Logistics and Rail Freight Portfolio, Part 1: The Mirage of Falling Logistics Costs
India’s logistics ecosystem sits
at a pivotal juncture. The National Logistics Policy (NLP), launched in
September 2022, was designed to transform the sector from a costly, fragmented
system into an integrated, technology-driven network, aiming to reduce
logistics costs from 13–14 per cent to 8 per cent of GDP by 2030, thereby
boosting trade competitiveness, productivity, and employment. Complementing
this has been the PM Gati Shakti National Master Plan (2021), which seeks to
knit multiple modes of transport into a seamless grid of connectivity, anchored
by multimodal logistics parks and coordinated infrastructure planning.
Indian Railways (IR), by far the
greenest and most energy-efficient mode, was expected to be the backbone of
this transformation. Policy targets such as raising the rail share of freight
from 27 to 45 per cent, doubling average freight speeds from 25 to 50 km/h, and
achieving 3,000 million tonnes of originating loading by 2027 were embedded in
the NLP, the National Rail Plan (NRP), and flagship programmes like Mission
Raftar and Mission 3000 MT.
Yet, the results so far have been
disappointing. Despite record capital spending on new lines, electrification,
and rolling stock, the rail share has slipped to around 25 per cent, and
average freight speeds remain nearly unchanged despite the commissioning of
nearly the entire Dedicated Freight Corridors (DFCs). Originating loading in
FY25 was only 1,617 mt, with annual growth of loading and freight earnings at
less than 2%, even as the economy grew at over 6%.
Adding insult to injury, the
Comptroller and Auditor General’s report, recently tabled in Parliament, stated
that IR understated expenditure in FY23 by over ₹5,000 crore to keep the
Operating Ratio below 100, whereas it should have been 101.33. It is well known
that IR has long juggled contributions to the Pension and Depreciation Funds to
keep the ratio artificially between 98 and 99, but the present instance is
graver—and even worse if the practice continued in FY24 and FY25—showing that
IR’s performance is far inferior to what was already considered disappointing.
Against this backdrop came a
striking claim: in August 2024, Nitin Gadkari, the Minister for Road Transport announced that
India’s logistics costs would fall to single digits by 2026, while inaugurating
major highway projects with Prime Minister Narendra Modi. The minister,
however, did not explain how this target could be met given the rail sector’s
lacklustre performance, and since long-distance road haulage is structurally
more expensive than rail, the assertion lacked credibility. The confusion
deepened when a Department for Promotion of Industry and Internal Trade report,
released barely a month later, placed the 2023–24 logistics cost at 7.97 per
cent of GDP, with rail logistics emerging as a cost-efficient mode with an
average cost of ₹1.96 per tonne per km, significantly lower than road transport
(₹11.03). While the affirmation of rail logistics being much cheaper states the
obvious, the miraculous fall in logistics costs remains unexplained. To add to
the clutter, Gadkari again announced in the first week of October that India’s
logistics cost percentage would drop to around nine per cent by December 2025, and this time attributed it to the rapid expansion of the highway network and reduced
warehouse-to-consumer costs.
Globally, logistics cost, inter alia, includes
transportation, inventory, warehousing, and administrative overheads. In India,
datasets are often incomplete, outdated, or double-counted. For example,
inventories held by traders and small firms—often for want of reliable
supply—inflate costs but are rarely measured. Similarly, informal sector
logistics, which carries nearly two-thirds of India’s domestic cargo, remains
statistically invisible. Thus, any claim of costs falling to less than 10 per
cent of GDP must be treated with scepticism unless supported by empirical
evidence such as measurable modal shift from road to rail or coastal shipping,
significant improvement in average freight speeds, and demonstrable reduction
in inventory holding days. Without these, the figure is at best a statistical
mirage.
As long as the Railways’ freight
share stagnates and delivery times remain unpredictable, logistics costs cannot
have meaningfully declined. Before celebrating, India must confront the
uncomfortable truth that its rail freight system—the very key to lowering
logistics costs—remains far short of its potential. While we hope for more
credible data and analysis to emerge, it is imperative that the performance of
the rail freight sector be examined dispassionately.
I will try to examine the freight
stagnation problem and the way forward in subsequent blogs. Meanwhile, is it
not important that the right figure be made available?
“Numbers, when dressed for
praise, oft mask their naked truth.” — inspired by Shakespeare.
…
References:
https://www.ndtv.com/india-news/railways-underreported-2022-23-working-expenses-9109558
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