Correcting the road-rail skew

27 Mar

Transportation is an integral part of economic development. It also shares a two-way relation. As the speed, cost and reach of transportation improves, it leads to higher incomes and development, which in turn leads to greater demand for transport and mobility. In the digital age, this maxim is applicable to digital connectivity too. Some developed nations, notably in Europe, have sanctified digital access and mobility as a basic right of all citizens. Cities in Europe have dense grids of public railway transport, while even the remotest mountaintop villages of Switzerland have road access. In the motor car dominated US, the road and highway networks connect dispersed suburbia to cities and workplaces.

The actual mix of various modes may vary, but economic development and transport infrastructure go hand in hand. The denser, the better. More recently, there have been concerns about the contribution of transport-related emissions to air quality and climate change. However, the importance of transportation to the economy is unquestioned.

That conviction was behind India’s aggressive push to build the national highway system called the Golden Quadrilateral, launched during the Atal Bihari Vajpayee years. Infrastructure spending on roads has multiple round impacts. There’s a first-round impact in terms of increased demand for road materials and employment. Then, there’s also a significant second-round impact on people’s income and livelihood. Several studies have documented how villages in proximity to national highways witnessed greater increase in incomes than those far away. Better connectivity affords better earning opportunities, lower commuting time, and also increases in land values adjacent to major roads. There could be a third round-impact through dynamic externalities. For instance, farmers’ produce can fetch better prices for perishable goods, as they can reach further markets quicker.

That the highway construction boom has been a boon to India’s economy is well known. But what is less known is that this has led to a peculiar skew. The aggregate ratio of goods transported by road as compared to rail is now at 70:30. This ratio is the reverse of what it should be. Worldwide, more goods travel by rail than road. It is less costly, more efficient and environmentally cleaner to use rail. In today’s world, cargo moves even from Hamburg to remote Northern China by rail. There is an active rail link between Yiwu in Eastern China and Iran, by a route that passes through Kazakhstan and Turkmenistan.

In India, however, the growth of cargo carried by rail has fallen far behind that by road. This has been due to decades of neglect in terms of capital spending on rail infrastructure. That may be changing now. The irony is that the highly successful national roadway programme was funded by a one-rupee fuel cess on diesel, to which the major contributor was the Indian Railways. So, the railways was paying for the success of its rival. Road cargo services offer convenience, flexibility, better tracking and door-to-door services. Unless the railways can match this, they will keep losing cargo business to roadways.

However, this skew has led to higher logistics costs for the nation. Apart from its inherent fuel inefficiency, road transport is also subject to arbitrary entry and toll taxes. India’s logistics costs can be as high as 15-17% of total delivered cost of the industrial product. This is inexcusably high, makes Indian industry highly uncompetitive and is perhaps a great impediment to Make in India. The revival of cargo by rail is an urgent priority.

We must make a national goal of reversing the road-to-rail ratio to at least 50:50, if not 30:70, in the next 10 years. This year, finance minister Arun Jaitley provided budgetary support of almost Rs.2.2 trillion to road and rail infrastructure. More will be spent using off-budget funds. The ratio of 50:50 should be well-defined goal (sort of like “Project Tiger”), time-bound and in the same league as increasing India’s global rank in the ease of doing business to the top 50.

An important and unexpected opportunity is in the offing for extending the rail cargo network in India. This is a direct consequence of the spread of national roadways. As interstate multi-lane highways get built around the country, the median section becomes an extremely useful piece of real estate and right of way. For this, there is no additional cost or complication of additional land acquisition. On this median strip, elevated rail tracks on thin pillars and modular, containerized cargo system can be built.

It is then possible to develop a continuous throughput of goods transport with automatic switching and use of modern technology such as global positioning system and driverless trains. Such a system will be characterized by high utilization and safety, even at moderate speeds, and a high convenience factor.

Many years ago, the government of Maharashtra took great pride in having built 37 flyovers all over Mumbai city, greatly easing vehicular traffic. What was missed in that euphoria was the permanent loss of precious right-of-way and median strip access, so crucial for public transportation. There’s also a belated realization that flyovers merely transport traffic jams from one end to another. But that’s a topic for intra-city public transportation. As for the national cargo system, we can use the national highway system greatly to the advantage of railways using the median space. And thereby correct the road-to-rail skew.

Ajit Ranade is chief economist at Aditya Birla Group.

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Posted by on March 27, 2016 in Uncategorized


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