The logistics sector gained some and lost some in the first railway and general budgets of the new United Progressive Alliance (UPA) government.
Railway minister Mamata Banerjee said her ministry was working out the details of a premium service for movement of containers with assured transit periods for time-sensitive cargo. She also gave permission to container train operators to access private sidings to help attract piecemeal traffic that are at present not being carried by railways.
A private siding is a railway line that links a main railway line and goes into a power, cement, fertilizer or any other plant set up by private firms for their own captive uses. Such sidings are not heavily used.
The railway ministry will finalize a new policy to allow construction and operation of multi-user private freight terminals and multi-modal logistics parks. The Indian Railways is also bringing together state governments and logistics firms to set up parks occupied by multiple companies through participative funding. Mega logistics hubs are also being planned alongside the proposed eastern and western dedicated freight corridors.
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Finance minister Pranab Mukherjee announced a new policy to attract private firms to set up and operate cold storages and warehouses for perishable farm produce by giving investment-linked tax exemption instead of profit-linked tax exemptions.
The 2009 Budget, however, imposed service tax on transport of goods by rail, coastal shipping and inland waterways to provide a level playing field with other modes of transport that are covered by this levy.
The permission to access private sidings will help container train operators enormously because they can plan regular container movements from such places. Earlier, the permission to access private sidings was given to operators on a case-by-case basis. This had introduced uncertainty. The move also comes at a time when container train operators have held back expansion plans due to lower demand for cargo movements in the wake of the economic slowdown.
Private firms will now have to wait for the railway ministry to finalize the terms for setting up freight terminals. A policy in this regard will succeed only if the entry barriers are kept to the barest minimum.
Container train operators know this well. Their plea for a stable price regime has not been conceded. Since allowing private firms to operate container trains from early 2007, the railway ministry has introduced several new charges and hiked some others that have led to higher cost of operations.
The railway ministry has also raised haulage charges these operators have to pay the railways for using its tracks, signalling and telecommunications infrastructure. Such charge typically account for about 80-85% of the operational expenses of a container train operator.
The combined effect of all these is that it has made the objective of converting road cargo to rail more difficult because the cost of containerized rail cargo is higher than that of road costs. Rail has a 30-35% share of the Indian freight transport system by volumes.
Perhaps, the unkindest act of all was the decision of the finance minister to impose service tax on transport of goods by coastal shipping and inland waterways. These two modes of transport are in the nascent stages of development in India, but have the potential to grow into an alternative, cost-effective and environment-friendly mode given the right fiscal and financial incentives.
The service tax comes at a time when more logistics firms are entering coastal shipping to move cargo containers rather than rely on other shipping firms to do this. The introduction of this tax also shows that the finance and shipping ministries are not working in tandem to develop India’s coastal shipping and inland water transport. The shipping ministry has been lobbying with the finance ministry for a Rs500 crore corpus to develop coastal shipping. This has been ignored yet again.
P. Manoj is Mint’s resident shipping expert and writes on issues related to shipping and logistics every other Friday. Respond to this column at email@example.com