India paves road to a trillion-rand transport industry

The Indian transport industry is expected to increase to R2,8 trillion in value within two years – with the potential to create three-million new jobs by 2022. To prepare, the first-ever cargo policy will be introduced and the maximum axle load of heavy vehicles will be increased by 20 percent

A public investment of about six-trillion Indian rupees (R1,15 trillion) has been promised to improve infrastructure in India. Around 50 percent will go towards improving road, rail, waterways and state-of-the-art multi-modal logistics parks. The investment is aimed at reducing the cost of logistics.

At the moment, India spends 14,4 percent of its gross domestic product (GDP) on logistics. India hopes to create more jobs in the logistics sector by reducing this cost by about two percent over the next four years.

Indian news site BW Online Bureau refers to a report by TeamLease titled: Indian Logistics Revolution – Big Bets, Big Jobs. The report states that, with the infrastructure investment and the goods and services tax formalising the sector and bringing in operational efficiencies through investments in technology, the industry can grow at a compound annual growth rate of 10,5 percent.

Road freight could create 1,89 million jobs and rail freight 40 000 jobs over the next four years with this investment. It is estimated that the expected growth will generate a total of three-million new jobs by 2022.

Agam Berry, co-founder of Quantified Commerce, notes in his article for The Economic Times that the Indian transport industry is worth around US$ 160 billion (R2 trillion) and is expected to grow to US$ 215 billion (R2,8 trillion) in the next two years, despite being a very “disorganised and highly fragmented” industry.

“In India, the trucking business is very disorganised and does not have any standards with regard to industry practices. Only ten percent of Indian truck operators own a fleet exceeding 25 trucks, and most drivers own single trucks and rely on third parties to handle their orders. This obviously poses a problem for companies as the cost of transportation is high,” Berry explains.

The infrastructure investment, according to the TeamLease report, will also introduce new players to the industry. BW Online Bureau points out: “Macro-economic and regulatory factors will transform the logistics sector and improve its global competitiveness, thereby reducing logistics costs.”

The study also highlights the increase in female employees in the sector, which currently account for 21 percent, compared to five percent in 2010. Female employment is expected to reach 26 percent by 2021.

The Indian government plans to introduce the first-ever cargo policy, which is currently being finalised. The date for publication of the policy has not yet been specified. However, according to an article by news site Business Standard, the document will include a new industrial policy, a section on agricultural exports, as well as development parameters to assist various districts with ease of doing business.

Business Standard quotes the Indian Commerce Minister, Suresh Prabhu: “It will be the first time that the country will have a cargo policy. The document is in the final stages of preparation.” He adds that the document is currently open to public commentary. The new logistics division in the Indian Commerce Ministry is also preparing a national integrated logistics plan.

The division is consulting stakeholders including the petroleum, food, steel and mineral industries. It is also planning to introduce an integrated logistics portal. Business Standard writes: “It will act as a single window for getting clearances from all the regulatory authorities and also act as an e-marketplace for logistics.”

The Indian government also recently decided to increase the maximum axle load of heavy vehicles by 20 to 25 percent to bring it in line with international norms. Dipak Dash writes for Times of India that this is likely to result in a boost for the transport and logistics industry with a decline in transport costs.

“At present, a two-axle truck is allowed to carry 16,2 t including the vehicle weight. This would be increased to
19 t. Similarly, there would be about 25-percent increase in the load for each additional axle in heavy vehicles, which is at present nine tonnes,” Dash says.

The increase in the maximum axle load comes with improvements in the quality of road construction throughout India. The new maximum axle load for heavy vehicles is also aimed at addressing the frequent overloading by transport operators in India.

Dash notes: “Overloading of up to 100 percent is common. Truckers often avoid stretches where road builders collect a ten-fold toll from overloaded trucks.” The change is accompanied by a new graded penalty system, which is linked to the scale of overloading, as a deterrent to the practice. The effectiveness of penalties is, however, a subject of debate in the industry.

“Once the government implements the new axle load, it must stop allowing any overloaded vehicle. Any penalty, which can be passed on, can never be a deterrent. Instead, the permit of the overloaded vehicle and the licence of the driver should be suspended. For repeat offences, the permit and licence should be revoked,” Dash quotes SP Singh, senior fellow of the Indian Foundation of Transport Research and Training.

Dash concludes: “Overloading has been a menace in India. It has resulted in deterioration of roads and an increasing number of accidents. Officials have said that under the new mechanism (which is in the works) the focus will be on ending overloading. The government has started installing weigh-in-motion bridges on highway stretches to detect overloading.”

With the government coming down on malpractices in the industry, as well as providing the sector with better standards and large public investment, India looks to be well on its way to growing the transport industry and securing the three million new jobs.