Perspectives from ISB

In a recent article in The Hindu, Vineet Agarwal, Joint Managing Director, TCI lists a few challenges related to logistics and transportation industry in India.  As the Indian economy grows, and industrial production and consumption increase, the transportation logistics sector is struggling to keep pace.  The author suggests that to improve the competitiveness of this sector India must focus on developing inter-modal logistics networks.  Policy makers must remove hurdles in the development of such networks.

While the suggestion to focus on inter-modal transportation seems reasonable, the article also implicitly assumes that (i) our road networks and related infrastructure are satisfactory and do not need substantial improvements, and (ii) the current road transporters have efficient operations.  This seems contrary to what is observed in several developed nations, where road transporters are far more efficient than their Indian counterparts and carry substantially more goods, over much longer distances, than Indian transporters.  Their per unit logistics costs are lower even after accounting for the fact that the Indian government subsidizes gasoline consumption.  Road transportation continues to be a significant component of the logistics networks in several developed nations.    While the disparity can be partly explained away by attributing the differences to better transportation infrastructure in these nations, the significant gap also points to the following facts: Investing in improving our road infrastructure and focusing on improving logistics operations of road transporters are necessary to improve our transportation efficiency.  Both these are critical to making our transportation industry competitive and doing so should not be ignored in favor of inter-modal infrastructure development.  Moreover, this may also serve as an opportunity for the current players in the road transportation industry to get involved in public-private partnerships to develop the nations road infrastructure.