The journey towards higher growth

Ensuring uniform connectivity and convenience in all parts of India is essential for enabling equitable and inclusive growth

Public transport is still the only means for the poor to travel. Photo: Pradeep Gaur/Mint
Public transport is still the only means for the poor to travel. Photo: Pradeep Gaur/Mint

A well-coordinated transport system helps in the sustained economic growth of any country. This holds true for India as well. The Indian transport system comprises several modes, including roads, railways, shipping, air transport, etc. India boasts one of the world’s largest road networks, spread over 3.3 million kilometres, and the largest railway system under a single management. However, the access has not been uniform.

India’s transport and logistics infrastructure challenge can be summarized in 4Cs: Cost, Congestion, Connectivity and Convenience. According to studies, India spends about 14% of its GDP (gross domestic product) on logistics which is 40-60% more than what countries such as Singapore, Germany, the US and Japan spend. This is the single- biggest hurdle in making India globally competitive. Congestion is another challenge, driven by concentration of economic activity in a few cities, long delays in new project delivery and suboptimal planning of existing infrastructure assets.

While solving cost and congestion are important for driving growth and prosperity, ensuring uniform connectivity and convenience in all parts of the country is essential for enabling equitable and inclusive growth. Public transport, which is not known for its connectivity or convenience, is still the only means of transport for the poor. It allows the poor to look for work opportunities and gives them access to education and health services. Over the years, a lot of focus has been on building traditional transport infrastructure, and rightly so, but the time to shift gears and reimagine the country’s transport needs is now.

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With the above priorities in mind, we’ve drafted India’s transport action agenda for the coming years.

Right modal shifts

India relies significantly on roads and railways for moving goods. For example, 62% of cargo is moved on roads, 29% by railways and a meagre 3.3% by domestic sea routes and inland waterways. According to BCG’s analysis, the cost of moving goods by rail and inland waterways is much lower than by roads. It costs Rs2.6/tonne-km to move goods by road—the comparable numbers for railways and sea and inland waterways is about half at Rs1.4/tonne-km and Rs1.1/tonne-km, respectively. We have structurally set ourselves for higher logistics costs. Unlike India, most countries have developed modes that keep costs of operations low (see chart).

India’s 7,551km coastline and 14,500km of navigable inland waterways can easily be used as an alternative and cost-efficient mode of cargo transportation. Moreover, with land acquisition increasingly becoming more complex and prone to litigation, waterways could offer a quicker solution. The National Waterways Bill, 2015, and the new rigour visible at the Inland Waterways Authority of India is a welcome change in this direction but more needs to be done and sooner.

Make the most of existing infrastructure

While building new infrastructure assets ranks high on the national agenda, it is important that we make the most of existing infrastructure. Until recently, “operational efficiency” was an uncommon term in the infrastructure sector because, for most government entities, there used to be clear directions and targets for new asset creation. However, things are changing and there is increasing realization world over.

Take the major public ports for instance. Over the last two years, these government entities have driven substantial operational efficiencies with changes in policies, mechanization, use of digital technologies, etc. This has doubled their cargo-carrying capacity and reduced vessel turnaround times dramatically.

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The three ports of Paradip, Vizag and Kandla, which account for about 40% of the total cargo handled, have witnessed steep improvement in turnaround times over the last one year. The turnaround times for Paradip decreased from 7 to 4.5 days, marking a significant improvement of 35%, Vizag recorded a 33% improvement from 5.7 to 3.8 days and Kandla a 13% improvement from 5.4 to 4.7 days.

Like in the port sector, there is a need for concerted action in roads and railways to drive operational efficiencies in parallel with new asset creation. Many countries in Europe are already realizing significant gains by focusing on better utilization of existing infrastructure. For example, Germany has recently been able to add a greater number of trains within the same setup by optimizing the timetable. Leading European tolling solution companies are involved in a number of innovative electronic tolling projects. Traffic jams in London, since the introduction of e-tolling, have declined by 30%. These are the kinds of actions required to drive higher efficiency from existing infrastructure.

The navigable inland waterways can easily be used as an alternative and cost-efficient mode of cargo transportation.
The navigable inland waterways can easily be used as an alternative and cost-efficient mode of cargo transportation.

Ensure transit convenience for passengers

The world over, urban transport is being planned around transit convenience, i.e. locating the hub terminals of different modes of transport close to each other. This helps passengers move from bulk modes of transport (like rail) to last-mile modes of transport (like buses) easily. Many major cities such as Singapore, Hong Kong, Tokyo and Stockholm have all designed their urban transport around multimodal co-located terminal developments for transit convenience. On the contrary, if you look at the 15 most-frequented railway stations in India, the average distance to intercity bus stations is around 4km. Passengers currently use uneconomical and inconvenient modes of transport to transit from one to the other. Transit inconvenience across these 15 railway stations affects approximately two-three million people daily.

It is critical to improve the quality of travel for these millions of people through transit-oriented development/redevelopment of some of our busiest transit points.

Encourage disruptive start-ups

Technology disruptions are changing the face of many industries, including transport. Disruptions like predictive analysis, virtual aggregators, remote tracking and control, vehicle-to-vehicle communication (truck platooning: a number of trucks with state-of-the-art driving support systems— one closely following the other), etc., are challenging norms and changing business models in the logistics industry. This shows that modernization of the transport and logistics sector can be achieved without heavy expenditure, and instead the focus can be on improving efficiencies with low capex (capital expenditure).

Everyone knows what Uber or Ola have done to intra-city passenger travel. There are a number of Indian start-ups that are redefining cargo transport through simple processes and advanced technologies. Rivigo, for example, wants to build a more reliable and safer logistics network with the goal to ensure that long-haul road shipments are just as quick and reliable as shipments by plane. Start-ups like Porter, LetsTransport and BlackBuck are all driving the unorganized trucking industry towards efficiency.

The need of the hour is to encourage such disruptive start-ups by limiting regulations and allowing them to challenge traditional government thinking in transport systems.

Improve rural transport connectivity

Nearly 50% of trips from villages involve the use of a national highway. But the connectivity from the highway usually extends only up to a distance of 5km on either side of the highway. Establishing uniform and deep connectivity is important to efficiently connect the rural economy with its markets. Better connectivity will also give those living in rural India access to better education and health facilities. While the Pradhan Mantri Gram Sadak Yojana is a step in the right direction to create the required infrastructure, it is also important to ensure adequate public transport frequency and quality.

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In most states, the state transport undertakings (STUs) dominate the road transport sector. Currently, the total number of STUs stands at 55 across the country with a total fleet size of 148,000 buses carrying about 70 million passengers daily, almost three times more than Indian Railways, which carries more than 23 million passengers daily. These STUs, barring a few, have been incurring huge financial losses, have below par quality of buses and do not provide the requisite frequency of connectivity. In the past, some efforts have been made to reform these STUs but with limited success. Reforms of STUs need to begin again, especially since this is the largest mode of transport and even a small change will benefit a large section of the population.

Establish an integrated transport plan

Earlier, transportation development was driven by the respective ministries of railways, roads and shipping. They would all develop their own investment plans. Of late, however, a few steps have been taken with dedicated freight corridors wherein a holistic approach is being adopted.

Yet, an integrated transportation plan is needed that ensures that different transport systems are aligned. The split of responsibilities in the management of different transport modes between ministries at the national level inhibits smooth and well-coordinated development. What India needs is a unified transport plan to deliver a multimodal transport system.

The time is ripe for change and India needs to reimagine its transport agenda. The year 2016 has seen a flurry of action in the right direction and hopefully this marks the beginning of a coordinated effort to bring about the desired change.

Suresh Subudhi is a partner and leads the infrastructure practice for BCG in India. Sharad Verma is a partner and director at BCG.

25 years after liberalization, and 20 years after it entered India, The Boston Consulting Group collaborates with Mint on a series of articles on what lies ahead for the country over the next 20 years.

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