Tech-led intra-city logistics seen easing cost burden for MSMEs

The Centre for Digital Economy Policy Research, in collaboration with IIT Delhi, has released a report examining how technology-enabled intra-city logistics can reduce costs and improve efficiency for Micro, Small and Medium Enterprises (MSMEs). Titled 'Study of Technology-Enabled Intra-City Logistics for MSMEs', the report was launched on January 16 at India Habitat Centre, New Delhi.

The report assesses the role of digital goods transportation services in supporting day-to-day business operations of MSMEs by addressing challenges such as high transport costs, unreliable vehicle availability and delays in goods movement within cities. It draws on interviews with MSMEs, service providers and analysis of aggregated data from technology-enabled logistics platforms.

The report was released by Praveen Khandelwal, Member of Parliament and Secretary General of the Confederation of All India Traders, and  Ashwini Mahajan, Co-Convener of Swadeshi Jagran Manch.

MSMEs contribute nearly 30 per cent of India’s GDP and 45 per cent of industrial output, yet continue to face difficulties in intra-city logistics. The study finds that technology-enabled goods transportation services have become a key enabler for small businesses, helping them manage daily operations more efficiently.

Speaking at the release, Praveen Khandelwal said lowering logistics costs for MSMEs is critical for India’s development. He noted that a large share of logistics costs in India comes from road transport and said improving cost efficiency in road-based and intra-city logistics is essential to reduce overall logistics costs.

 Ashwini Mahajan said MSMEs have long been the backbone of the economy and have demonstrated their capabilities with the support of technology. He highlighted India’s growing technology ecosystem and said the country has strong potential to take a leading global role.

Jaijit Bhattacharya, President of the Centre for Digital Economy Policy Research, said a significant portion of road transport logistics costs comes from intra-city goods movement. He said technology-enabled services are reducing these costs while improving reliability and time efficiency for MSMEs. He added that higher taxes could make such services unaffordable and reduce the benefits gained through technology adoption.

The study shows that business users make up around 71 per cent of users on technology-enabled goods transportation platforms and account for nearly 97 per cent of intra-city goods transportation orders across two-wheeler, three-wheeler and four-wheeler categories. Among surveyed MSMEs, 73 per cent reported lower transportation costs, 95 per cent saw better on-time delivery of goods and nearly 27 per cent expanded their customer reach through on-demand logistics services.

The report notes that faster vehicle availability and access to vehicles of the right size allow MSMEs to complete more orders per day, reduce coordination time and manage priority consignments without investing in their own fleets.

It also highlights policy and regulatory risks that could affect these efficiency gains. The report points to concerns under GST 2.0, where digitally booked goods transport services could be classified as local delivery services, potentially increasing the tax rate from 5 per cent to 18 per cent. According to the study, this could raise per-trip logistics costs by over 12 per cent and have a greater impact on small businesses with limited margins. The report warns that higher costs could push MSMEs back towards informal transport options.

P. Vigneswara Ilavarasan of IIT Delhi said MSMEs benefit from technology-enabled logistics services through wider market access, improved efficiency and cost savings. He said the regulatory environment should support and strengthen these benefits.

The report also draws attention to challenges faced by small transporters in moving towards formalisation, including compliance and access to digital infrastructure. It notes that state government efforts to promote fleet electrification, especially in higher-payload freight segments, are an important step towards sustainable mobility.

To address these issues, the report recommends clear regulatory clarification under GST, gradual formalisation of informal transport operators through digital public infrastructure and targeted production-linked incentive support to enable a smooth transition to electric freight vehicles without increasing logistics costs for MSMEs.