Needed, a holistic plan to rein in logistics cost

Keeping the tempo of infrastructure investments and achieving progressive reduction of logistics costs should be among the key objectives of the new government at the Centre, as these are vital for enhancing the economy’s competitiveness and productive capacity, economists and sector experts say.

Transport and infrastructure make up for a substantial part of the prospective planning for 2030 and beyond that aims to build a “Viksit Bharat” or “Developed India” by 2047, a key promise of the Bharatiya Janata Party (BJP) seeking a consecutive third term in power. The Congress has also pledged in its election manifesto to give high priority to infrastructure creation by making the conditions conducive for private investments.

Currently, despite many institutional mechanisms being created, the infrastructure sector is witnessing predominance of the public sector, and the resultant heavy reliance on budget funds, and heavy indebtedness of key state-run entities such as the NHAI and the railways.

For sure, the goods and services tax, easier inter-state transport and the rise in port capacity have eased logistical constraints significantly in recent years. The plans for infrastructure involve meeting the standards set by the best in the world and getting recognition for the efforts in the World Bank’s Logistics Performance Index (LPI). The government’s aim is to break into the top 25 of the ranking by 2030. In 2023 India was ranked 38 out of 139 countries in LPI.

“India’s logistics costs ranged from 7.8% to 8.9% of GDP in FY 2022. It is important to optimise logistics costs, especially to catalyse substantial benefits for India’s manufacturing sector, economic growth, and export competitiveness,” Anurag Gupta, Director, Deloitte Touche Tohmatsu, said.

A proposal is being discussed to have an apex body for long-term national transport strategy that should plan with a 10-year horizon. It will also be given other tasks such as coordination between different arms of the government. The targets are steep —    to accelerate large-scale integrated and multi-modal transport networks, set up multi-modal logistics parks, dedicated freight corridors and regional rapid transport systems.

The aim would require massive investments that are yet to be quantified.  For road transport and highways, railways, shipping and aviation, physical targets are being set. The targets spell out the outcomes of investments in terms of impact they will have and not the quantum of capacity additions as was done in the past. There are multiple impediments to public-private partnership projects, and removing this would involve revising the concession terms, and preparing projects that investors would find lucrative.

In highways, the aim is to increase the proportion of villages and towns that have accessibility or are just 50 km away from the trunk road network to more than 95% by 2030 from 89% at present. By 2047 the target is to get to 100%. Another target is to increase the density of four-lane highways. The government has already planned to increase the length of expressways to 50,000 km from around 4,000 km now. The top rankers in LPI are already there.

For logistics efficiency, the aim is to increase the average speed of a freight truck to more than 90 km per hour by 2047 from 25-40 km now. The expressway expansion plan is expected to be completed by 2037, according to the ministry of road transport and highways. The increase in road network also aims to bring down the cost by half to `1.6 per tonne per km by 2047. The national masterplan for development of national highways & expressways for 2047 will enable trucks to double the distance they cover in a day to 800 km. At present trucks in India cover 300-350 km in a day, which is much less than that in the US and Europe.

Bhanu Patni, Associate Director, Sector Head (Energy) at India Ratings, said, “In the power transmission sector, if we look at the 2022-2027 period, we see a lot of progress happening with awarded inter-state projects being very high compared to the awards in the last 10-15 years. In the period FY08-12, such projects worth Rs 12,300 crore were awarded i whereas for 2022-27,projects worth  Rs 3 trillion are lined up. 

As for the power sector, the new LPS (late payment surcharge) regulations have led to discoms becoming serious about collection efficiencies and improvement that they want to make on ground to reduce AT&C (aggregate technical & commercial) losses. We are seeing a great thrust in improving the network. Smart metering is also picking up quite well.

On green energy corridor, some progress has been made. A few transmission lines are already completed and a few are close to completion, especially in MP, Maharashtra and other central states. Southern states are still slightly lagging. As part of the green energy corridor, 24 GW of RE capacity was supposed to be integrated. “The achievement in these have not been very great. But the networks are now getting established, integration should happen,” said Patni.

For the railways, the costs are to be brought down to 0.55 per km per tonne in ‘Viksit Bharat’, a figure China has already achieved. Freight train speed also has to be increased to 100 km per hour by 2047 from 25 km now. High speed passenger train speed will be 450 kmph in 2047 from 160 kmph.

In shipping, the turnaround time has to be brought down to less than 20 hours by 2030 from 24-36 hours, at least two Indian ports should be in the world’s top 10 by 2047 and the country should become a major player in cargo transshipment in the Indian Ocean region. The aim is also to bring down the share of India transshipped cargo handled outside India to less than 10% by 2047 from 90%.  In aviation, a six-fold growth in passenger traffic is envisaged.

“There is increasing focus towards developing integrated logistics hubs that combine different modes of transportation, warehousing, and value-added services, which will bring in operational synergies and cut down costs,” vice-president at ICRA Ashish Modani said.

The funding for the massive amount of infrastructure being planned involves an increase in asset recycling (monetisation of existing assets) and public institutional funds like retirement funds. Private investment avenues include corporate bonds, infrastructure investment trusts (InvIT), and multilateral and sovereign funds.

The plan for risk mitigation for private financing includes regulatory reforms and guarantees.

For procedural efficiency, standardised detailed project reports and tendering, accelerated land acquisition and approvals, and strengthening of the dispute resolution framework would be required, according to the discussions around logistics and infrastructure planning.