India’s logistics sector is far from improvement despite a national policy, costs remain high, hurting export competitiveness

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The problems remain the same, as do the solutions. India has a very high dependence on road transport for freight movement, which, in turn, makes the cost of logistics much higher than in several advanced economies.

So logistics cost as a percentage of GDP is about 14 percent in India while it is in single digits in several Western economies. Also, the average daily distance covered by a goods truck, usually loaded beyond capacity, in India is just about a fifth of that in the US.

On return journeys, up to 40 percent of these trucks are empty. Such low utilisation of truck fleets by Indian transporters leads to higher logistics costs, increased consumption of fuel and, of course, higher emissions. The story of inefficiencies repeats itself in other logistics sectors too: in seaports, air cargo and freight carriage by the Indian Railways. And these inefficiencies hurt India’s export competitiveness.

But as a Parliamentary Standing Committee has found, many of the suggestions the panel made last year to various ministries on ways to lower logistics costs and augment infrastructure to boost exports, have not been implemented. How complicated India’s logistics sector is can be gauged from these stats: there are more than 20 government agencies and 37 export promotion councils; carriage of goods by various modes is governed by multiple laws and varied documentation requirements add to the mess.

The National Logistics Policy (NLP), which was recently unveiled after much delay, is expected to somewhat smoothen these bumps and offer a coordinated approach to reducing overall logistics costs. But experts have already dubbed the NLP a paper of government intent, lacking a roadmap to bring down costs.

Now, the Parliamentary Standing Committee on Commerce has said in its Action Taken Report (which follows the recommendations made last year on how to boost India’s exports) that while some of its recommendations have been implemented, answers to many of the questions posed by the panel have been bypassed.

In some instances, different ministries have not paid heed to the suggestions by this panel.

Trains: The parliamentary panel had sought to know whether there is an applicable standard governing punctuality of trains in the country. On-time trains would mean greater efficiency in freight movement and ultimately, Indian Railways (IR) would succeed in getting a higher share of overall freight movement, which currently predominantly prefers road transport due to frequent delays in train carriage.

“The Committee observes that the ministry has not furnished a reply with regard to the recommendation of the formulation of an applicable standard for ensuring punctuality of government run trains and to levy a penalty for delays beyond a reasonable time,” the report said.

Punctuality of trains is key to boosting exports, the panel noted. Another of the committee’s recommendations, on increasing the frequency of trains from Inland Container Depots (ICDs), has also not been addressed by the IR. Then, on the committee’s concerns over exorbitant charges by intermediaries on movement of empty containers from ports to ICDs, the IR has not implemented the suggestion that intermediaries be removed from the scenario and that exporters could directly deal with the IR for movement of empty containers.

The setting up of a new railway zone, the South Coast Railway Zone, with headquarters in Visakhapatnam to improve India’s export competitiveness, has also been delayed.

The parliamentary panel had said earlier that the overburdening of already burdened segments across IR leads to gross inefficiencies. An overwhelming 96 percent of freight traffic on IR has been handled on 51 percent of the network, which is already highly congested.

Also, the share of IR in the total freight pie remains at just 35 percent as 65 percent of freight is transported by road. High freight rates, lack of long-term incentives and cross-subsidization of passenger fares through high freight rates are some of the issues which make logistics cost for rail transportation uncompetitive.

The panel has, once again, pointed out that the freight rates being charged by IR are rendering India’s exports uncompetitive.

Roads: India has no official data on the value and volume of goods transported by road, even though at least three-fourths of all freight travelling across the country does so on trucks. Despite the Parliamentary panel’s recommendation to the Ministry of Road Transport and Highways on developing a database for goods movement by road to facilitate data-based policymaking, no such base has been developed. And in response to the panel’s recommendation that cartelization by truckers on some routes be checked, the ministry has responded with how it is dismantling border checkposts for smoother goods’ movement!

The panel had pointed out that truckers’ unions restrict free movement of trucks and levy freight charges higher than market rates in certain states. Then, the data provided about the status of various Multi-Modal Logistics Parks (MMLPs) is old. Ditto for the data on the status of the Dedicated Freight Corridor being built by IR.

Ports: Not even half the total installed capacity at the country’s major ports has been put to use in the last five years. And even though the performance of India’s major ports on key indicators has improved, it remains far from satisfactory.

Air Cargo: The share of dedicated air freighters is only 15 percent against 50-55 percent globally. The standing committee has noted that if the government were to take steps to consolidate air cargo and carve out a higher share in the international air cargo business, further development of dedicated air freighters will happen. In its response, the ministry of civil aviation said that it had withdrawn the Open Sky Policy for air cargo and non-scheduled movement of foreign cargo carriers is now restricted to just six metros and the number of dedicated freighters has increased four-fold to 28 in three years.