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Tuesday, 04 March 2014 00:50
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Business-as-usual won’t work for logistics

The numbers, in themselves, are daunting. With the demand for electrical energy likely to grow 3.5 times between now and FY32, the Rakesh Mohan committee on the transport sector has projected coal demand as rising 2.5 times; and with steel projected to rise 6.8 times, the transport requirements for just power and steel are expected to grow from 900 million tonnes today to 3,700 million tonnes in FY32. In macro terms, the committee projects infrastructure investment rising from 5.8% of GDP right now to 8% after the current Plan period. Since public investment is unlikely to rise much more than the current 4% of GDP—the committee projects 4.5% in the next three Plan periods—and domestic private investment is projected to rise from 1% of GDP to 1.6% over the next three Plan periods, the rest has to come from overseas investors, a tall ask at the best of times.

Which is why, the committee says, sweeping reforms are required, starting from having a single transport ministry that coordinates the development of each transport sub-sector instead of multiple ministries today—an office of transport strategy is suggested to coordinate policies between states. In the case of Railways, given the large cross subsidies—India’s passenger fares are a third those of China and freight rates 70% higher—public investments cannot possibly grow to the levels required. While PPP projects are the obvious way out, this requires the Rail Tariff Authority to be properly empowered, to ensure investors are assured fair treatment. This is why, in his short tenure as Railways minister, Dinesh Trivedi had come up with the concept of a Member PPP whose sole responsibility would be to drive PPP. According to a statistic quoted in the report, the falling share of Railways led to a 16% hike in overall transportation costs in the economy in FY08—more efficient Railways are the lynchpin of an efficient transport infrastructure. In the case of roads, where a 40% hike in investments is projected for the current Plan, the committee argues the current system of annuity funding is not sustainable. Genuine PPP is the solution, but as the GMR/GVK examples show, investors are sure to keep walking out if NHAI is not able to get all clearances in place. In a nutshell, India’s poor transport infrastructure is extracting a heavy costs—a 0.5 ppt fall in logistics costs, relative to GDP, leads to a 2 ppt increase in trade—but the current system is incapable of delivering.


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