Globally, most governments encourage the use of Railways to move men and material, instead of the less efficient and more polluting road transport.
The cost of logistics in most parts of the developed world is less than 6 per cent of GDP and is said to be around 8 per cent in China, whereas in India it is said to be around 12-13 per cent (despite the subsidies of $15 billion offered to the road sector).
Road-centric policies
The main reason for India's high cost of logistics in relation to GDP is its road-centric policies. The Government offers huge subsidies to the road transport sector. Input VAT refunds by different State Governments alone are over Rs 15,000 crore. Diesel subsidy , even if we assume only 50 per cent of the subsidised diesel is consumed by the road sector, is close to Rs 50,000 crore. Insurance companies subsidise road sector insurance. The road sector enjoys higher protection from imports and even some FTAs are held up to get a better bargain for the road sector.
In addition, the country makes huge investments year after year on laying roads, and on their maintenance.
The road sector is the least efficient of the three principal modes of transportation — the others being rail and water (sea and inland). In India, we have virtually left the more efficient sectors to fend for themselves ,and filled our mind-space with the auto sector, as though it is the only means of moving men and material — to the extent that our Railway Minister had to appear apologetic to even present a deficit budget and ask for a couple of billions in subsidy.
Obvious benefits
When the nation is asked to find Rs 65,000-70,000 crore each year to support the least efficient sector, why can't the Railway Minister ask for an equal amount of subsidy by projecting what the nation can gain in return — a safer Railway that can move men and material at a fraction of the cost of the road sector, and save billions of dollars in oil import. If we keep investing the subsidies for the road sector into the Railways ,within five years, we can shave off logistics costs of at least 3 per cent of our GDP. There can be few other investments that can match the benefit we derive from investing in the Railways.
Countries such as the UK and Germany subsidise their railways. Former managing director of Indian Railway Finance Corporation, Mr S N Mathur, has said that Germany subsidises its railways to the extent of 20 billion Euros annually, and has among the lowest logistics costs as a percentage of GDP.
If we want India to become an efficient economy and reduce oil imports, we have little choice but to look towards investments in Railways, and not helplessly subsidise the inefficient road sector.
Doubling the tracks and rolling stock within seven-ten years, together with development of several non-customs ports to handle domestic cargo, will make our nation competitive.
(The author is CMD, Loyal Textiles Ltd.)