FE Editorial No truck with reforms

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Strikes by truckers protesting taxes and other matters concerning government policy have become an annual event. The government has, on all occasions, managed to mollify the agitating truckers—strikes are broken with the announcement of a few concessions, as was done this week. The smug attitude of the government is mainly on account of the widespread belief that the country has a very competitive trucking industry with one of the lowest freight rates in the world, and that the problems faced by truckers are only of nuisance value. But a closer look at the industry shows that despite low freight costs, the trucking industry is racked by inefficiency—quality, reliability and delivery standards fall well below acceptable levels. At the moment, even the basic delivery time for road freight in India is almost double that of global benchmarks. It will take some bold reforms before the industry modernises itself and begins to pay taxes in a proper fashion.

One reason for poor standards lies in the extreme fragmentation of the industry—77% of the entire fleet of trucks in the country is owned by small operators who own no more than five trucks while only 6% of the fleet is run by operators who own more than 20 trucks. The absence of economies of scale coupled with bad infrastructure raises costs while reducing capacity utilisation. Statistics show that an Indian truck averages a mileage of 60,000-100,000 km per year. This is less than a quarter of the mileage covered by trucks in developed countries—two driver units in the US average 400,000 km a year. One reason for low utilisation in India is the delays incurred at numerous checkpoints, which are estimated to cost truckers Rs 9 billion-23 billion each year. Apart from this, truckers also make large ‘facilitation payments’ to circumvent various regulations, mainly pertaining to road safety and haulage limits. These are estimated to range between Rs 9 billion and Rs 72 billion each year. The most recent estimates show that tackling the current inefficiencies in the freight hauling system will bring savings to the trucking industry in the range of Rs 17 billion-46 billion each year. That should be a strong incentive to rationalise regulation and modernise technology in trucking.