Focus on rail freight corridors and accelerated infra investments: Key takeaways from Budget 2021
Updated: Feb 12, 2021 1:51 PM
During the COVID-19 pandemic and the subsequent nationwide lockdown, the logistics sector played a frontline role in maintaining the intactness and continued functioning of domestic supply chains.
Budget 2021 presented by Nirmala Sitharaman has played an enabling role in bolstering the functional competencies of the sector by announcing key industry-friendly proposals.
By Deepal Shah
The Indian logistics industry today is at an inflection point. During the COVID-19 pandemic and the subsequent nationwide lockdown, the logistics sector played a frontline role in maintaining the intactness and continued functioning of domestic supply chains. This ensured an uninterrupted flow of essential goods and services across the geographical expanse of the country without disruptions. Budget 2021 presented by Nirmala Sitharaman has played an enabling role in bolstering the functional competencies of the sector by announcing key industry-friendly proposals. These include asset monetizing the Dedicated Rail Freight Corridor (DRFC) by Indian Railways for operations and maintenance, boosting investments to improve rail and road infrastructure in the country and building new economic corridors.
The proposal to monetize the DRFCs in the country touted as the country’s largest infrastructure projects has been hailed as a game-changing initiative. With the commissioning of the Eastern and Western Dedicated Rail Freight Corridors in the country by June 2022, it is estimated that around 70% of freight traffic currently plying on passenger lines will be gradually shifted to the freight corridors being developed by the Dedicated Freight Corridor Corporation of India Limited (DFCCIL). With an emphasis on the transition in modal mix from road to rail, the vastly overburdened national road networks will be decongested. Logistics players in the country will be in an enhanced position to leverage the benefits of faster freight transit times and reduced operational costs. This will also help them to improve last-mile delivery timelines with an emphasis on multimodal connectivity and build in buffer time for addressing last minute contingencies.
The freight corridors will have a transformative impact on the freight logistics ecosystem in the country. By creating an integrated transport system in the country, it will create a favorable roadmap for Indian Railways to boost their earnings from freight transportation on a sustainable basis. The privatization of assets has the potential to attract increased private sector investment inflows, improve operational efficiencies and service qualities and pave the way for railways to play a pivotal role in facilitating end-to-end logistics solutions. By freeing up the network for new and faster passenger trains, it will also allow the railways to earn additional passenger revenue.
With the announcement of a National Asset Monetization pipeline for funding projects, capital outlay of INR 1.18 lakh crore for road transport and highways and extending the INR 111 lakh crore National Infrastructure Pipeline (NIP) to cover 7,400 projects, accelerated infra spending has been the priority focus area of Budget 2021. Unlocking the value of underutilized public infrastructure assets will spur the creation of productive assets, lead to allocation and utilization of unlocked resources for balanced economic development and reduce the burden on the national exchequer. A record budgetary allocation for building a robust road and highways network in the country has come as a booster shot for the economy. This will have a multiplier impact on key trade and industry sectors with the potential impact to put the economy on a fast-growth trajectory in the post-pandemic phase. Broadening the scope of the NIP and building new economic corridors will promote inclusive economic growth in the country, bolster investor confidence in the domestic infrastructure sector by ensuring reduced NPAs and increased profitability, and increase revenue for the government.
The government has always demonstrated the right intent to boost the growth potential of Indian logistics through the implementation of key policy reforms and interventions. The Budget has ticked all the right boxes in terms of addressing the concerns of the Indian logistics sector.
Going ahead, the industry and government will need to collaborate in bolstering the resilience of supply chains, leveraging emerging technologies to become part of globally integrated digital value chains, and lay the foundation of a self-reliant India or ‘Atmanirbhar Bharat’ firmly positioned to become a USD 5 trillion economy.
(Deepal Shah is the CFO at Allcargo Logistics Ltd. The views expressed ar the author’s own.)