Logistics of India

Challenges and Opportunities

Presented by Kamal Bhasin
Member of the board - IBFCC
Introduction

The growth of the Infrastructure sector, of which transport is one of the most
fundamental fields, is one of the highlights of a rapidly growing Indian economy.

According to the recent UN CTAD World Investment Prospects Survey 2009-11,

India is the third most attractive destination for foreign direct investment (FDI).

Of the USD 28.5 billion of FDI in the first 10 months of FY10, the services sector
(transport, power and telecom) attracted the largest share of 17%.

The strong domestic fundamentals and recent continuous growth have

contributed to India’s emergence as a leading global investment destination
which provides EU businesses and researchers in this field with a strong potential.
Introduction

The Expansion in high quality infrastructure helps to expand trade, reduce poverty
and facilitate environmental sustainability.
Opportunities for the Green European transport and logistics solutions grow with
rapidly increasing urbanization and tremendous increase in vehicular population
in India

Global warming and climate change dangers have emphasized the need for an
integrated sustainable transport policy in India.

With its high growth economy, the country is urgently in need of clean
technologies (opportunities for EU companies), especially in the transport sector,
that can help effectively meet the climate change challenges it faces.
Sub - Segments

I shall briefly outline the current scenario in infrastructure development activity in

our country and touch upon the key challenges and opportunities in the four
primary sub-segments.
Roads and
Roads andHighways
Highways
The Indian Road sector forms a strong base for economic growth through better
connectivity, enhanced accessibility and promotion of trade relations. Although
the third largest in the world, it lacks behind, when compared to the networks in
advanced countries with respect to quality.

The Indian government has made huge investments to upgrade and improve this
network through several projects like National Highway Development Program
(NHDP), the Pradhan Mantri Gram Sadak Yojana (PMGSY) etc.

It is important to note that the government has encouraged private sector

participation to develop roads at the Central and State level. It has allowed 100%
FDI for this model of development

Roads which are the most preferred mode of transportation in the country and
account for 85% of the passenger traffic and 65 % of the Freight traffic have a
total length of 3.3 million Km.
Roads and
Roads andHighways
Highways
The overall development of roads in India falls under the aegis of the Ministry of
Shipping, Road Transport and Highways (MORTH).

Comparing the Highway sector with Global benchmarks.

Comparison of Indian roads with other countries*

Countries Network Paved roads Freight tone Passenger carried
length (mn (%) (bn km) (bn km) (billion passenger
km) km)

United States 6.54 65 7814 2116

United Kingdom 0.40 100 736 163
China 3.45 70 975 1013
India 3.32 47 659 4252

Source: World development indicators, 2009 and Road Transport 2006-07, MORTH
* Note: Figures are of 2006
Roads and
Roads andHighways
Highways

Additionally the Indian road density on

other metrics is also below the global
average.

Kms per 1000 Kms per 1000

people sq km
World
6.70 841
Average
Indian
2.75 770
Average
 Roads and
Measures
Roads taken
and so far for the Sector
Highways Highways

Various phases of NHDP

Phases Approving authority Other details Present status
NHDP I Cabinet Committee on Cost: INR 300,000 million 98.6%
Economic Affairs, Composition: 1. Golden Quadrilateral = 5,846 km completed
December 2000 2. NS-EW Corridor = 981 km
3. Port connectivity = 356 km
4. Others = 315 km

NHDP II Cabinet Committee on Cost: INR 343,390 million 66.6%

Economic Affairs, Composition: 1. NS-EW Corridor = 6240 km completed
December 2003 2. Others = 486 km

NHDP III Goverment, March 2005 March 2005: Involves up gradation and four laning of 12.2%
and April 2007 4,035 km of National Highways on Build Operate completed
Transfer (BOT) basis at an estimated cost of INR
222,070 million (2004 Prices).
April 2007: Involves up gradation and four laning at
8,074 km at an estimated cost of INR 543,390 million.

NHDP IV Cabinet Committee on Cost: INR 250,000 million To be awarded

Economic Affairs, 2009 Composition: Two laning of 20,000 km
 Roads and
Measures
Roads taken
and so far for the Sector
Highways Highways

Various phases of NHDP

Phases Approving authority Other details Present status
NHDP V Cabinet Committee on Cost: INR 412,100 million 2.5% completed
Economic Affairs, Composition: Six Laning of 6,500 km of existing four
October 2006 lane highways under NHDP Phase V (on DBFO basis)
NHDP VI Cabinet Committee on Cost: INR 166,800 million Pre construction
Economic Affairs, Composition: 1000 km of expressways work has started
December 2003
NHDP VII Cabinet Committee on Cost: INR 166,800 million Only the 19 km
Economic Affairs, Composition: 700 km of Ring Roads, Bypasses and Chennai elevated
December 2007 flyovers and selected stretches road project is under
implementation
 and
Roads and
Fundingand
Roads of Road projects in India
Highways Highways

Road projects have been financed from a variety of sources including budgetary
allocations by the central and state governments, support from multilateral agencies
and the Central Road Fund (CRF) and lately of Public and Private Partnership (PPP).
PPP is increasingly being regarded as the most viable mode for execution of projects.
The different types of PPP models used are:

Build Operate and Transfer BOT (Toll) mode

Build Operate and Transfer BOT (Annuity) mode

Special Purpose Vehicle SPV

Design-Build-Finance-Operate

In order to increase PPP mode of funding the govt. has announced various policy
measures that would help in increasing the rate of development on Indian roads and
also encourage foreign investments in the sector (100% FDI is permitted in the road
asset level)
As a result of these measures private investment in NHDP has increased to INR 522
billion in July 2009 as compared to 376 billion in July 2008.
 and
Roads and
Key challenges
Roads faced by this sector
and Highways Highways

Delays in land Acquisition

70% of the planned projects are delayed due to land acquisition. On an average, India
takes about 21 months to get approval for land acquisition. Changes in the scope of
work as projects near completion are some of the issues which inhibit interest from
foreign investors.

Understated project cost

Govt estimates which are based on reports of private consultants are often 30-50%
lower vis-a vis financially closed project cost. This negatively impacts the project
viability. Non availability of skilled manpower in the design phase is a major
constraint, which leads to huge cost overruns due to faulty designing.

Regulatory issues
Repatriation of cash surplus so generated is difficult since it involves stringent
controls, such stringent controls tend to dampen interest from overseas investors.
 and
Roads and
Way forward
Roads and Highways Highways

Some measures which could be taken to further enhance the development of this
sector are:
Land Acquisition
Streamlining the process of land acquisition, provide additional incentives to
developers provided they take ownership of land acquisition process.

Change in scope
To prevent change in scope the Govt. can look to providing for measures which would
increase the accountability of project engineers, thus ensuring that no scope changes
occur at later stages.

Estimating project costs

The Govt. can look at project costs approved by senior lenders and make the DPR
consultants accountable for sizeable mismatches.
 and
Roads and
Way forward
Roads and Highways Highways

Enhancing manpower supply

Promote educational institutions which would provide degrees in road specific
courses. This would provide skilled manpower required by the industry.

Regulatory issues
Recognize cash repatriation needs of the highway sector and encourage measures
such as capital reduction and exemption from taxes.

Increase the concession

period
Globally concession periods for highways assets is about 75 – 99 years whereas in
India it is about 20-30 years. This will attract international bidders.

Driven by the thrust by the government and private sector participation, this
sector offers a lot of opportunities for the European players.
Railwaysand Highways
Roads
The Indian Railway (IR), owned by the Ministry of Raliways MOR, is the world’s second
largest railways under a single management, it is the fourth largest in terms of length, with
a total network of 64,000 km. It accounts for 2.3% of India’s GDP and is the world’s largest
employer, employing around 1.4 million people. It runs around 18,000 trains daily.

The IR transports around 40% of country’s freight traffic which brings about 70% of its
overall revenues and 20% of the passenger traffic. Most of the earnings come from
transport of bulk goods like coal, cement, food grains and iron ore.
Railwaysand Highways
Roads
Typically, rail projects in India fall under the domain of:

Public Sector Undertakings (PSU): Container Corporation of India, Dedicated Freight

Corridor Corporation of India Limited, Indian Railways Finance Corporation and so on

Special Purpose Vehicles (SPV): Pipavav Rail Corporation Limited, Kutch Railway
Company Limited etc.

Private Players: Larsen and Turbo, Punj Llyod, KMC Construction etc.

Over the years, India’s freight and passenger traffic has increased considerably, but the
length of the rail network has not kept pace with this growing traffic. This is due to low
carrying capacity, poor quality of service and less value-added services being offered on a
customized basis. This resulted in this sector losing its market share to the road sector.
Comparison of Indian Railways with Global Benchmarks
Roads and Highways
The following is a snapshot of the operating and efficiency parameters of the Indian
Railway vis-a vis the railway network in few other countries.

Comparison of Indian Railways with those of other countries

Countries Network Freight No. Of No. Of Net tone km NTKM NTKM

length tone locomotives wagons (NTKM)+ passenger +PKM/ /Wagon/
(mn km) carried km (PKM)/ Route Employee dDy
(millions) length (millions) (millions) (millions)

United 226,706 1,775 23,990 475,416 12.48 15.13 16,251

States

Russia 84,158 1,344 12,063 566,802 26.90 2.01 10,104

China 78,000 2,624 17,222 571,078 45.58 1.40 10,608

India 63,327 728 8,110 207,719 18.57 0.84 6,344

Comparison of Indian Railways with Global Benchmarks
Roads and Highways
Cross Subsidization
Considering the freight rate per tonne kilometer of other railways in the world, the
freight tariff of IR is among the highest in the world. Passenger fares on the other
hand are low in India. This results in a low freight rate ratio for India vis-a- vis the
world.
Ratio of average passenger fare to average freight rates
Korea - 1.40 China - 1.20 India - 0.26
France - 1.30 Austria - 1.10

Railway Density
The traffic density of the IR (passenger-km or ton-km/line km) is lower as compared to
China or Russia. The main reason is that passenger traffic in India is more dominant
(almost 60% of the total traffic) where the same is much lower in Russia ( 8%) and
China (24%).
Traffic density
United States – 12,324 China – 45,685 Canada – 5,341
Russia – 30,607 India – 20,382
Measures taken so far to improve the railway sector
Roads and Highways

The govt. undertook/proposed several measures to reduce existing flaws in the
system and ensure modernization

Initiatives to improve connectivity

Port Connectivity

Metro Projects

Freight incentive schemes

Development of multimodal logistics parks and rail-side warehouses

Key Modernization incentives

Other initiatives like Wagon Investment scheme, Manufacturing of rolling stock

through SPVs, Catering services, Food plaza’s and budget hotels.
Measures taken so far to improve the railway sector
Roads and Highways
All these measures increased the governments funding requirements, as these could not
be met fully by traditional sources of funding, the government has started promoting
Private participation, PPP.

The three main types being:

BOT - which is further subdivided into a) Build-Own-Operate-Lease- Transfer (BOLT), b)

Build-Own-Operate-Transfer (BOOT), c) Build-Own-Operate-Maintain (BOOM).

BOT (annuity)

SPV

Private Container Trains and Wagon manufacturing are some areas where the private
sector is being encouraged.
Measures taken so far to improve the railway sector
Roads and Highways
The amount of investment in this sector proposed in the Eleventh Five year plan is likely
to be around USD 54 billion

Projected Investment in the Indian Railways during the Eleventh ive year Plan
Parameters 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Total Eleventh
Plan
Rolling stock 67,550 77,860 89,710 103,160 119,010 457,290
Capacity 65,820 85,060 110,090 142,660 185,060 588,700
augmentation
Safety and other 138,740 160,530 185,970 21,570 250,350 951,290
works
Investment in 16,010 17,290 18,670 20,160 21,780 93,900
PSUs
DFCs 11,310 20,460 37,040 62,940 123,250 255,000

Metro rail 42,820 48,430 53,780 59,310 67,570 271,910

projects
Total INR million 342,250 409,640 495,250 603,930 767,010 2,618.080

Total US$ million 7,130.20 8,534.16 10,317.70 12,581.87 15,979.37 54,543.33

Key challenges
Roads faced by this sector
and Highways

Capacity Issues

Non availability of modern freight terminal

Delays in project execution

Lack of Customized offerings

Unsuccessful PPP Model

Way forward
Roads and Highways
Increase Project funding options
Inviting active participation from external equity investors, insurance companies,
National Social Security funds, Infrastructure funds etc.

Adopt measures to make railway travel

more attractive
UK example, technical efficiency in dealing with congestion related issues.

Emphasis on climate protection efforts

Global emphasis on electric trains over diesel resulting in energy conservation and
low carbon emissions.

Introduce High Speed Trains

Follow the popular overseas model of high speed trains resulting in high speed train
density.
Way forward
Roads and Highways
Institutional framework
IR should embed this arrangement to smoothen the complex processes involved in
project identification, project structuring, approvals and financial closures.

Regulatory clarity
Between the IR, government and planning commission so that different views are not
presented by the regulator’s which cause confusion in the mind of the investors.

Accelerated project approval and

implementation

Looking at the substantial investment plans that the IR has for the near future
there is a plethora of business opportunities that are available for the foreign
players.
Ports and Highways
Roads
India has substantial maritime capabilities which operate in a highly globalised
and competitive business environment and have contributed to trade growth in
the country.

India has a extensive coastline of around 7,500km, around 95% by volume and
70% by value of external merchandise trade is carried out by maritime transport.
India ranks sixteenth globally and handles 1.5% of the total world dead weight
tonnage (DWT). There are 12 major fully operational ports and around 200
intermediate ports, however only 1/3rd of these are operational. All the ports are
governed by major ports trusts act of 1963.

Private players along with the Govt. of India have administrative control over 187
intermediate ports.

Over the years, Indian ports have witnessed a strong growth in traffic, while
capacity constraints and limited modernization have exerted pressure on their
efficiency and productivity.
Ports and Highways
Roads
The total traffic handled at Indian ports in FY 09 was 738.2 million tons, due to the
global financial meltdown this traffic saw a decline to 560.7 million tons in FY10.

In terms of commodity the traffic handled at the major ports was in petroleum, Oil
and Lubricant, General bulk, Container, Iron ore, Coal and Fertilizer.
In terms of capacity and utilization, Indian ports operate at 90% capacity utilization
thus exerting pressure on limited infrastructure.
In terms of Key Operational Parameters, the pre-berthing waiting time at all major
ports increased from 9.7 hrs to 13.7 hrs due to near capacity operations.
The turnaround time also increased due to limited IT applications and time
inefficiencies. The average output per ship berth per day has also increased, driven by
handling of larger ships.
Comparison of Indian Ports with Global Benchmarks
Roads and Highways

Indian ports vis-à-vis northwest European ports

According to the UN conference on Trade Development major ports in India are
classified under 1st generation ports (basic cargo handling) while those in the NW
Europe are classified into 2nd (1st Gen + industrial clusters) and 3rd ( 2nd Gen + Value
added services) generation ports

Productivity comparison
Indian ports lag behind international ports when compared on productivity
parameters of Dwell time, Quay crane productivity and vessel rate comparison.
Measures taken so far to improve the port sector
Roads and Highways
In the wake of the growth in traffic and efficacy restraints, the Ministry of Shipping has
taken a number of measures to enhance capacity and efficiency at Indian ports.

National Maritime Development Program NMDP envisages investments to the tune of

USD 20 billion spread over 350 projects to be completed by FY12.

Promoting Private sector participation via automatic approval and tax incentives. The
private sector has been tapped for the development of Cargo-handling berths, Container
terminals, Dry docks and installation of Cargo handling equipments. FDI up to 100% is
allowed for the construction and maintenance of ports and harbors. A 10 year tax holiday
is offered for investment in the port sector.

Attractive policies for Greenfield port development as well as for shipbuilding and ship
repair are offered.

An expected investment of 15 billion USD is expected by international and national

private sector in the development of Indian ports as a result of these policies.
Some of the existing private players in the field as on April 2010 are:
Key challenges
Roads faced by this sector
and Highways
Operations at near capacity
In spite of various expansion program Indian ports are operating at more than 90% of
their capacity which coupled with limited IT implementation affects the efficiency in
terms of higher dwell period and turnaround time.

Inadequate IT implementation in port

operations
In the absence of an enterprise resource planning system, some resources are used
extensively while others remain idle while waiting availability of other resources.
Procedures and systems are complex and unable to facilitate electronic environment.

Poor hinterland connectivity

Aggregation and evacuation of cargo at Indian ports is inefficient due to poor
hinterland connectivity through rail, road, highways and Inland Waterways Terminals.
Key challenges
Roads faced by this sector
and Highways

Inadequate cargo handling equipment/

machinery
Most of the cargo handling equipment in Indian ports has outlived its designed
lifespan. Modern facilities are available in only few select ports.

Labor issues
Frequent labor strikes, malpractices and low labor productivity are common. Ports are
overstaffed with unskilled work force.
Way forward
Roads and Highways
Availability of sufficient port infrastructure
In terms of modern resources, port superstructure and services. The need for
resources to wait to service the vessel and not the other way around.

Optimized business process flow

Complemented with electronic information exchange among stake holders, using
latest IT processes including Port Community System. Example of Rotterdam and
Singapore ports.

Simplification/Elimination
Of complex, cumbersome procedures, policies and practices with a view to clear
speedily to facilitate timely delivery to customers.

High degree of mechanization

In port operations especially in cargo handling and information exchange. The work
force is skill intensive and technology driven.
Way forward
Roads and Highways

Quick aggregation and evacuation of cargo

Good and quick connectivity with other modes of transport.

Develop infrastructure in line with global trends

Increase competition through privatization

Lay emphasis on value added services and trade facilitation

Airportsand Highways
Roads
India has around 136 airports categorized into five categories:

International – 17

Domestic – 79

Customs – 8

Civil enclaves – 23

Others - 9

The Airports Authority of India (AAI) is responsible for the creation, up gradation,
maintenance and management of the civil aviation infrastructure in India. Out of the 454
airfields in India only 136 are currently operational under AAI.
To Sum up the opportunities available across the infrastructure sub-segments
Roads and Highways
To Sum up the opportunities available across the infrastructure sub-segments
Roads and Highways
Thank You