Making logistics cashless can reduce 40% of India's cash needs

Post demonetisation of high value currency, the logistics industry is grappling with cash shortage which has affected fleet operations across the nation and has crippled the Indian highways. Fleet owners have come to a bottleneck and cash shortage is threatening delivery of goods to consumers and businesses. This is understandable as, in India, road logistics is a USD 100-150 billion industry growing at 13-15%. Within road logistics, trucking amounts to USD 80-100 billion spend of the overall road logistics spend. 90% of trucking spend and 40-50% of the non-trucking logistics spend is rendered in cash.

About 85% of the fleet owners who own less than five trucks spend hard cash towards diesel purchase, which comprises 45-50% of the cost of trucking. Toll charges - which amount to 10-15% of trucking cost and other overheads such as driver wages and vehicle maintenance are also disbursed in cash. Only EMIs and replacement capex including tyre-related expenses are done to an extent through digital modes such as bank transfers and cheque payments. Overall, road logistics cash spend is estimated to be USD 100-110 billion or INR 6,50,000 - 7,50,000 crores which would easily add up to 40% of the cash in circulation in our economy. This is assuming the multiplier effect of currency that applies both ways, that is, the drivers who now get paid through digital modes will largely continue to spend through digital modes (also enabled by the current push towards cashless economy)

Making road logistics cashless has the potential to reduce Indian economy’s cash needs by 40% and can drive demonetisation forward and revamp the entire sector, by making it faster, reliable and more efficient.

Operations in the trucking sector can be made entirely cashless through the use of E-POD to get direct payment transfers from customers, automated bank transfers with the breakthrough same day settlement for brokers, integrated payment solutions with fuel companies for dealer payments and toll payments can be achieved through NHAI initiative on FASTag through RFID tags and wallet solutions. Also, fleet owners can remunerate truck driver wages, reimbursements and incentive payments directly through the Jandhan accounts.

Apart from digitisation and faster turnaround of trucks, cashless trucking economy will bring significant second order benefits. It will ensure less inefficacy owing to proper accounting of cash-related wastages (fuel, toll payments), eliminating instances of kerosene mixing by drivers and poor quality roads’ usage to avoid toll cash, which also directly leads to the poor health of the fleet and poses a safety hazard. On the other hand, drivers will face less harassment from RTO and sales tax officers on highways and check posts. It will also improve road safety and adherence to regulations as it is a level playing field for non-compliant and compliant fleet owners, ending overloading and violation of safety norms. Truck drivers, loaders and all the large skill pools can be brought into the mainstream economy and will qualify for loans from financial institutions. Furthermore, it will also ensure employers and contractors pay minimum wages to workers in this sector. Lack of in-hand cash will reduce instances of substance abuse (including alcohol) and negatively impact the commercial sex worker trade on the highways which often leads to contraction of HIV amongst truck drivers.

There is short term pain to the sector due to lack of cash but in the long term, it can turn around the sector completely by making it efficient and safer and contribute significantly in making India cashless.