
20%

The logistics industry has grown by leaps and bounds in the south. Traditionally, companies in the south used to take care of their own logistical
solutions but with economic empowerment there is a need to improve backward and forward linkages with leading companies looking at outsourcing
their operational requirements. Auto components, textile and retail industries are considered to be the major drivers for warehousing industry. In fact,
the rapid growth of organised retail space has led to a corresponding demand for quality logistics and warehousing solutions, generating a host of 3PL
companies.
Chennai is gradually emerging as the key warehousing hub in the south because of its strong infrastructural support, good connectivity and presence of
ports. The NH-4 which links Chennai to the western cities like Bengaluru and Mumbai has become the source of warehousing operation in the state.
The northern locations of the city like Madhavaram and Red Hills which connects to the cities of Hyderabad and Kolkata in the east have also grown in
prominence in warehousing space. Other important warehousing locations in the state include Trivotriyur, Minjur, Poonamallee, Sriperumbudur,
Irungatakottai, Chrompet, Numbal, Hosur and Madurai. The development of the Ennore port is expected to considerably increase the potential of the
state with respect to 3PL. Vishakapatnam in Andhra Pradesh, which also has fairly good connectivity and the presence of a strong port, might prove to
be a competitor to Chennai in a couple of years.
Locations with logistics activity: South zone

Andhra Pradesh
TO NAGPUR
ADILABAD
VIZIANAGARAM
SRIKAKULAM
NIZAMABAD
KARIMNAGAR VISHAKHAPATNAM
MEDAK WARANGAL
KHAMMAM EAST
GODAVARI
RANGAREDDY
HYDERABAD WEST
GODAVARI
NALGONDA KRISHNA
MAHBUBNAGAR
VIJAYWADA
GUNTUR
KARNATAKA KURNOOL PRAKASAM
ANANTAPUR
NELLORE
CUDDAPAH
WAREHOUSING HUB
MAJOR LINKAGES CHITTOOR
STATE BOUNDARY TO CHENNAI
DISTRICT BOUNDARY
STATE CAPITAL
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Locations in Andhra Pradesh like Hyderabad are also expected to witness growth in 3PL space particularly in the temperature controlled warehouses due
to the demand from the pharmaceutical and organised retail industry. Leading 3PL providers like Gati and Indo Arya have identified Hyderabad as a
potential investment destination. Other important locations in the state include Vishakapatnam, Vijaywada, Medchal, Kompally and Kukatpally.
Bengaluru is considered to be the most important hub for logistics and warehousing in Karnataka with Peenya and Whitefield being the most sought
after locations for 3PL in the state. The other major locations for logistics and warehousing in Karnataka include Mysore Road, Mangalore, Hoskote,
Davengere and Belgaum. The emergence of Bengaluru as a biotechnology hub with the presence of leading companies in the sector like Biocon has
increased the potential of the city as a feeder for logistics and warehousing, both within the state and outside. The growth of southern Bengaluru
especially around the Electronic City has inadvertently led to the development of Hosur in Tamil Nadu, due to its proximity to Bengaluru, being looked
at as a prime logistics destination. This aspect is being exploited by Tamil Nadu by offering very competitive land rates as opposed to that in Karnataka
causing friction between the two states
TO HYDERABAD
Tamil Nadu TIRUVALLUR Karnataka

CHENNAI GULBARGA
TO BANGLORE
VELLORE
BIJAPUR
WAREHOUSING HUB KANCHIPURAM
MAJOR LINKAGES TIRUVANNAMALAI

STATE BOUNDARY
DISTRICT BOUNDARY
DHARMAPURI RAICHUR
STATE CAPITAL
BAGALKOT
BELGAUM
VILUPPURM
SALEM
DHARWAR KOPPAL
ERODE
NILGIRIS CUDDALORE
GADAG
NAMAKKAL PERAMBAUR
BELLARY
ARIYALUR UTTAR
TIRUCHCHIRAPPALLI KANNAD
KARUR THANJAVUR HAVERI
COIMBATORE
TIRUVARUR
DINDIGUL DAVANGERE
PUDUKKOTTA NAGAPATTINAM
CHITRADURGA TO HYDERABAD
SHIMOGA
SIVAGANGAL
TENI MADURAI
CHIKAMAGALUR TUMKUR
UDUPI KOLAR
VIRUDUNAGAR
RAMANATHAPURAM
BENGALURU
MANDYA
TUTICORIN
TIRUNELVELI
KODAGU
WAREHOUSING HUB MYSORE
MAJOR LINKAGES
CHAMRAJNAGAR
STATE BOUNDARY
DISTRICT BOUNDARY KE
KANYAKUMARI RA
STATE CAPITAL LA
West Zone
The states in the west zone include Maharashtra and Gujarat. The west zone is considered to be one of the most active zones with regard to the
logistic/warehousing space. Factors like presence of well developed infrastructure, strong presence of industry, establishment of mature markets, etc.
have led to a concurrent demand for organised logistics solutions with respect to forward and backward linkages. This zone also has the presence of
established ports like Kandla and JNPT which are providing important sea linkages.

13%
32%
14%
8%
13%
20%
The Golden Triangle of Maharashtra namely Mumbai, Pune and Nashik along with Nagpur is witnessing the maximum interest in the warehousing and
logistical space. As with the other zones the growth of the retail sector is the main factor driving the growth of 3PL. Nagpur, due to its central location,
has been identified as the major logistic hub in the country. The setting up of the proposed cargo hub at Nagpur is expected to give a fillip to the
logistics and warehousing segment. Gati, one of the premier 3PL providers in the country, has identified Nagpur as its central distribution centre from
where goods will be moved to different distribution outlets across the country. Presently, the prevalence of the octroi duty in Maharashtra is acting as an
entry barrier in the sector; its gradual phasing out would see increased interest to acquire more property from major 3PL providers. Locations within the
state besides those already mentioned where warehousing activity is prevalent are Bhiwandi, Vashi, Waluj, Doli, Dharamtar and Kalamboli.
Locations with logistics activity: West zone
Maharashtra
NANDURBAR
JALGAON AMRAVATI NAGPUR BHANDARA

DHULE
AKOLA GONDIA
NASHIK WARDHA
BULDHANA WASHIM CHANDRAPUR
AURANGABAD YAVATMAL
JALNA HINGOLI
THANE GADCHIROLI
AHMADNAGAR
PARBHANI
MUMBAI BEED NANDED
PUNE
RAIGARH OSMANABAD
ANDHRA PRADESH
LATUR
SATARA SOLAPUR
RATNAGIRI
SANGLI
WAREHOUSING HUB
KOLHAPUR MAJOR LINKAGES

STATE BOUNDARY
DISTRICT BOUNDARY
STATE CAPITAL
www.knightfrank.com
Gujarat with its superior infrastructure and pro-developmental policies ranks high in the list of preferred 3PL destinations. Sarkej, just off Ahmedabad
city has some of the most prolific 3PL activity in the state. The development of the Delhi Mumbai Infrastructure Corridor is also expected to increase the
investment inflow from logistics providers into the state. The high internal connectivity and proactive governance has made the state a favourable
investment destination for the logistics sector. The rental values in the state for warehousing operators are low, ranging between Rs.8-12/sq.ft. per
month. The relative absence of the service industry, predominantly IT/ITES, has affected the state's visibility with respect to other industrial states. Major
warehousing locations, other than the ones already mentioned, include Baroda, Hazira, Jhagadia, Kandla, Ranoli, Surat, Umbergaon, Unjha and
Viramgam.
Gujarat
BANASKANTHA
PATAN SABARKANTHA
MAHESANA
KACHCHH GANDHINAGAR
SURENDERNAGAR KHEDA
KANDLA PORT AHMEDABAD PANCH
MAHAL
ANAND
JAMNAGAR VADODARA
RAJKOT
BHAVNAGAR
BHARUCH NARMADA
PORBANDAR
AMRELI
JUNAGADH SURAT
THE DANGS
WAREHOUSING HUB
MAJOR LINKAGES NAVSARI
STATE BOUNDARY
DISTRICT BOUNDARY VALSAD
STATE CAPITAL
The average rental values at prominent warehousing locations across the selected states are as given below. The locations mentioned are those where
warehousing activity is prolific.
Table 12: Average rentals for warehousing space

State Location Warehousing Rentals
(Rs./sq.ft. per month)
New Delhi Okhla 30 - 65
Haryana Bhiwadi, Manesar, Sonepat 10 - 20
Uttar Pradesh Ghaziabad, Noida 10 - 14
West Bengal Kolkata 15 - 20
Karnataka Peenya 15 - 20
Tamil Nadu Red Hills 19 - 28
Andhra Pradesh Medchal 12 - 18
Maharashtra Panvel, Bhiwandi 15 - 20
Gujarat Sarkej 10 - 15

Brief on major infrastructural projects affecting logistics in India

Infrastructure forms a key parameter for development and operations of the industrial sector as well as for the logistics and warehousing. Therefore, we
have mentioned a few important infrastructural projects in the country, which will not just help in improving the connectivity across the length and
breadth of the country but will also act as a catalyst of increased logistics activities around them.
1. Delhi Mumbai Industrial Corridor (DMIC)

Background:
! 1,483 km long western Dedicated Freight Corridor (DFC) project between Delhi & Mumbai to be commissioned by 2012
! An MOU was signed between MoCI and METI, Japan in December, 2006 to create a framework for mutual cooperation for the project
! GOI initiated the DMIC to leverage the economic benefits arising from the western dedicated freight corridor
DMIC route map
! GOI accorded 'in principle' approval to the DMIC Project Outline in August, 2007
Short listed industrial areas

! Meerut-Muzaffarnagar (Uttar Pradesh)
! Faridabad-Palwal (Haryana)
! Jaipur-Dausa (Rajasthan)
! Vadodara-Ankleshwar (Gujarat)
! Dighi Port (Maharashtra)
! Nimach-Nayagaon (Madhya Pradesh)
Industrial infrastructure
! New industrial clusters/ parks/ SEZs
! Upgradation of existing industrial estates/clusters
! Modern integrated agro-processing zones with allied infrastructure
! IT/ITES hubs and other allied infrastructure
! Efficient logistics chain with integrated multi-modal logistic hubs
Developing logistics facilities

Each common Investment Region/Industrial Area (IR/IA) will be provided with modern logistics infrastructure to serve containerised and
non-containerised cargo. The Integrated Multimodal Logistics Hubs will be situated at:
! Bawal and Palwal, Haryana

! Ajmer/Marwar, Rajasthan
! Palanpur in Gujarat
! Nashik, Pune in Maharashtra
! Dewas and Indore in Madhya Pradesh
! Envisaged port (Container, Ro-Ro, Bulk) terminals
! Bulk terminal, Ro-Ro facility at Dahej
! Break-Bulk terminal, Ro-Ro Facility at Maroli
! Container terminals at Hazira, Dighi ports
! State-of-the-Art Warehousing zones to be provided with inventory management and communication system integrating logistics components as well
as facilitating 3PL operators
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2. Eastern Freight Corridor

Along with the Western Freight Corridor or DMIC, on which the work has already started, the Government of India is also proposing an Eastern Freight
Corridor on the same lines.
This will run from Ludhiana in Punjab to Son Nagar in Bihar, with feeder routes extending upto Amritsar in north and Durgapur/Tatanagar in eastern
India.
! Route: Son Nagar-Mughalsarai-Allahabad-Khurja-Ludhiana

! Route Length: 1,280 km LUDHIANA
! No. of Lines: Double (Single between Khurja and Ludhiana)

! Maximum Speed: 100 kmph
DADRI
! Feeder Routes: 2,841 km
RAJASTHAN
Project Hightlights KANPUR
MUGHAL SARAI
DURGAPUR
! Fit for double stack container operation MADHYA PRADESH
! Capable of 30-32.5 tonnes axle load

! Upgradation of 4,500 km feeder routes for Eastern and Western corridors fit for 25 tonne axle load
3. Golden Quadrilateral
The Golden Quadrilateral (GQ) is the largest express highway project in India. It is the first phase of the National Highways Development Project
(NHDP), and consists of building 5,846 kms of four/six lane express highways connecting Delhi, Mumbai, Kolkata and Chennai, at a cost of
Rs.580 billion. According to National Highways Authority of India statistics, as of September 2007, 96% of the entire work has been completed.
Economic benefits
The GQ highway project will interconnect many major cities and ports. It will give an impetus to truck transport throughout India as well as aid in the
industrial growth of all small towns through which it passes. It will also provide vast opportunities for transport of agricultural produce from the
hinterland to major cities and ports for export. In addition, it will provide job opportunities in its construction as well as demand for cement, steel and
other construction materials.
4. North South and East West Corridor (NSEW)

The North South-East West Corridor is the largest ongoing expressway project in India. It is the second phase of the National Highways Development
Project (NHDP), and consists of building 7,300 km of four/six lane expressways connecting Srinagar, Kanyakumari, Porbandar and Silchar. As of
September 2007, 20.37% of the entire work has been completed, with the final completion date set as February 28, 2009.
Map depicting Golden Quadrilateral and NSEW Corridor
GOLDEN QUADRILATERAL
NORTH-SOUTH CORRIDOR
EAST-WEST CORRIDOR
Key demand drivers for the logistics and warehousing sector

Higher economic growth
! Increased Export-Import trade has grown at 20.17% CAGR in the last five years
! Ministry of commerce has targeted to increase India's share in global trade to 1.6% from existing 0.8% in the next five years
Improving infrastructure in the country

! NHAI has signed three BOT projects concession agreements at a cost of Rs.8.79 billion
! As per the 11th five year plan, infrastructure spending as a percentage of GDP is expected to increase from the existing 4.7% to 8% in the next
five years
! Developments of projects like Golden Quadrilateral, North-South and East-West highway
! Road transportation account for 65% of the freight traffic in India
Expected increase in port capacity

! The existing sea port capacity of 737 million tonnes per year is expected to double by 2012
! Sea and airport development projects have been thrown open for private development by the government with intentions of carrying out larger
PPP projects
Development of the railways network

! Formation of SPV for execution of various projects
! Provision for creating strategic rail links to ports, improve hinterland connectivity and development of multi-modal transport corridors
! The Dedicated Freight Corridors (DFCs) are expected to have a total rail length of 2700 kms (Eastern and Western DFCs, together )
Simplified tax regime

! Phasing out of the Central Sales Tax (CST) in the next three years (by 2010-11)
! Increased scope for value-added services in the warehousing and logistics sector
! Paving way for value-added taxation (VAT) becoming a central level tax leading to smoother logistics and distribution
Increased consumption
! India's consumption rose 21.38% to Rs.468.93 billion. Fueled by a rising young, highly-educated, middle-class population, India's economic boom is
not expected to slow in the near future
! With India's personal consumption rates at a staggering 67% of GDP second only to the United States this middle-class spending on luxury goods is
creating a robust market
! The new mass merchant-style organised retailing, which today makes up about 5% of the overall market, is expected to grow to Rs.2557.79 billion
and increase the overall retail market by a CAGR of 21.8% by 2015
! The Index of Production of Consumer growth has grown by 62% in the past six years (2001-2007)
Organised Retailing Forecasted Sector Growth
Stationery
Footwear
Jewellery
Home Improvement
Food Services
Durables & Mobiles
Clothes & Fashion
Food & Grocery
0% 10% 20% 30% 40% 50%
2004 2015
Source: Logistics Management
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Table 13: State wise attractiveness table for logistics/warehousing

Statewise Sub parameters HR DL RJ UP WB GJ MH AP TN KN
attractiveness
parameters
Infrastructure Road M H H M M H H M H H
Connectivity
Power L H L L H H H M M M
Rail M H M H H M H M H H
Connectivity
Airport L H L M M M H H H H
Connectivity
Sea Port L L L L H H H H H M
Connectivity
Government Legislative impact M H M L H H M H M L
Policy and Reforms
Govt proactiveness L H M L H H M M M L
for the sector
Land cost H H M M H L H M H M
Proximity to Distance (km) from H H M M H M H M M M
established the closest city/estab.
market market
Key:
HR - Haryana DL - Delhi RJ - Rajasthan UP - Uttar Pradesh WB - West Bengal GJ - Gujarat MH - Maharashtra AP - Andhra Pradesh
TN - Tamil Nadu KN - Karnataka
H - High M - Medium L - Low
According to Knight Frank Research, the states of Delhi, West Bengal and Maharashtra emerge as the most favourable destinations for growth of the
logistics and warehousing sector in India. The emergence of these states is a reflection on the presence of relatively organised markets as seen in the
cities of New Delhi, Kolkata and Mumbai. These states ranks high on its potential for reforms and proactive structure which shows that there is still
ample scope for growth for the logistics and warehousing sector within these markets, the presence of excellent port (sea/air) connectivity is also
expected to hasten this growth. The key factor which is expected to contribute to this growth is the steps the respective state government takes in
improving the quality of infrastructure and maintaining an investor friendly environment in their respective states. The rising inflation rates which is
taking a toll on the price of commodities and the market correction which is currently being witnessed by the country in all sectors are some of the
serious challenges which have to be overcome before further growth can be realised.
Case Study: Transport Corporation of India (TCI)

Company Background
TCI Group with its 49 years of experience and a turnover of over Rs.12 billion is India's integrated supply chain and logistics solutions provider with a
complete range of services.
With its customer-centric approach, world class resources, State-of-Art technology and professional management, the group follows strong corporate
governance and is committed to value creation for its stakeholders and social responsibilities.
Fact file
! TCI has 15% market share of the organised logistics industry
! Extensive network of over 1,100 company-owned offices
! Over 5,700 employees
! Operates in six business segments
Transportation
Express (Courier)
Supply chain solutions (SCS)
Coastal shipping
Windmills
Trading (fuel stations)
! Owns a fleet of over 3,000 trucks and 5 cargo ships
! Operates approximately 7000 trucks on a daily basis
! It owns about 15% of it while the rest are leased
! 6.5 mn.sq.ft. of state-of-the-art warehousing space
! Total installed windmill power generation capacity of 11.5 MW
! The group moves goods valued at more than 1.5% of India's GDP
! XPS, the courier services arm of TCI is amongst the top three express distributors in India
The company forayed into 3PL solutions by forming a 49:51 Joint Venture (JV) with Mitsui & Co in 1999. The JV provides complete logistics solutions, to
Toyota Kirloskar Motors India. TCI is the first road transport organisation in the country to achieve ISO 9001:2000 certification in service quality for its
operations.
TCI's business segments

Supply Chain Management
Logistics
Warehousing
Road/Rail/Sea/Air
Courier & Cargo
Cold Chains
Cross Decks
FTL & LTL
Bonded
ODC
DC’s
Clearing & Forwarding

FTL Full Truck Load LTL- Less than truck load DC Distribution Centre ODC Over dimensional cargo/Hazardous
Source: ICICI Direct Research
www.knightfrank.com
Business Model Transformation (2007-09)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
FY07 FY08e FY09e
Transport Express Supply Chain TCI Seaways division Power division

The share of the Supply Chain Solutions (SCS) segment is expected to increase from 13% in FY07 to 19% in FY09. The company being transformed
from a transport company to an integrated logistics service provider, the share of the transport segment is expected to be brought down to 50% in
FY09 from 52% in FY07. This segment still remains the maximum contributor to the revenue generation of the company. The express cargo segment is
expected to form approximately 25% of the company portfolio over the next two years.
Percentage contribution to EBITDA
100%
8% 8% 7%
90%
80% 17% 19% 20%
70%
20%
60% 23% 26%
50%
40% 28%
27% 26%
30%
20%
10% 26% 24% 21%
0%
FY07 FY08e FY09e
Transport Express Supply Chain TCI Seaways division Power division
Revamping of the revenue mix will consequently result to a change in contribution to Earnings Before Interest, Taxes, Depreciation and Amortisation
(EBITDA) from each segment. The SCS and XPS divisions with high EBITDA margins will contribute over 55% to EBITDA, while the transportation
business will see its contribution decline to 21% from the existing 26% levels.
Out of the various business segments of TCI, transport division has been the key contributor to the revenue. However, the company has realised that
the EBITDA margins are not very high in this segment. Verticals like supply chain and express courier services has comparable EBITDA margins and thus
the company has been in the process of increasing their share in the overall business model. The target for contribution from the transport division is
expected to further reduce and stabilize at 40%. The EBITDA contribution from this business is expected to decline to 21% in 2009 from today's 26%.
The contribution of SCS and XPS to EBITDA is expected to increase from 48% in 2007 to 52% in 2009.
Since the company has identified a huge supply demand gap in the number of players providing value added end-to-end logistics services, it plans to
go ahead with its plans to increase the share of SCS and XPS in its business portfolio.
Annual growth in operating profits
140 10%
9%
120
8%
100 7%
Percentage (%)
Rs Crores
80 6%
5%
60 4%
40 3%
2%
20
1%
0 0%
FY06 FY07 FY08e FY09e
EBITDA margins Operating profit margins
The demand for logistics is the maximum from the auto sector for the company. This is followed by Fast moving consumer goods (FMCG), Telecom,
Pharma and chemicals.
Table 14: List of key clients

Auto FMCG Telecom Pharma Chemicals
Toyota HLL Nokia Dr Reddys MCC PTA
Bajaj P&G Reliance Sunil Health Indo Rama
Maruti Nestle Motorola Bharti Health PRAXAIR
Tata Cadbury Ericson
Mahindra & Mahindra Amul Tata Tele
Sonalika Office One
TVS CCD
JCB
TCI Supply Chain Solutions: the real estate aspect

TCI has around 220 properties across the country, which is currently being used as branch offices or warehouses. With most cities expanding due to
increasing urbanisation, some of these properties, which were earlier situated on the outskirts of cities, are now within city limits.
The company invested approximately Rs.220 million in land banks in FY07. However, the amount of capital expenditure proposed for FY08 is expected
to be around Rs.1.10 billion. A total of Rs.1.30 billion is expected to be invested into warehousing land till the year 2010.
The company has decided to move its logistics activities out of the cities and commercially develop the existing land. Initially the company plans to
develop four properties with a total area of 12.54 acres over FY08-12. These properties are located in Delhi, Bengaluru, Dehradun and Ahmedabad. The
company plans to come up with residential developments in Bengaluru and Ahmedabad. While, the properties in Delhi and Dehradun have commercial
development proposed.
www.knightfrank.com
Outlook
Industrial
The current growth of the industrial sector can be primarily attributed to the economic growth in the sector. Though there has been a temporary dip in
the industrial growth, the growth momentum is expected to be sustained in the long run. The recovery time of the industrial sector in the current
scenario is expected to be of strategic importance. From the analysis of the past years' data, it can be inferred that Indian industry have followed a
uniform cyclic pattern, lasting for three years. The Indian industrial GDP data (at constant prices) from 1970-71 to 2002-03 shows that upswings for the
last three years is on the downslide and strategically, it implies that the Indian industry has to take into account this cyclic behavior in sales planning,
sales forecasts, pricing and capacity expansion. The factors which are known to hinder industrial growth are:
! Reservation for small scale sector

! High customs tariffs
! Rigidities in labour law acting as impediments to building large firms and reaping the economies of scale and scope
! Frictions faced in the creation and closure of firms in response to normal competitive market dynamics
! Lack of clarity in the structure of indirect taxes affecting resource allocation
! Surge in global oil price
! Increasing inflation
! Cheaper goods from China
The developed countries have been able to resolve the issue of cyclic behaviour through strong fiscal management and a growing preference towards
the services sector. The upswing in the Indian industrial scenario can also be sustained by emphasis on fiscal management by the State and aggressive
pursue of reforms related to trade, labour and overall economy.
SEZ
Special economic zones are avenues for growth which promote urbanisation and privatisation in the country. This growth needs to trickle down to the
local economies in order to attain higher growth rate while removing regional gaps. Government of India is evaluating the concept of Investment
Regions, modelled on Pudong, Rotterdam and other successful ventures across the world. To get the maximum possible benefit from the proposed
investment in infrastructure, the Government of India has proposed to come up with a plan for setting up 5 or 6 such regions in India. The proposal,
currently under debate, plans for a single mega industry-led cluster that will have a planned network of high quality roads, air and sea ports and power
plants connecting every industry and development area in a geographical area of 250-300 sq.km. It has also been proposed to include the existing SEZs
in such Investment Regions. In order to attain balance in revenues from growth of SEZs and land pool, holistic approach for development of SEZs is
required, where case to case handling of SEZ should be based on nature, potential and location of SEZ in the macro zone.
Another factor which should be taken into account is the procedure related to land acquisition, as the development of SEZs is giving rise to
controversies, particularly among landless agricultural labourers who fear loss of livelihood and expect little by way of compensation. This has slowed, if
not discouraged, the private sector developing the SEZs and has also affected FDI flows into the SEZs. The challenge, therefore, is to simultaneously
boost agricultural productivity, while creating enough manufacturing and other alternate employment opportunities for the non-agricultural sector.
The basic difference between the Chinese and the Indian model of SEZs lies in their structure. In China, SEZs are predominantly manufacturing
industries-based, whereas in India we have service sector based SEZs as well. Currently, in China, over 20% of the FDI flows into SEZ which generate
10% of exports. The basic factor for success of SEZ in China is their investor-friendly policies. The Chinese Model includes: unique location, large size,
attractive incentive packages, liberal customs procedures, flexible labour laws, strong domestic market, and allows local governments to administer the
SEZs. The establishment of the SEZs has undoubtedly helped to increase the volume of international trade and will continue to do so. Further, a large
amount of foreign investment has found its way not only into the export trade, but also into infrastructure construction and commerce. Foreign
companies have been encouraged to establish their presence in the territories and the export industry has grown. Advanced foreign technology has
been brought in with the inflow of foreign investment.

In 2005, the Indian logistics market was worth an estimated Rs.660.3 billion. The transportation logistics function contributed towards the largest share
of the market followed by warehousing. The logistics market in India is fragmented predominantly due to the large presence of the unorganised service
providers. Logistics, which should be considered to be one of the lifelines of a country the size of India, has so far been treated as a secondary activity.
The industry broadly consists of freight consolidators, transporters, warehousing specialists, and organised 3PL solutions providers; in the increasing
order of value addition to the service.
Warehousing in India has been considered as a storage function, and as with the logistics function, most companies treat it as a secondary activity,
neglecting the complexity of the operations involved and the cost benefits that can be derived. This segment also forms a significantly large portion of
the entire market, as multiple warehousing is a very important cost saving requirement in the Indian scenario.
27
Currently, warehouse management in India follows more of a Clearing and Forwarding (C&F) agent model. Most of the warehouses are in the form of
depots or stocking points managed by agents for companies on a contractual basis and are not managed very professionally. Most of these C&F depots
are used by companies to facilitate transfer of goods between stock points. Concepts such as automation, vertical space utilisation, and the use of
warehouse management systems were quite unheard of. However, these are slowly but steadily gaining prominence.
The 3PL service providers assume end-to-end responsibility to manage a part or the company's entire supply chain. The growth of 3PL service providers
in India has introduced the use of global supply chain management standards in the country. However, the 3PL service providers form a miniscule part
of the entire market, comprising around 3% of the Indian logistics.
Roads carry the bulk of the freight in India. The roads in India have a history of being unsafe and in very bad conditions. This is changing with the
construction of the Golden Quadrilateral and North-South-East-West (NSEW) highway networks, traversing the entire country. The highway
infrastructure is highly strained, as it comprises only around 1.4% of the total road network in India but carries in excess of 50% of the country's total
freight. Even though rail freight is more cost effective in terms of cost per unit distance and per unit weight, the efficiency of the rail freight system in
India has for long been low and it has also been considered as a secondary freight mode. Previously, rail was the most preferred mode of freight;
however, bad pricing and inflexibility have resulted in the railways experiencing a downturn. With the Indian government announcing plans to open up
the containerised rail freight sector to private operators this is expected to change. Companies such as APL Logistics, Maersk Logistics, Gateway District
Parks, Central Warehousing Corporation, JM Baxi group, Adani Logistics, and Reliance Logistics are expected to enter into this segment. The barriers to
enter this segment are rather low. Companies need to have a minimum turnover of around Rs.1 billion in India. To get a permit license for 20 years they
need to pay the government between Rs.42.6 million and Rs.426 million, depending on whether they want to operate on a specific route or an all India
basis. Rail freight comprises around 670 million tones, which is around 33% of the total domestic traffic in India. Companies in the metals, heavy
machinery, and engineering and cement sectors are expected to benefit from the opening up of the railways to private participants as these carry bulky
cargo over long distances. Previously, costs of trucking were very high as the final destination could be in a remote corner of the country, where a
back-haul arrangement would be nearly impossible. In sectors such as these, the cost of entire logistics spending was as high as 75%. Long distance
transportation by rail can help cut costs in these sectors. With the railways department mulling a separate freight corridor, this sector is likely to
experience a positive trend. This is keeping in mind that passenger trains get higher priority over goods trains and the new corridor can run parallel to
existing lines to places of heavy activity such as ports.
Table 15: SWOC of logistics and warehousing sector in India
Strengths Weaknesses
Increasing per capita income High logistics cost as a % of GDP (13 -4%)
High GDP growth Lack of use of technology in the sector
Land availability Lack of effective warehousing management systems
Rising Industrial Production High risk involved in fleet movement
Availability of manpower Low quality of existing infrastructure
Large coastline Lack of skilled labour
Good port connectivity Absence of established regulatory framework for the sector
Lower profit margins in comparison with other development options
Opportunities Challenges
Market at nascent stage Expected lower acceptance for organised logistics services
Increase in container traffic movement at Indian ports Delay in implementation of ports' capacity expansion projects
Provision for increased PPP in the sector Geographical size and diversity of the country
Phasing out of the Central Sales Tax (CST) Security concerns
Setting up of Free Trade Warehousing Zones (FTWZs)
Dedicated Freight Corridors (DFCs)
Increased retail demand
Lack of temperature controlled warehouses (cold storages)
Increased trade activity
Growth potential of express transport
Inclination towards outsourcing services to specialists
Proposed Air Cargo Complexes across the country
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The large unorganised segment of the logistics industry in India poses a tough competition to the companies in the organised one. The unorganised
segment service providers have lesser overhead costs and are hence in a position to provide extremely competitive rates. This is expected to have a
considerably large impact in the future, posing a challenge especially to the 3PL service providers. Besides, since entry barriers are also low, there is the
possibility of intensified competition even in the organised sector. Complex tax laws and infrastructure bottlenecks are also issues to be dealt with.
The growth of the Indian economy, especially the rise in the manufacturing sector is one of the key growth drivers of the logistics industry in India.
Apart from this, initiatives by the Government to remove bottlenecks in the logistics infrastructure are also drivers for growth in the sector that is
expected to grow at a CAGR of 6.5% from 2005 to 2012.
Comparative analysis of developing economies

The comparative analysis has been carried out in order to understand the growth potential of the logistics and warehousing segment in various
developing economies. The countries have been rated on two basic parameters of logistics and warehousing potential and economic growth potential.
The analysis is of a qualitative nature and the countries considered are Brazil, Russia, India, China, Thailand, Singapore, Malaysia and Indonesia on a
High-Low format.
High
Logistics & Warehousing potential
China
India
Russia
Brazil
Malaysia
Singapore
Thailand
Indonesia
Low High
Economic Growth Potential
Source: CIA World Factbook, United Nations Industrial Development Organization, IMD International
Logistics and Warehousing potential

! Overall connectivity: The points for this parameter have been allotted by considering the spread of airports, waterways and highways in each
country
! Apparent consumption: It is defined as the output plus imports less exports. It is thus the right measure to gauge the internal consumption or the
demand existing in the country.
! Infrastructure initiatives: The points have been awarded on the basis of the infrastructure index
! Industrial production growth rate (IGPR): This entry gives the annual percentage increase in industrial production (includes manufacturing, mining,
and construction)
Economic growth potential

! Economy: The points for this sub-parameter have been awarded on the basis of Gross domestic product (GDP) of each country
! Volume of international trade: Import and export volumes for each country
! Political risk index: The points have been awarded on the basis of the Global political risk index (GPRI) which takes into account factors like
government, society, security and the economy
! Consumer price inflation (CPI): The points for this parameter have been awarded on the basis of the percentage change in the index (negative scale)
Parameters affecting logistics in India
Volumes
of international
trade
India
Economy
Consumer Turn around times
Price and efficiency
Inflation Connectivity at Indian ports
(% change)
Apparent consumption
Index of Industrial Production India lags behind in terms of turn-around

times at its ports. This being the major
factor for lower EXIM trade in spite of very
high demand.
Infrastructure
initiatives
According to Knight Frank Research, the developing economies can be ranked as below in terms of Logistics and Warehousing potential vis-à-vis the
economic growth:
Table 16: Ranking based on logistics potential

Country Rank
China 1
India 2
Russia 4
Brazil 3
Malaysia 6
Singapore 5
Thailand 7
Indonesia 8
India and China get the maximum ranking for apparent consumption indicating increasing expenditure patterns. These two countries also have large
population base and thus the demand is expected to sustain for these two developing economies.
At present China has better infrastructure in terms of the port capacity and turn-around times. The concept of SEZs is also much more common in
China. With the number of SEZs proposed to come up in India, the supporting infrastructure for the sector is expected to improve siginificantly leading
to reduction in turn-around time. This is expected to further lead to reduction in logistics cost as a percentage of the GDP.
www.knightfrank.com
Table 17: Comparison of India with other developing economies

Parameter Highest Ranked Country Ranking for India
Economy China 3
Volumes of International Trade China 4
Political Risk Index China 2
Consumer Price Inflation (% change) Singapore 4
Connectivity India 1
Apparent Consumption China 2
Infrastructure Initiatives Singapore 4
Industrial production growth rate China 3
Source: CIA World Factbook, Eurasia Group (political & economic risk analysis firm), United Nations Department of Economic and Social Affairs
! India gets ranked the highest in terms of extent of connectivity within the country. This factor is expected to boost the scope for further
strengthening of the infrastructure requirements of the logistics sector
! Volumes of international trade are very low in the country vis-à-vis the other developing economies. The long turn-around times at our ports are also
impeding the growth in international trade. With increasing demand for goods in the country, India is expected to perform better on this parameter.
! India ranked low for infrastructure initiatives, there are concerns regarding the commissioning of various infrastructure projects under construction in
the country.
! With increased economic activity, India has also seen huge increase in consumer price inflation over the years. This is a major deterrent to the rise in
demand in the country.
! The country is ranked high on apparent consumption.
Glossary
! 3PL: Third Party Logistics
! GDP: Gross Domestic Product
! PPP: Public Private Partnership
! FDI: Foreign Direct Investment
! CAGR: Compound Annual Growth Rate
! TEU: Twenty feet Equivalent Units
! GSDP: Gross State Domestic Product
! NSDP: Net State Domestic Product
! RIICO: Rajasthan State Industrial Development & Investment Corporation Ltd.
! ICD: Inland Container Depot
! KMP: Kundli Manesar Palwal Expressway
! PPP: Public Private Partnership
! SPV: Special Purpose Vehicle
! CST: Central Sales Tax
! VAT: Value Added Tax
! DFC: Dedicated Freight Corridor
! C&F: Clearing & Forwarding
! INR: Indian National Rupee
! IIP: Index of Industrial Production
! IGPR: Industrial production growth rate
! CPI: Consumer Price Inflation
! TCI: Transport Corporation of India
! SCS: Supply Chain Solutions
! FTL: Full Truck Load
! LTL: Less than truck load
! DC : Distribution Centre
! ODC: Over dimensional cargo/Hazardous
! EBIDTA: Earnings Before Interest, Taxes, Depreciation and Amortisation.
! XPS: Xpress Parcel Service
! EXIM: Export Import
! LOA: Letter Of Approval
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Bibliography
Brochures/information booklets
! Rajasthan State Industrial Development and Investment Corporation Limited
! Haryana State Industrial and Infrastructural Development Corporation Limited
! Uttar Pradesh State Industrial Development Corporation Limited
! West Bengal Industrial Infrastructure Development Corporation
! Gujarat Industrial Development Corporation
! Maharashtra State Industrial Development Corporation Limited
! Andhra Pradesh Industrial Infrastructure Corporation limited
! Tamil Nadu Industrial Development Corporation
! Karnataka Industrial Areas Development Board
! Government of West Bengal, Annual Report, year 2006-2007
! Skill gaps in the Indian Logistics Sector: A white paper (KPMG & CII)
! The Logistics Sector in India: Overview and Challenges by Pankaj Chandra and Nimit Jain
! Supply Chain Infrastructure Initiatives- Railways a presentation by N. Madhusudan Rao.
! DMIC Status & Opportunities, a Presentation by Delhi-Mumbai Industrial Corridor Development Corporation Limited.
! World Bank
! Department of Industrial Policy & Promotion, Govt. of India
! Ministry of Statistics and Programme Implementation, Govt of India (IIP)
! CIA World Factbook
! United Nations Industrial Development Organisation
Websites
! www.sezindia.nic.in
! www.ibef.org
! www.tcil.com
! www.ftwz.com
Annexure 40
State comparison chart

Sr No State Capital Area Population Literacy Human NSDP NSDP Per Exports National Rail International Domestic Seaport Potential
(sq km) on (Census) Rate Development (US$ growth Capital (US$) Highway Length Airport Airport
2001, million Index billion) (10 years) Income million length (km) (km)
(US$)
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1. Haryana Chandigarh 44,000 21 67.90% 0.509 7.1 6.50% 592 2,666 4,468 1,548 None Chandigarh NA Agro-based,
Electronics,
Handloom, Hosiery,
Textiles, Export
Oriented Units,
Petrochemicals,
Property
Development and
Retailing
2 Rajasthan Jaipur 342,239 56 61% 0.424 11.5 6% 327 965 5,585 5,894 Jaipur Jodhpur, NA IT - ITES, Electricity
Udaipur, generation and
Jaisalmer distribution
3 Delhi New Delhi 1,483 13.8 81.67% 0.737 17.8 15.38% 1,099 3,514 72 N.A. Indira Gandhi Palam NA Healthcare
(65 Kms: International
Delhi Metro) Airport
4 Uttar Pradesh Lucknow 240,928 166.2 56.27% 0.388 36.3 NA 210.53 531.9 5,599 5,440 Lucknow, Agra, NA Biotech, IT- ITES
Varanasi Kanpur,
Allahabad
5 West Bengal Kolkata 89,000 80.2 68.60% 0.472 21.5 8% 395 2,800 2,325 3,681 Kolkata Bagdogra Kolkata, IT-ITES, Tourism
Haldia
6 Gujarat Ahmedabad 196,000 50.6 69% 0.479 22 12.40% 833 1,400 2,871 5,186 Ahmedabad Surat,
Vadodra,
Jamnagar
Industry Report 2008
7 Maharashtra Mumbai 308,000 96.9 77% 0.523 35.3 4.70% 621 14,875 4,176 5,450 Mumbai, Pune, Mumbai Leisure &
Nagpur Aurangabad, entertainment,
Nashik, Biotechnology
Kolhapur
8 Andhra Pradesh Hyderabad 275,068 76.2 60.47% 0.416 49.3 9% 519 93.65 4,472 4,752 Hyderabad Visakhapatnam, Visakha Electronic
Tirupati, patnam Hardware,
Rajahmundry, Semiconductor,
Warangal, Gems & Jewellery
Vijayawada, Industry, Mines
Donakonda, and Minerals
Kadapa
Puttaparthy
9 Tamil Nadu Chennai 130,000 62.1 73.50% 0.531 NA NA NA NA 4,183 NA Chennai Madurai, Chennai,
Tuticorin, Ennore and

Tiruchirapalli, Tuticorin
Coimbatore
10 Karnataka Bengaluru 19,200,000 52.8 67.04% 0.478 47.32 9.20% NA NA 3,843 3,000 Bengaluru Mangalore, New Engineering,
Hassan, Mangalore Electronics,
Mysore, Port, Automobile &
Gulbarga Karwar Port Auto Components
Industry, Textile &
Apparel Industry,
Agro &
Food Processing
Knight Frank
Source: IBEF - India Brand Equity Foundation

Knight Frank Industry Report 2008
Industry Report 2008 Knight Frank
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Knight Frank Industry Report 2008

• Special Economic Zone ............................................................................................................................................................................6

• Logistics and Warehousing.......................................................................................................................................................................7

Industrial sector ........................................................................................................................9

Special Economic Zone............................................................................................................14

Logistics and Warehousing .....................................................................................................17

• Regulatory framework governing logistics and warehousing operations in India.....................................................................................18

• Brief on major infrastructure projects in India .........................................................................................................................................26

• Case Study: Transport Corporation of India Limited (TCI).......................................................................................................................30

Zones selected for the Industry Report

Industrial Park/Industrial Estate

Table 1: Classification of Industrial Parks

Industrial Park Scheme, 2008

Criteria for approval

Special Economic Zones (SEZs)

Process flowchart for setting up a Special Economic Zone (SEZ)

Application submitted to Chief Secretary of State with details on

• Proposal forwarded to Deptt of Commerce, Govt. of India

• Approval committee issues LOA (valid for 1 year)

Logistics and Warehousing

Overview of India's container freight segment

Traffic handled at major ports in India

April-Dec 2006 April-Dec 2007

Source: Government of West Bengal (Annual Report 2006-07)

Container Traffic Growth in India

Container Traffic Growth

Source: News Publications

• Uttar Pradesh (UP)

Table 2: Growth potential for industrial region: North zone

Source: Knight Frank Research

Table 3: Growth potential for industrial region: East zone

Source: Knight Frank Research

Table 4: Growth potential for industrial region: South zone

Source: Knight Frank Research

Table 5: Growth potential for industrial region: West zone

Source: Knight Frank Research

Table 7: Prime industrial estates (for each state)

Source: Knight Frank Research

Special Economic Zones (SEZs)

The main objectives of SEZ act are:

Distribution of land for notified SEZs

AP Gujarat Haryana Karnataka Maharashtra Tamilnadu Others

Source: Knight Frank Research

Sector-wise classification of notified SEZs

Table 8: Distribution of SEZs across the various states of India

Free Trade and Warehousing Zones (FTWZ)

Process flowchart for setting up an FTWZ

Approval required from Board of Approval (BoA) in the Department of Commerce

The developer shall be permitted to sale/lease/rent out warehouses/workshops/office-space

Table 9: List of FTWZs in India

Source: Knight Frank Research, www.sezindia.nic.in

Logistics and Warehousing

Investment scenario in logistics sector

Table 10: Investments in the logistics sector

Source: Knight Frank Research

Table 11: Supply statistics of 3PL operators in India

* Only in the eastern region Source: Knight Frank Research

Regulatory framework governing logistics and warehousing operations in India

Percentage Contribution for Logistic Demand

Auto Component Pharmaceuticals FMCG Cement Textiles IT Components

Source: Knight Frank Research

Locations with logistics activity: North zone

SAHARANPUR Uttar Pradesh

AJMER TONK KARAULI