01-02-2013, 11:06 AM
Building India Transforming the nation’s logistics infrastructure
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Executive Summary
Logistics infrastructure is a critical enabler of India’s economic development. Recognising
this pivotal role, logistics infrastructure spend has been tripled from around USD 10 billion
in 2003 to a planned amount of around USD 30 billion in 2010. Despite this increase, the
country’s network of roads, rail and waterways will be insufficient as freight movement
increases about 3 fold in the coming decade. This shortfall in logistics infrastructure will put
India’s growth at risk.
Since a large part of India’s future logistics network is still to be built, the country has a
chance to build infrastructure optimally, to meet the growing demand. Doing so requires an
integrated and coordinated approach in which the development of each mode—railways,
waterways and roads—is matched to the needs and existing assets are better utilised.
In particular, India needs to increase its use of rail, and realise the potential of its
waterways. For example, in the normal course, India’s rail share in freight would decline to
25 per cent from the current 36 per cent. This is relative to almost 50 per cent rail share in
China and the US, similar continental sized nations. The concerted approach suggested in
this report can increase India’s rail share to 46 per cent.
If India fails to achieve this, waste caused by poor logistics infrastructure will increase from
the current USD 45 billion1 equivalent to 4.3 per cent of today’s GDP, to USD 140 billion
or more than 5 per cent of the GDP in 2020. If tackled in an integrated and coordinated
manner, this can be reduced by half and India’s transport fuel requirement reduced by 15 to
20 per cent.
INDIA’S CURRENT LOGISTICS INFRASTRUCTURE PLAN:
INADEQUATE TO MEET GROWTH ASPIRATIONS
The country’s road, rail and waterways network is a legacy of colonial rule, historically
developed to transport troops, agricultural products and raw materials. As a result, India’s
logistics infrastructure is not adequately equipped to meet rapidly rising freight traffic,
changing consumption patterns and increasing numbers of production centres. Over the
last 60 years, limited planning and investments in freight transport have resulted in numerous
inefficiencies. Further, India’s economic growth will only put greater pressure on an already
stretched network. The four aspects outlined below characterise India’s logistics network.
India’s freight transport relies excessively on roads
India’s roads account for a higher share of freight traffic compared to other continental
sized countries like the US and China (Exhibit 2). India’s reliance on roads is more than
three times that of China.6 This is despite the fact that a large part of India’s freight traffic
comprises bulk material and moves over long distances that can be more economically
served by rail and waterways.
SHIFT TO A BALANCED MODAL NETWORK
Based on the profile and quantum of India’s freight flows, a systematic and efficient
development of logistics infrastructure calls for a major shift along four important
dimensions – concentrating flows along the right mode, building enablers, increasing asset
efficiency and re-allocating investments (Exhibit 3).
Building the right network and ensuring flows along the right mode
Road has become the dominant mode of transport for India’s freight traffic. Current
plans earmark half of the planned investment for roads even as capacity on rail and
waterways (including last-mile connections) remains inadequate. However, to meet the
demands of growing freight traffic, a shift to more economically as well as environmentally
suitable modes i.e., waterways and rail is vital. In addition to a greater emphasis on rail
and waterways, the right mode of transport has to be used. Ideally, rail and waterways
should be prioritised for long distances,10 rail for medium distances11 and roads including
expressways, for shorter stretches. Such a balanced modal approach would lower
transportation costs, achieve greater efficiency and be more environment-friendly.