Standardizing Logistics Cost Accounting in India: A Strategic Imperative for Economic Growth

Logistics costs are a critical component of operational expenses across industries, impacting profitability, supply chain efficiency, and strategic decision-making. While traditionally categorized under Cost of Goods Sold (COGS) or Selling, General & Administrative (SG&A) Expenses, there is a growing need to classify logistics expenses separately in financial statements for better cost visibility and control.

Importance of Logistics Cost Standardization

• Recent empirical evidence from the DPIIT–NCAER Logistics Cost Study (2025) estimates India's logistics cost at around 7.97 percent of GDP, a significant refinement from earlier assessments of 13–14 percent. This brings India's logistics cost broadly in line with advanced economies such as the United States (about 8 percent) and Germany (around 7 percent). However, the composition of India's logistics expenditure continues to reflect a higher reliance on road transport, fragmented warehousing, and operational inefficiencies—factors that elevate the effective logistics burden on businesses.
• These costs continue to influence trade competitiveness, manufacturing growth, and overall economic efficiency, underscoring the need for greater precision in cost measurement and management.
• The absence of a standardized logistics cost accounting framework within current financial reporting practices limits visibility into true logistics expenditures, making it challenging for enterprises to optimize supply chain performance and for policymakers to design targeted efficiency interventions.

Recent empirical efforts by the Government of India have begun to quantify logistics costs at the national level, providing a strong evidence base for developing a more granular accounting framework within Ind AS.

Empirical Perspective: Insights from the DPIIT–NCAER Logistics Cost Study (2025)

The DPIIT–NCAER Logistics Cost Study (September 2025) marks a pivotal advancement in India's endeavour to establish a credible, evidence-based understanding of logistics efficiency.

Employing a hybrid methodology that combines macroeconomic datasets, including the Supply and Use Tables (SUTs), National Accounts Statistics (NAS), and Balance of Payments (BoP), with large-scale primary surveys, the report provides a scientifically grounded baseline for both policy formulation and industry analysis. The results reflect a moderation from earlier informal estimates of 13–14 percent, indicating incremental efficiency gains driven by reforms under PM GatiShakti, the National Logistics Policy (NLP), and related infrastructure initiatives.

While the study offers an authoritative national benchmark, it also opens new avenues for refinement and deeper insight. Its macro-level orientation, though statistically rigorous, provides a strong foundation that can now be complemented by granular, enterprise-level analyses to better capture variations across sectors, regions, and operational models. Strengthening the interface between national datasets and corporate accounting practices would enable a more comprehensive understanding of logistics dynamics, bridging the space between aggregated measurement and operational realities. In this light, developing a standardized accounting framework represents an important opportunity to transform the national benchmark into a dynamic system of continuous cost intelligence and performance monitoring across the logistics ecosystem.

Adopting an Ind AS–aligned logistics cost accounting framework can bridge this gap effectively. By explicitly integrating logistics costs within Indian Accounting Standards, enterprises can systematically record, classify, and disclose transportation, warehousing, inventory, and compliance-related expenditures with higher precision and consistency. Such standardization would enhance financial transparency, facilitate cost rationalization, and generate real-time logistics cost intelligence through periodic accounting statements, providing policymakers with a dynamic, data-driven feedback mechanism to complement national assessments. For businesses, this approach would strengthen benchmarking, improve risk management, and support informed negotiations with logistics service providers. Over time, the alignment of macro-level measurement with micro-level accounting discipline would deepen India's logistics cost analytics, improve cross-sector comparability, and reinforce the nation's position as a resilient, agile, and globally competitive logistics and manufacturing hub.

Building on these empirical insights, the next section outlines the structural and accounting reforms necessary to institutionalize standardized logistics cost reporting across industries.

Role of Indian Accounting Standards (Ind AS)

Indian Accounting Standards (Ind AS), aligned with International Financial Reporting Standards (IFRS), have enhanced financial transparency in India. However, logistics costs are currently reported under broad financial categories, making it difficult to assess the true financial burden of logistics. This article highlights the necessity of incorporating logistics cost accounting within Ind AS to enable cost optimization and support national economic policies.

The Need for Standardized Logistics Cost Accounting

Logistics costs represent a significant portion of business expenditures, yet a standardized reporting framework remains absent. A structured cost accounting approach would improve cost efficiency, supply chain resilience, and economic competitiveness while aligning with global best practices.

i. Current Accounting Practices for Logistics Costs

Logistics costs are accounted for differently depending on the industry and function:

Profit & Loss Statement (P&L)

1. Cost of Goods Sold (COGS) / Cost of Sales
   • Includes inbound freight costs for procurement of raw materials. As per Ind AS 2, such costs must be capitalized into inventory and recognized under COGS only upon sale. The reference in this article reflects their eventual financial impact rather than immediate expense.
   • Example: Transportation costs of steel and electronic components in the automobile industry.
2. Selling, General, and Administrative (SG&A) Expenses
   • Covers distribution costs, warehousing, order fulfillment, and last-mile delivery. While some retail chains classify transportation from central warehouses to stores under SG&A, Ind AS 2 requires such costs to be capitalized if the goods remain unsold.
   • Example: Warehousing and packaging costs for an e-commerce company.
3. Freight and Transportation Costs
   • Includes inbound (procurement-related) and outbound (customer delivery-related) freight expenses.
   • Freight-in costs are included in inventory; freight-out costs are recorded under SG&A.
4. Warehousing Costs
   • Rent, utilities, security, handling, and maintenance of warehouses.
   • If warehouses are owned, depreciation is applied and recorded under Depreciation & Amortization.
5. Customs Duties & Import-Export Charges
   • International trade-related levies recorded under direct costs or as part of the landed cost of goods.

ii. Challenges in Cost Allocation

Logistics costs comprise multiple components, including transportation, warehousing, inventory holding, packaging, handling, and regulatory compliance. Businesses often face difficulties in properly segmenting these costs, which may result in misclassification and reduce financial transparency. For example, incorrect treatment of warehouse leases under Ind AS 116 or misallocation of inbound freight under Ind AS 2 can distort inventory valuation, lease obligations, or profitability metrics.

A standardized approach would enable companies to:

• Differentiate transportation costs by mode (road, rail, air, coastal shipping).
• Allocate inbound and outbound freight costs accurately.
• Assess inventory holding costs, including depreciation and obsolescence.
• Evaluate warehouse lease liabilities, storage expenses, and distribution strategies.

iii. Supporting Business and Policy Decision-Making

A standardized cost reporting system will also provide valuable data for policymakers and industry stakeholders, ensuring effective interventions for logistics infrastructure development.

Without detailed logistics cost breakdowns, companies struggle to make informed decisions about:

• Optimizing transportation modes: Determining whether road, rail, or multimodal transport is most cost-effective.
• Warehousing strategies: Weighing the benefits of owning vs leasing storage facilities.
• Procurement and supply chain network design: Deciding between regional warehousing vs centralized distribution models.

Companies can internally classify logistics costs under a dedicated "Logistics Expenditure" head, provided that:

1. Internal Accounting Policy Permits It: Companies can customize their Chart of Accounts (CoA) to create a specific logistics cost head.
2. Financial Reporting Compliance is Maintained: While internal reports can consolidate logistics expenses under a single head, external financial statements (as per Ind AS and Schedule III of Companies Act, 2013) must follow prescribed formats.
3. ERP & Accounting Software Configuration: Enterprise Resource Planning (ERP) software such as SAP, Oracle, or Tally can be configured to track logistics costs under a single expenditure category.
4. Industry-Specific Needs: Large logistics-heavy industries (e.g., e-commerce, FMCG, pharmaceuticals, and manufacturing) may benefit from this classification for better cost visibility and control.

Economic and Business Significance of Logistics Cost Standardization

i. Economic Significance

From an economic perspective, reducing logistics costs can:

• Enhance Trade Competitiveness: A reduction of 1% of GDP in logistics costs could lead to annual savings of ₹2 lakh crore, making India more competitive in global trade.
• Improve Infrastructure Investment Decisions: Standardized logistics cost data allows the government to make better investment decisions for infrastructure projects such as highways, rail networks, and logistics parks.
• Increase Foreign Direct Investment (FDI): A transparent logistics cost accounting framework increases investor confidence, attracting global funds into India's logistics and supply chain sector.
• Support MSME Growth: Small and medium enterprises (SMEs) often lack access to cost-efficient logistics. Standardized cost data can enable policy interventions to support MSMEs with cost-effective supply chain solutions.

ii. Business and Commercial Significance

For businesses, logistics cost standardization is transformative because it:

• Enhances Cost Efficiency: Companies can accurately analyse freight, warehousing, and regulatory expenses, enabling them to negotiate better contracts with suppliers and logistics providers.
• Improves Profitability: Reducing hidden logistics costs through Ind AS-compliant accounting will improve overall profit margins.
• Facilitates Benchmarking: Companies can compare their logistics costs with industry standards, identifying areas for cost reduction and process optimization.
• Strengthens Risk Management: A detailed cost breakdown helps in identifying supply chain vulnerabilities and mitigating risks associated with cost overruns, inventory inefficiencies, and unexpected disruptions.

Integrating Logistics Costs into Financial Statements

i. Ind AS-Based Cost Segmentation

ii. Global Best Practices

United States (GAAP)

• Freight-in costs are added to inventory costs and impact COGS.
• Freight-out costs (delivery to customers) are recorded as selling expenses.

Ukraine

• Developing specific standards for logistics cost accounting.
• Introducing dedicated accounts for logistics expenses.

International Financial Reporting Standards (IFRS)

• Allows classification by function (e.g., COGS) or nature (e.g., transportation costs).
• Encourages detailed disclosures for significant expenses.

iii. Proposed Methodologies for Logistics Cost Accounting

1. Activity-Based Costing (ABC): Allocates logistics costs based on specific activities (e.g., transportation, warehousing).
2. Material Flow Cost Accounting (MFCA): Tracks material flows and associated logistics expenses.
3. Enhanced Chart of Accounts (CoA): Introduces dedicated logistics expense categories.

iv. Implementation Challenges

• SMEs may lack capacity to track logistics cost in detail.
• ERP customization may involve transitional costs.
• Ind AS modifications must avoid divergence from global GAAPs to prevent dual reporting by MNC subsidiaries.

Policy Implications and Business Recommendations

i. Economic Benefits

• Reducing logistics costs by 1% of GDP could save ₹2 lakh crore annually.
• Boosting infrastructure investments via data-driven policy decisions.
• Enhancing FDI by providing standardized financial disclosures.

ii. Business Benefits

• Cost Optimization: Accurate freight, warehousing, and regulatory expense tracking.
• Profitability Improvement: Reducing hidden logistics costs improves margins.
• Benchmarking: Companies can compare logistics costs against industry standards.
• Risk Management: Identifying vulnerabilities in supply chains and mitigating cost overruns.

iii. Government and Policy Recommendations

• Recommend amending Ind AS 1 to include logistics costs as a separate expense head.
• Recommend enabling separate disclosure of logistics costs under proposed Ind AS 118 to enhance transparency and financial reporting clarity.
• Recommend leveraging proposed Ind AS 118 to facilitate disaggregated disclosure of logistics costs under relevant expense heads, enhancing transparency and aligning with global reporting standards.
• Update Ind AS 2 to improve logistics-related inventory valuation.
• Encourage voluntary disclosures of logistics costs in financial statements.

iv. Industry-Level Actions

• Industry associations (CII, FICCI, ICAI) should advocate for logistics cost reporting reforms.
• Companies should adopt internal "Logistics Expenditure" accounts for better tracking and decision-making.
• ERP & accounting systems (SAP, Oracle, Tally) should support detailed logistics cost tracking.

Conclusion

A structured logistics cost accounting framework within Ind AS will improve financial transparency, reduce inefficiencies, and strengthen India's position as a global logistics hub. Aligning corporate financial reporting with National Logistics Policy and PM GatiShakti will drive long-term economic growth and competitiveness.

Policymakers, industry leaders, and accounting regulators must collaborate to establish logistics cost reporting standards, ensuring greater cost visibility, enhanced investment confidence, and sustainable growth in India's logistics sector.

Implementing these methodologies requires careful consideration of the organization's operational structure and compliance with relevant accounting standards. A structured logistics cost accounting framework, integrated within Indian Accounting Standards (Ind AS), is essential for improving financial transparency, reducing inefficiencies, and strengthening India's position as a global logistics hub. Policymakers, industry stakeholders, and financial regulators must collaborate to institutionalize logistics cost reporting, ensuring businesses, investors, and policymakers benefit from greater cost visibility, informed decision-making, and long-term economic growth.

Source: The Chartered Accountant, November 2025 (pp. 58–61), ICAI.