Much of India?s logistics infrastructure is a relic of British rule and is infested with insufficient investments and planning. According to a recent McKinsey study, this infrastructure shortfall will put our growth story at risk. Our installed infrastructure capacity is plagued by high costs and low service levels compared to global peers. Keeping this in view, the government has increased the spend on logistics since 2003. The 11th Plan witnessed an inflection point as the overall planned infrastructure spend increased by 21%. Over the last decade, the logistics infrastructure spend, in particular, has quadrupled. Despite this increase, our already-overstretched infrastructure will prove to be insufficient as the freight movement is likely to more than double from current levels over the next decade.
Over 80% of our rail network was developed before Independence by more than 40 different entities. While the rail traffic has grown more than 10-fold between 1951 and 2007, the rail track length has grown only 1.4 times. This stark gap between the traffic and infrastructure growth is visible across other modes as well. The growth in waterways has been hampered by limited investments and loss of key routes post-partition. Since 1951 the passenger and freight traffic on roads have grown close to 200-fold, but the road length has increased only 8-fold from 0.4 million km in 1951 to 3.3 million km in 2007. Of these 3.3 million km of roads, only 15% are highways and only 0.5% are two- or four-lane roads.
Since a large part of our future logistics network is still to be built, India has a chance to build its infrastructure optimally. India transports a majority of its freight via roads, despite the fact that two-thirds of our freight travels over long and medium distances. Transportation for such distances is structurally suitable via rail and waterways as they are cheaper. These modes are also less adverse for the environment. In view of this, India needs to focus towards shifting to a more balanced modal network that will reduce emissions and inefficiencies. We need to give more attention to better extraction from existing assets besides reallocating investments within the roads sector. The study warns that if we don?t undertake these changes, it will cost us $140 billion or more than 5% of our GDP.