The government’s initiatives like Make in India, Atmanirbhar Bharat and Productivity-Linked Incentive scheme are an attempt to expand the high-value manufacturing base of India. The supply chain, which depends not only on strong infrastructure like modern roads, ports, railways, airports, etc., but also on seamless usage, has, however, been an impediment. Despite sizeable investments in these sectors, a key missing element is integration of the supply chain logistics with the support of information technology.
Post-Covid, nations have started to strategise for China+1 for a reliable supply chain. India too is pushing ahead to enhance high-tech manufacturing, not merely as China+1 but ‘Minus China’. But it has led to the realisation that a transformation is required in India’s logistics framework, primarily to bring down the logistics costs from 12-14 per cent to the international benchmark of 6-8 per cent of GDP.
An allied issue which also impacts costs is slow timelines for supply chain development, as various government departments/agencies work in silos. For example, on many busy routes, the potential efficiency of rail cargo movement in terms of speed and energy costs is nullified by the unpredictability of delivery time, with no scheduled trains and infrastructural bottlenecks particularly in first-mile pick up and last-mile delivery.
Goods with highest time-sensitivity have recently seen the fastest increase in trade. Falling communication costs have resulted in fragmentation of services into components supplied from across the world for assembly and sale to final consumers. To provide optimised cost and time efficiency, intermodal logistics is inevitable.
Railways out-prices itself in freight business by cross-subsidising passenger travel. Its legacy serves limited commodities like steel, cement, fertilisers and other bulk cargo which unduly increases overall costs for rail freight customers. Railways has been losing most of the low-density, high-value cargo due to lack of multimodal facilities and customised fleet of wagons.
A sub-optimal rail-road mix in freight movement is detrimental to the economy as a whole. Beyond a threshold distance, movement by rail is the most cost-effective. But it has lost share to road, primarily due to lack of flexibility in its operation and its pricing.
Recent major initiatives of the government are the $1.2 trillion Gati Shakti scheme to integrate government arms with a common portal for single-window access to services, followed by the National Logistics Policy (NLP). The government realised that after pushing aggressively for local manufacturing, it must gear up for another transformation to advance manufacturing.
Leading companies from Apple to Mercedes have already increased their manufacturing base in India and this should help reinvent the country’s logistics sector to further boost India’s local manufacturing. Besides the objective to reduce the cost of logistics to single digit by 2030, the policy sets two other key targets: improving the logistics performance index ranking to be among top 25 countries by 2030 and creating a data-driven decision support mechanism for an efficient logistics ecosystem.
Rail must lead
The NLP aims to provide integrated logistics by convergence of traditional transport infrastructure with each other, backed by a robust IT backbone. Rail must gain pre-eminence as the preferred mode even as the quintessential role of road in first and last-mile and door-to-door service continues. It is envisaged that rail’s overall modal share of freight transport should be increased to 50 per cent from the present 26 per cent.
At the heart of the Railways’ freight strategy is creation of high-volume and speed freight corridors, calibrating the services to create a critical mass of wagons/containers carrying piecemeal general goods in train loads, in partnership with other players. To meet customer expectations, rail freight service would need to be fast, reliable and flexible, working in hub-and-spoke networks.
Logistics has shifted from being a cost centre to being a centre creating value by leveraging the optimal modal mix, which includes promoting sectors other than rail and road. For example, among other things, it is advocated that the share of liquid bulk cargo via pipeline be increased from 55 per cent to 80 per cent, and the share of coastal shipping and inland waterway transport from 8 per cent to 15 per cent.
The NLP with PM’s Gati Shakti launch has the potential to turn India into a global factory besides benefiting MSMEs and farmers as well. The key now lies in coordinated, effective and speedy implementation.
The writers are independent rail consultants
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