An inadequate transport infrastructure was acting as a key constraint on Indian economic growth, financeminister P. Chidambaram said in December. If investment in infrastructure continued to fall belowexpectations, India would not achieve its target of 10% annual economic growth by 2012, he warned. Theminister was speaking at a meeting of the National Development Council that was expected to approvethe 11th five-year plan for 2008-2012. ‘We need to go forward with a greater sense of urgency in buildingrods, ports, railway lines and above all, power plants’ he said. Separately, Indian officials attending aseminar in Shanghai called on Chinese companies to fund infrastructure investments. The said that India’sroad, port, telecoms, power and property projects required US$500bn worth of investment over the nextfive years. The Chinese response was said to be one of cautious interest. India needs to increase itsspending on infrastructure projects to 8% of the country’s GDP from 4.6% at present. Despite theseobstacles, however, BMI’s India Freight Transport Report Q2 2007 concludes that the country will reachaverage annual freight-traffic growth of 10.5% in the 2008-2012 period.
Strong economic and foreign-trade growth is underpinning the freight upturn. Demand in the road-freightsector is boosted by door-to-door logistics, the move to higher-value/lower-bulk shipments, the rising sizeof the vehicle fleet and the new impetus to improve and extend the network, using private-sector highwayoperators and build-operate-transfer (BOT) schemes. Rail will experience steady but less spectaculargrowth, given the predominance of the state-controlled Indian Railways; however, even here somepromising signs of reform are beginning to emerge. All other transport modes should experience fastergrowth, with international air cargo turnover performing strongly as more private airlines join the market.Sea transport through India’s major ports will also perform well. A major factor over the next few yearswill be the rising competitive pressures from cargo operators among India’s immediate neighbours andmain trading partners.
The dynamic pace of development and competitive wages are delivering a significant boost to theindustry, largely offsetting the traditional problems of poor infrastructure and bureaucracy. To this mustbe added a favourable operating environment. BMI has given India a composite score of 66 (out of apossible maximum of 100) in our ratings. It scores very highly in the freight growth category, butperforms less well in the regulatory environment, long-term economic risk and infrastructure growthcategories.
For the 2008-2012 forecast period we expect the transport and communications sector to outpace theeconomy as a whole. It will achieve average annual growth of 7.9%, versus 7.7% for overall GDP. Thetotal value of transport and communications GDP will rise to US$107bn in nominal terms by 2012,representing 7.6% of India’s GDP.
In our view, the growth potential in the transport sector is likely to be the greatest in those areas where theauthorities are prepared to contemplate reforms and a reasonably brisk opening up of monopolies togreater competition. A case in point is road haulage, where once the ‘infrastructure deficit’ begins to beclosed, numerous factors will underpin dynamic future performance. These range from the increaseddemand for door-to-door logistics, the move to higher value/lower bulk shipments, the rising size of thevehicle fleet and the new impetus to improve and extend the network, using private sector highwayoperators and BOT schemes. We are predicting that road freight turnover measured in billion tonnes-kmwill rise by an average of 13.1% every year in 2008-2012, significantly above the rate of GDP growth.
In contrast to the performance of road freight, we have been predicting a steady if rather unspectacularperformance by rail freight. There are, however, some new and encouraging signs that reform may beginto take hold within the vast Indian Railways. We forecast freight carried by rail will rise by an annualaverage expansion of 5.8%, and will be monitoring developments with a view to possibly raising thisfigure in future reports.
All other transport modes should experience faster growth, with international air cargo turnover gainingan average 11.6% per annum and domestic air cargo further ahead with 13.1%. Sea transport throughIndia’s major ports, measured in tonnage handled, will rise an average 10.0% per annum. A major factorover the next few years driving change will be the rising competitive pressures from cargo operatorsamong India’s immediate neighbours and main trading partners.
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