Key Insights On The Freight Transport Sector Of India

The Indian economy is one of the fastest growing in the world, but the boom is not without its stops, starts, and bottlenecks, all of which also make themselves felt in the country’s freight transport sector. In fact, according a recent study by the Confederation of Indian Industry, the country needs US$330bn in infrastructure investment over the next five years to sustain its economy’s growth at 8% annually. Inadequate port facilities, poor road infrastructure and frequent power cuts prevent Indian industries from operating efficiently and expanding sales. India needs to increase its spending on infrastructure projects to 8% of the country’s gross domestic product from 4.6% now. In fact, despite these obstacles, It’s India Freight Transport Report concludes the country will reach average annual freight traffic growth of 10.2% in the 2007-2011 period.

Strong economic and foreign trade growth is underpinning the freight upturn. In the road freight sector, demand is boosted by door-to-door logistics, the move to higher value/lower bulk shipments, the rising size of the vehicle fleet and the new impetus to improve and extend the network, using private sector highway operators and build-transfer-operate (BOT) schemes. Rail will experience steady but less spectacular growth given the predominance of the state-controlled Indian Railways. All other transport modes should experience faster growth, with international air cargo turnover performing strongly as more private airlines join the market. Sea transport through India’s major ports will also perform well. A major factor over the next few years driving change will be the rising competitive pressures from cargo operators among India’s immediate neighbours and main trading partners.

In fact, the dynamic pace of development and competitive wages are delivering a significant boost to the industry, largely offsetting the traditional problems of poor infrastructure and bureaucracy. To this must be added a favourable operating environment. It has given India a composite score of 51 (out of a possible maximum of 70 and a regional average of 43.5) in our freight sector business environment index, which places it at the top end of its regional ranking list. It scores very highly in the freight growth, but performs less well in the regulatory environment, long-term economic risk and infrastructure growth categories.

For the 2007-2011 forecast period we expect the transport and communications sector to continue outpacing the economy as a whole. It will achieve average annual growth of 7.7%, versus 7.4% for overall GDP. The total value of transport and communications GDP will rise to US$91.8bn in nominal terms by 2011, representing 7.6% of India’s GDP.