Infrastructure to propel growth
Out of the ` 2.21 lakh crore allocated for infrastructure development in budget 2016-17, the allocation for road and rail development is ` 2.18 lakh crore. Industry experts share how this investment will help the sector.
With a focus on infrastructure development, the Union Budget 2016-17 announced the allocation of ` 2.18 lakh crore for rail and road sector. Though neutral in the short run for the logistics sector, it is expected to have a positive effect in the long run. Further, the move to allocate
` 55,000 crore for road and highways shall address last mile connectivity issues and help in reducing logistics cost of export goods which move by roads.
The government also plans to improve 50,000 km of state highways to national highways and plans on building 10,000 km of new roads at a speed of 100 km per day. If this is achieved, it would help to bring trucking costs down. Hence, improved fuel efficiency and reduced maintenance cost for trucking companies would reduce prices for long-haul transportation.
Another announcement of deferred customs duty payment for large importers would make importers plan logistics efficiently, potentially increasing number of shipments.
Most industry veterans opine that the investment will not only kickstart the economic growth but have a multiplier effect on the country’s economy. But there was no announcement for the air cargo segment except development of 160 non-functional airports across the country at a cost of 50-100 crore each. Moving cargo by air needs limited flying time but moving it inside is a challenge. However, pertinent questions are: Will this investment help to move the cargo smoothly and speedily? Will the cost of transportation get reduced with new highways? Will this bring the country’s logistics sector at par with international standards? Experts share their views:
Along with investment in infrastructure, other factors such as track and trace have to improve too Better road infrastructure coupled with GST will reduce the time for transit and cross-border hold-ups ` 19,000 crore has been allocated for Pradhan Mantri-Gramin-Sadak Yojana. Work on National Waterways is expedited Better roads will bring down trucking costs, improve fuel efficiency and reduce maintenance costs
Shantanu Bhadkamkar, Managing Director, ATC Clearing
Infrastructure development will help growth only to a limited extent. The real growth, however, will come due to the force multiplier effect. Good infrastructure will enable reliable and efficient logistics which in turn will improve manufacturing efficiency and catalyse economic growth. This investment is a much awaited investment, as everyone had great expectations after the then Planning Commission’s announcement of $ 1 trillion investment in infrastructure for the logistics sector during the 12th five year plan (2012-2017).
It is premature to arrive at quantified estimate of cost reduction. It will depend on where the money is invested and how the capital is employed. The only internationally recognised standard as a measure for logistics sector is the Logistics Performance Index (LPI) of the World Bank.
Rajesh Neelakanta, ED & CEO, BVC Logistics
With improvement of road and rail infrastructure, the immediate benefit would be the lowering of operating costs for road transportation which will go a long way in reducing the high levels of overall logistics costs in India. Secondly, better road infrastructure coupled with the rollout of GST, will reduce the time for transit and crossborder hold-ups, thus becoming more environmentally supportive. A matter of slight disappointment though, for the rail sector, is the continued government monopoly on freight by rail. We believe we missed a chance to help the private freight train operators grow. They have actually invested heavily over the past few years. We’re sure that the Government will, over time, will take cognizance of this and make it an inclusive engagement.
Prakash Tulsiani, Executive Director & COO, Allcargo Logistics
Road and rail remain the two modes of logistics or transportation used by India to move domestic cargo. Any investment in these sectors is productive to enhance the logistics capabilities of the country before GST would get implemented to have world class logistics network in place. These investments will not only kick start the economic growth but would also result in having a multiplier effect on India’s economy, ultimately improving demand for the logistics industry. It will not only enhance productivity but create better connectivity. The allocation of funds in infrastructure is thus likely to propel the transport, warehousing and logistics businesses rapidly
over the medium term. The cost will go down as we will be able to handle more cargo and that too much faster. Better roads would help bring down trucking costs significantly. Improved fuel efficiency and reduced maintenance cost for trucking companies would reduce prices for long distance transportation. Hence, it will be premature to put a number on overall reduction in costs.
The investment will improve the status of logistics sectors and help it bring closer to international standards. We are one of the fastest growing countries in the world. So we will need continuous investments in logistics infrastructure to be at par with international standards.
Ajay Khosla, DGM, Jaipur Golden Transport
Out of the allocation of ` 2.21 lakh crore for infrastructural development, total capital expenditure on rail and road development is ` 2.18 lakh crore, 85 per cent of this will be spend on the 70 stalled road projects to put on track and necessitated to the tune of ` 1 lakh crore involving 8,300 km. There is plan to build a 10,000 km of building new roads at expected speed of 100 km per day.
Allocation for highways and roads development at ` 55,000 crore while NHAI can raise tax free bonds of ` 15,000 crore and the total allocation for road sector
` 97,000 crore including rural roads. ` 19,000 crore has been allocated for Pradhan Mantri Gramin Sadak Yojana. Work on the National Waterways also being expedited and ` 800 crore has been provided for completion of these tasks. ` 11,635 crore were announced to ripen the initial phase of harbour projects in Tuticorin and development of SEZs in JNPT and Kandla to rise up shipping infrastructure. Also proposed investment of 5,000 crore for warehousing and in cold chain vertical, basic custom and excise duty on refrigerated containers is deduce in range of five and six per cent respectively.
Enhancement of regional air traffic, Finance Minister also announced development of 160 non-functional airports on pan India level. These airports and air strips revived at cost of ` 50-100 crore each location in cooperation with state governments.
Road and rail remain the two modes of logistics or transportation used by India to move domestic cargo. Any investment in these sectors is productive to enhance logistics
Logistics industry welcomes these announcements–better and more road infrasturccture will not reduce operational and maintenance cost but also enhance the fuel efficiency and speed of trucks.