Polity is doing better in seeing logistics, not as a tip of the iceberg, but as the whole. After Independence of India till date, we have increased railroad at a CAGR of 0.4% and road at 1%. In last two decades we did better to grow at 5% on the road.
The American growth story is riveted in the expansion of the railroad (Standard Oil created that) and road that connected every resource point to its markets of consumption. That not only improved costs but created cluster and network effects that today is benefiting the nation.
The British East India Company started this process in India and we have been slow starters to take it forward. But now we are putting it on fast track.
It is reasonable to expect that India will grow near double digits for the next ten years to catch up with the leading pack of Asian economies. It is reasonable because India has the demographics on its side, growing young populace would be demanding a range of goods and services that would automatically be self-serving growth.
However the supply side will entirely depend on logistics to bail the economy out. The constraint put forth by logistics is the single biggest factor standing in the way for the supply side to expand.
Imagine what a 10% logistics growth means for an economy? It would mean that in seven years you need to double the roads and railroad, as already the railroad and road is choked in most of the important parts. It would also mean connecting the towns where the consumption centers lie, so only national highways would not do.
We have done actually 35% railroad increase in 69 years; that comes to a CAGR of 0.4%. Roads have increased by 100% in 69 years; that means a CAGR of 1%.
The good news is that both railroad and road are now focus areas for the government and are actually expanding at a faster pace. The public investments are more visible and run-rates of execution better monitored.
The game changer will be GST if it is able to move beyond the basic mandate of common and simplified tariff to the real mandate of making transportation move to a common market without barriers.
Why would you need 19 toll stops between Delhi to Bangalore? Why would you need at least six check points for verification of statutory documentation?
The constraint in logistics is beyond the limitations of the road infrastructure; the reason why our trucks make 4 kilometers to the liter is not because our roads are limited. It is because we have to waste fuel in queuing.
This may not be solved by GST alone.
If supply needs to improve, we must make the logistics value chain create value across the entire length of the chain, not in parts. If one leg of the chain creates value at the cost of the other we do not have a sustainable solution.
The cost across the logistics value chain is disproportionately distributed. The more upstream you are the more your costs are lopsided as there is only one leg of the chain that gets mis-priced in the contract; the other leg is an empty haulage that must be paid for.
Absence of horizontal collaboration makes the upstream severely constrained, while the downstream is now improving in short hauls. With more aggregators now moving in, it is to be seen how this plays out.
The Railroad is a difficult journey as India chose to socialize the costs and benefits, leaving the burden mostly on the poor. If the passenger fares are cross-subsidized by freight then it is the common man who has to take the brunt. The rise of freight hits every common man and no commodity is spared.
This took 68 years to realize that freight cannot be the help line for passenger fares to remain low. But this is just the tip of the iceberg.
The railroad must create capacities around clusters where the congestion is acute. These are the states of Odisha, Chattisgarh, Jharkhand, parts of MP and UP. These are the states where bulk of the commodities move by rakes. The doubling and trebling of lines will need several years of work on the ground.
This is where the current paradox lies. If India has to grow in double digits, it must create commodity movement growth in double digits as well. That is a very tall asking, given that we are running more than 100% capacity utilization in all these lines where we carry commodities.
A growth story can unfold if we can expand movements in every area, waterways and coastal ways are next to look at.
Public investments in infrastructure never had any dearth of funds; it was always the execution that got crippled by the land related issues. At the central level with laws or its surrogate, we have seen that consensus is a difficult affair. Maybe we are finding local ways of getting around the problem as land is always a local issue.
The polity would do better to understand logistics and see it not as a tip of the iceberg, but as the root of all issues.
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