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 2025, 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.thehindu.com/news/national/indias-logistics-cost-will-be-down-to-less-than-10-by-december-gadkari/article69887971.ece

 

https://economictimes.indiatimes.com/news/economy/indias-logistics-cost-estimated-at-7-97-of-gdp-in-2023-24-says-dpiit-report/articleshow/124118364.cms?from=mdr

 

https://www.newsonair.gov.in/india-to-cut-logistics-cost-to-9-by-year-end-union-minister-nitin-gadkari/?ref=blog.linkedlogi.com

 

https://www.ndtv.com/india-news/railways-underreported-2022-23-working-expenses-9109558


Comments

  1. I was also surprised to see the data for 23/24 mention the logistics cost at 8%. Implying that we need not do anything more to improve the system, as we have again proven to the world that We are the Best šŸ™šŸ™

    ReplyDelete
    Replies
    1. That’s the problem, sir. Since insincere data itself serves our purpose, why improve? šŸ¤”

      Delete
  2. Nice sir

    It is shocking to know the reality
    #"....In India, datasets are often incomplete, outdated, or double-counted.... "

    ReplyDelete
  3. As young probationers in the year 1985-86, we were told that rail share of freight has no other way but to go up. We were also taught in classrooms that for every percentage point of GDP increase, the rail freight will go up by 1.5%. So, by that optimistic logic of yore rail freight should be increasing by 9-10% each year.

    On the contrary, we stagnate at 2%, which too could be suspect. Whatever happened to a lakh of wagons and over four thousand electric locos acquired in the last three years?

    As a DRM it took all my might to increase the average speeds of freight trains in Salem from 24kmph to just about 26kmph. That took two years. I don’t know what management principles, or what logistics formula is being used to claim that the targets of NLP will be achieved in the next few years - 45kmph and 3000MT. An intermediate goal, grandiosely christened the Mission 2024, carrying 2424 MT by 2024 has been quietly buried.

    Maybe we need a new slogan - Viksit Rail by 2047.

    ReplyDelete
  4. "BRITISH OFFICERS IN INDIAN RAILWAYS"

    "Challenges of Bossism in Indian Railways"

    The work culture in Indian Railways, rooted in a colonial legacy, often emphasizes strict hierarchy and authoritarian management. This structure has fostered "bossism," where power is centralized among a few, creating a challenging environment for frontline workers. Despite hard work, labour-class employees like artisans and supervisors frequently experience undue pressure, discrimination, and limited communication with senior officers. This hierarchical and bureaucratic approach hampers efficiency, limits upward communication, and reinforces an outdated system. Such a culture discourages initiative and reduces morale, impacting overall productivity and job satisfaction. Even after 77 years of independence Indian Railway management is suffering from colonial hangover.

    For more insights into the working culture of Indian Railways, please refer to the document attached with the link below. Kindly share this document until it reaches the top brass of Indian Railways, for breaking Colonial Shackles..

    https://www.scribd.com/document/648826718/British-Officers-in-Indian-Railways

    ReplyDelete


  5. These are the major lapses prevailing in the present working culture of Indian Railways. There is a lack of suitable qualifications for many positions, leading to inefficiency and poor accountability. High-level corruption remains deeply rooted, influencing decisions at multiple levels. At the same time, lower-level staff are functioning without fear or responsibility, often because the chain of corruption indirectly shields them. There is no effective rotation policy, allowing individuals to remain in one position for years and establish personal influence and favouritism. High recommendation-based postings have become common practice, sidelining merit and genuine performance. Moreover, there is no culture of maximum work output or professional accountability. These lapses collectively weaken the system, discourage honest workers, and continue to reflect the remnants of a colonial and hierarchical mindset even after decades of independence.


    -



    ReplyDelete
  6. Recently, I asked one of the Class-II officials about the ongoing corruption and why the CBI does not focus on higher-level corruption. His reply was quite revealing — “We are handling it within the four walls. No eagle watches us.”

    What a convenient explanation! So, according to this logic, large-scale corruption at the top remains invisible and untouchable, while small-scale corruption at the lower levels — involving minor amounts and more individuals — is blamed for spoiling the image of the Railways.

    Wow, what a logic! The big sharks swim freely inside the walls, while the small fish are shown as the problem.

    ReplyDelete

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