Overview Of the demand in the indian transpOrt and ...ebtc.eu/...of-the...in-the-Indian-transport-and-logistics-industry.pdf · ovErviEw of ThE dEmand in ThE indian TransporT and

Overview Of the demand in the indian transpOrt and lOgistics industry

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ContentsIntroduction 1

1. Transport and Logistics Industry – a Potential for Growth?! 3

2. India’s Roads 7

2.1 Development and growth potential 8

2.1.1 Growth of vehicles 8

2.1.2 Growth in Road Length 9

2.2 Current Situation and future Projects 10

2.2.1 National Highways 11

2.2.2 State Highways 12

2.2.3 Rural Roads 13

2.3 Challenges in Transport by Roads 14

2.4.1 Natural challenges 14

2.4.2 Industrial/economic barriers 15

2.4 Potentials in Developing the Road Sector 16

3. The railway network in India 19

3.1 Development of the Rail Sector 20

3.2 Actual Circumstances 21

3.3 Improvements and Potentials of the Railways 23

3.5 Challenges 24

4. Indian aviation traffic 27

4.1 Progress of Indian Airways 28

4.2 Current domestic and international traffic 30

4.3 Airlines in India 31

4.4 Potentials Creating Projects 33

Overview of the demand in the Indian transport and

logistics industry

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2 ovErviEw of ThE dEmand in ThE indian TransporT and logisTics indusTry

5. Indian Waterways 375.1 Progress and Current Situation of Seaways and Ports 395.1.1 Major Ports 405.2 Potential for Growth and Projects 425.3 Challenges in the Maritime Sector 44

6. Urban Transport 476.1 Development of Urbanization 486.2 Current Situation of Urban Transport Systems 486.2.1 Travel demand 486.2.2 Potential for Urban Transportation 496.2.3 Challenges Facing Urban Transport 50

7. Logistics in Private Sector 537.1 Importance of Logistics (in India) 547.2 Potentials in Logistics and Technologies 547.3 Challenges in Logistics services 58

8. Summary of the main challenges and opportunities 618.1 Facing challenges 628.1.1 Natural Challenges 628.1.2 Industrial/Economic Challenges 648.2 Opportunities for India and EU 658.2.1 Opportunities for India 658.2.2 Industry Potential for EU Companies 66

Conclusion 69

References 70

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3ovErviEw of ThE dEmand in ThE indian TransporT and logisTics indusTry

List of Tables

Table 1: Share of the transport sector in the national economy 4

Table 2: Profile of the Road Sector 9

Table 3: Logistics Costs in different Countries 10

Table 4: State Road Projects with Private Sector Participations 13

Table 5: Profile of the Railway Sector 21

Table 6: Load Capacities in different Countries 22

Table 7: Improvements in the operations of Indian Railways 22

Table 8: Airport Statistics in 2003-04 29

Table 9: Investment plans in India’s aviation sector 34

Table 10: Profile of Indian Ports and Waterways, since 1980 39

Table 11: Cargo handled by Major Ports 42

Table 12: Major planned Investments in Jawaharlal Nehru Port 43

Table 13: Major planned Investments in Chennai Port 44

Table 14: Progress of the Share of Indian Metropolises 48

Table 15: Indo-EU Projects 67

List of Figures

Figure 1: Growth of registered Motor Vehicles in India, 1981-2003 8

Figure 2: National Highway Development Program 11

Figure 3: The Demand Growth of the Transport Sector in India in the 1990s 20

Figure 4: Development of Aircraft Movement since 2001 28

Figure 5: Development of Passenger Traffic since 2001 29

Figure 6: Development of Cargo Traffic since 2001 30

Figure 7: Transport Profile – Air India and Indian Airlines 33

Figure 8: Traffic Growth in Indian ports 39

Figure 9: Road accidents in Indian metropolises in 2000 51

Figure 10: Gap analysis- Automobile Sector 57

Figure 11: Indian Electricity Production 2006 62



AbstractIndia is one of the fastest growing economies in Asia and the entire world. Especially in the transport and logistics industry sector, India shows superior growth rates creating enhanced potential for foreign players. The objective of this summary is to identify the market potential as well as the current demand in this sector and to point out the investment perspectives, especially for European players. Certainly, climate change affects these prospects. Hence, this summary exposes the current Indian situation and the main challenges contributing to this. But despite these problems and also resulting from these, India offers a high potential for investments as the current studies have already shown.



India is one of the largest and fastest growing economies in the world.1 But it is also a large underserved market.2

The following document is a summary of the demand in the Indian transport and logistics sector. This has been prepared within the framework of the project “Promoting European Clean Technologies & Tackling Climate Change” of the European Business and Technology Centre (EBTC). Therefore, it will give an overview of the current market situation in this industry and identify related challenges and gaps.3

The summary describes different sub-sectors of the transport and logistics Industry in India by size and share. Additionally, the current situation is analysed to demonstrate challenges faced by each sub-sector, which includes the demonstration of market potential and the implicated perspectives.

Chapter 1 introduces the transport and logistics industry in India and shows its share in the overall economy

In chapter 2, the Indian road sector is discussed. It accounts for more than the half of India’s passenger and freight traffic.

Chapter 3 displays the railway network of India which is one of the world’s largest and most heavily used railway networks4.

In the 4th Chapter the Indian aviation sector is described and analyzed. This fast growing sector with its open sky policy already attracts foreign players.

Chapter 5 explains the current situation of Indian waterways. Its main challenge is the current infrastructure situation which cannot cope with its constantly increasing usage5.

The purpose of Chapter 6 is to demonstrate the urban transport system in India. Urban transport is a vital factor in maintaining the productive efficiency of an economy and providing adequate mobility.6

The penultimate chapter shows in general, the situation of the Indian logistics sub- sectors, concerning private entrepreneurship development and its technology penetration by displaying the need for logistics service providers, especially third party logistics and technology transfer.

The 8th and final chapter summarizes all perceived challenges and potentials at a glance.

Introduction

1 see Parera (2009), p. 292 see Kilgore/Joseph/Metersky (2007), p. 363 see Parera (2009), p.12

4 see N.N. (2004), p. 145 see N.N. (2006a), p.2ff6 see Padam/Singh (2004), S. 27



1. Transport and Logistics Industry – a Potential

for Growth?!



The transport and logistics sector is a pivotal fundament that is important for the development of a country. Since the 1990s, the transportation infrastructure of India has undergone a significant change. While in the 90s, the demand for transport grew at an annual rate of 10%, in the last decade the demand in the transport and logistics industry grew along with the accelerating Indian GDP7. This growth increased the demand for practically all transport services.

As shown in Table 1, the share of the transport sector of the GDP increases and exceeds the proportion of investments in maintenance or improvement of this sector.8

Table 1: Share of the transport sector in the national economy

YearContribution of Transport

In GDP (%)Proportion of Transport in

Total Expenditures (%)

1999-2000 5.7 3.2

2000-2001 5.8 4,5

2001-2002 5.8 4.8

2002-2003 6.0 4.1

2003-2004 6.2 3.9

2004-2005 6.4 4.2

The annual cost spends for Logistics services are estimated at 14% of the GDP as the share of the total value of goods. Normally, in emerging economies, these costs are about 6%-8% of the GDP. With this figure, Indian logistics costs are estimated to be the highest in the world.9 Therefore it is necessary to manage this sector more professionally in order to reduce operational costs, improve customer services and satisfaction levels and to become more competitive in global markets10.

Another fact is that transport and logistics services in India, consume a large portion of energy, especially petroleum products. This share increases even more in India with the growth of economy and population11.

Urbanization and fast industrialization also increase this consumption because of higher demand in freight and passenger transport.12 The Indian urban population grows at an average rate of 3% a year and has increased significantly in the last 50 years from 62 million in 1951 to 285 million in 2001.

Source: Central Statistics Office. Government of India. (2006). National Account Statistics/CMIE. (2004).Public Finance. Economic Intelligence Service.

7 see Mitra (2006), p. 4f8 see Singru (2007) p. 19 see Vaidyanathan, (2007), p. 1310 see Mitra (2006), p. 111 see Ramanathan/Parikh (1999)12 see Ramanathan/Parikh (1999)



13 see Ramanathan/Parikh (1999)14 see Ramaswamy/Srinivas (2009), p. 1

Additionally, higher income and government liberalisation measures led to a rapid growth in the number of automobiles, two- and three-wheelers, private and public buses and urban rail networks, as well as an increased demand for leisure-related travel.13

But despite the growth of the population of India and its economy in general the transport and logistics sector faces accompanying challenges with its infrastructure, environment pollution, increasing traffic density, policies and other inefficiencies in the system.14



2. India’s Roads



2.1 Development and growth potential

For a country, particularly of India’s size, an efficient road network is mandatory for national integration, for socio-economic development and to sustain Indian economic growth. Therefore, in the last few decades the transport sector transformed increasingly from rail-dominated to road-dominated. 15

Although transport services by rail also exist in the metropolises, they play no major role in Indian passenger mobility.16 Thus the roadways already hold an estimated share of 80% of the demand on land transport. Furthermore, the demand in passenger transport by road, recorded an immense growth since the 1980s as it increased at a rate of 8% per year.17 This points to the growing presence and variety of transport vehicles.

2.1.1 Growth of vehicles

The annual growth of motorized vehicles during the last decade was around 10%. Compared to 21.7 million vehicles in 1991 the number of vehicles nearly trebled in 2001 with 55 million.18

Figure 1 gives an overview of the development of the motorized transport vehicles from 1981 to 2003.

Figure 1: Growth of Registered Motor Vehicles in India, 1981-2003

Source: Singru (2007), Profile of The Indian Transport Sector, p. 1.

15 see Ramanathan/Parikh (1999), p. 1516 see Padam/Singh (2004), p. 39f17 see Singru (2007), p. 118 see Padam, Singh (2004), p.27

2

0

4

6

8

10

12

14

Two Wheelers

Cars, Jeeps and

Taxis

Buses Goods Vehicles

Others Total Vehicles

Ave

rage

Ann

ual G

row

th R

ate

(%)

1981-2003

Above all, the two-wheelers have a high growth rate which constitutes to over a half of total vehicles.19 Furthermore, two-wheelers and cars account for example,

19 see Ramanathan/Parikh (1999), p.17



more than 88% in Hyderabad and 91% in Kanpur. However, the share of buses when compared to the two-wheelers is insignificant. They constitute merely 0.5% in each of the cities mentioned above.20

Along with the vehicular growth, the freight transport also increased over the years with an annual growth rate of about 12%.21 This can be attributed to the rise in container traffic, as exports and imports increased 22-25% per year.22 Additionally, while traditional, non-mechanized means of transport, e.g. elephants and camels, are still common, an increasing number of vehicles, especially trucks, lead to increasing congestion.23

2.1.2 Growth in Road Length

At the beginning of the 90s the road length in India was about 2,041,000 km which grew at an annual rate of approximately 3% in the following ten years. Compared to this growth rate, the number of transport vehicles grew at approximately 15% annually, indicating an increase in road usage, compared with the growth of road length which developed proportionately low.

Besides, national highways which accounted for about 40% of the road traffic, formed only a marginal, 1-2% of the total road length. Additional capacities were hardly added, indicating a growth rate of merely half a percent in the National Highways during the nineties. Due to the high growth in number of vehicles and vehicle miles travelled and the slow growth in infrastructure, the capacities were almost saturated and caused the need for large investments in the Indian infrastructure. 24

A profile of the road sector is given in Table 2 showing the development of the total network and national highways and the marginal investments in each of these sectors.

Table 2: Profile of the Road Sector

Source: Singru (2007), Profile of The Indian Transport Sector, p. 3

Parameter Unit 1980-81 1990-1991 1997-98 1999-2000

Total network ‘000 km 1485 2350 2540 2695

National highways ‘000 km 32 33.7 38.52 52.01

20 see Padam/Singh (2004), p. 2721 see Singru (2007), p. 1 22 see Vaidyanathan, (2007), p. 1323 see N.N. (2004), p. 13f24 see Ramanathan/Parikh (1999), p. 17



2.2 Current Situation and future Projects

The extensive road network in India consists of 3,3 million km and is the second largest road network in the world. About 61% of the freight and 85% of the passenger traffic is carried by road. The annual growth of cargo traffic is 15-18% and that of passenger traffic is 12-15%.25 However, the concept of domestic cargo container movement is still in its infancy in India. 26

Regarding the modes of transports, also in present there is a mixture of modern and traditional means. While in urban transit mostly motor vehicles like automobiles, minibuses, trucks and two- or three-wheelers are dominating, in the landside transportation by beasts of burden like bullocks, camels and elephants still exist.27

In India, the central and state governments are responsible for the transport systems. The central government has amongst others the responsibility for national highways, railways, as well as national inland waterways and civil aviation. Thereby each mode is controlled by a mode-specific ministry in the central government. The development, management and maintenance of the national highways is in responsibility of the National Highways Authority of India (NHAI) whereas the road development of the states is managed through the several roads and buildings departments or public works departments of the regions. In terms of village roads, the supply is held by local bodies (panchayat).

In general, the infrastructure and network of the Indian roads are not in good condition. About 1.4 million km of total route length are surfaced and more than 1 million km are covered with gravel, crushed stone or earth.28 There is no ability to meet the high demand and density of the daily traffic. Further, the fuel prices are rising, axel loads are more and more reduced and the freight costs for road (and rail) are very high compared to other countries, see Table 3 below.

Table 3: Road transport Costs in different Countries

Source: Vaidyanathan, (2007), Current Status of Logistics in India, p. 13

Country Costs in cents/km

France 5.5

Japan 3.7

Canada 2.0

India 7.0

25 http://www.infrastructure.gov.in/highways.htm26 Vaidyanathan, (2007), Current Status of Logistics in India, S. 1327 see N.N. (2004), p. 1328 see N.N. (2004), p. 13



The Government of India already planned some improvements to change this situation for the better with aid of public and also private sector funding.

Revenues from the road sector are token from different sources, fuel taxes, vehicles taxes and direct taxes on freight and passengers. In addition, road tolls and annual fees are taken. With these public earnings expenditures for improvements in the road network are funded.29

Furthermore, the beginning of the liberalisation process leads to changes in the infrastructure sector, which is more and more opened up for private investment and foreign direct investment (FDI).30

2.2.1 National Highways

More than 150 highways are announced as National Highways.31 The national highway network which has a total length of 66,590 km, contains single-lane, for 38% of total national highways, and double-lane highways which account for 59% of the national highways.32 Therewith it has a share of merely 2% of all roads but carries about 40% of the road traffic and serves as arterial infrastructure across India.33

The NHAI initiated the National Highway Development Program (NHDP) in 1998 to improve and widen the national highways. It is implementing 24,000km and therewith constitutes a huge institutional success related with a positive impact on the road sector development.34 Furthermore, the program completes a four-laning, 5846 km long Golden Quadrilateral which connects the four big cities Delhi, Mumbai, Chennai and Kolkata.35 With this programme, the Indian government initiated the largest rehabilitations program for national highways, covering presently round about 17,161 km with the aim of linking Indians major cities and spanning the country north-south and east-west.36

An abstract of the subjects initiated of the NHAI in the NHDP is given in Figure 2.

Figure 2: National Highway Development Program

29 see Singru (2007), p. 6f30 see Padam/Singh (2004), p. 2731 see N.N. (2004), p. 1332 see Singru (2007), p. 6f33 see N.N. (2006a)34 see Singru (2007), p. 735 see N.N. (2006a), p. 36 see Singru (2007), p. 8

National Highway Development Program (NHDP)

• NHDP I.: Four-laning of the Golden Quadrilateral; Link the four metropolitan cities: Chennai, Delhi, Kolkata, and Mumbai.

• NHDP II.: Four-laning of the North-South and East-West corridors; The North-South corridor connects Srinagar to Kanyakumari; The East-West corridor connects Silchar to Porbandar;

• NHDP III.: Four-laning of high-density national highways totalling 12,109 km; The stretches covered carry high volume of traffic; Provide connectivity to places of economic, commercial, and tourist importance.



• NHDP IV.: Two-laning of 20,000 km of national highways; Provide balanced distribution of improved highway network throughout country; Capacity, speed, and safety on the new two-lane highways;

• NHDP V.: Six-laning of 6,500 km of four-lane national highways; Comprising the Golden Quadrilateral and other high-density stretches of the 6,500 km

proposed under NHDP V, about 5,700 km will be taken up in the Golden Quadrilateral.

• NHDP VI.: Development of 1,000 km of expressways to serve the growing urban centres; Particularly those located within a few hundred kilometres of each other.

• NHDP VII.: Other highway projects: for full use of highway capacity and enhanced safety & efficiency

Source: see N.N. (2006a). Indian Highways. Emerging opportunities for Profitable Partnerships. p. 8f

Additionally, an extra expedited road development program for the Regions in north-east (NHDP-Northeast) with 7,639 km road length is included whereof merely 40% are national highways. The objective of this program is to connect the north-eastern states and therewith accelerate the development in this less privileged region.37

Another important objective of the NHDP is the Port Connectivity Project involving the improvement of national highway connections to the 10 major ports: Chennai, Haldia, Jawaharlal Nehru Port, Kandla, Kochi, Mangalore, Mormugao, Paradip, Tuticorin, and Visakhapatnam. Furthermore, the implementation of the road connectivity objective to the ports helps to decongest and therewith to facilitate growing port areas and their work.38

Summarizing, restructuring and strengthening steps are taken by the NHAI and some mechanisms to address bottlenecks due to delays in environmental clearance or land acquisition are established. In addition, traffic management and safety related issues are more and more focussed.39

2.2.2 State Highways

The highways of the state together with major district roads reflect 13% of the roads in India and carry 40% of the traffic. They are very diverse in their actual state and stage of development.

While the central government is funding the national highways, state highways depend solely on funding by state governments.Besides, a larger share of the state funding is used for the development of rural roads because of the extreme need to improve them. Private sector intervention thus becomes more and more important in financing state highways.40

An overview of Indian states involving private sector participation in several projects and the projected investment is given in Table 4.

37 see Singru (2007), p. 838 see Singru (2007), p. 8f39 see N.N. (2006a)40 see Singru (2007), S. 6f, Profile of The Indian Transport Sector




Table 4: State Road Projects with Private Sector Participations 2.2.3 Rural Roads

State No. of ProjectsEstimated Costs($

million)

Gujarat 5 25

Jharkhand 1 12

Karnataka 5 104

Maharashtra 4 1,310

Orissa 1 8

Punjab 11 157

Rajasthan 28 90

Tamil Nadu 3 42

Total 58 1,748

2.2.3 Rural Roads

The rural road network in India consists of more than 2.70 million km of which 1 million km do not meet common technical standards due to unsystematic planning.There are diverse agencies aiming the development and maintenance of rural roads but without any uniform development plan. The rural roads development agency of each Indian state, manages the rural roads program Pradhan Mantri Gram Sadak Yojana (PMGSY) which is sponsored by the central government. The PMGSY is initiated in parallel to the National Highways Development Program ( NHDP) for the national highways and has the objective to systematize the rural road development effort.

Following guidelines were considered while planning the rural road program:

• all-weather connectivity for all habitations with population ≥ 500 (≥250 for hill states and desert / tribal areas)

• network augmentation and modernization• new connectivity to: 60,000 habitations with population ≥ 1000, 81,000 habitations with population ≥ 500, 29,000 habitations with population ≥ 250• upgrade of rural roads of about 370,000 km.

The guidelines changed several times because of uncertainties of implementation and the prioritization of arrangements. Projects were in confusion as the data of habitations were not reliable. As a result, the program implemented only



several low-priority projects at the beginning. This was mainly because they were convinced these projects had high priority. However, these problems have now been addressed. 41

2.3 Challenges in Transport by Roads

2.4.1 Natural challenges

Energy

The transport sector’s energy consumption amounts to petroleum products such as gasoline and high speed diesel and depends on the one hand on the modal split and on the other hand on the vehicle speed. Among different modes of transport, buses on average, have the least consumption of energy per passenger-km. For comparison, two wheelers have 2.5 times the consumption of buses and three-wheelers 4.8 times that of buses. Furthermore, cars consume on an average, the most energy per passenger-km, i.e. they consume 6 times more energy. This also implies that the fuel costs differ accordingly. For example two-wheelers are 6.8 times costlier than buses. Further, three-wheelers and cars are up to 11 times costlier. Not only does a car use more energy and is therefore costlier, it also takes more road space than buses when providing the same passenger mobility level.42 Due to the motorization in India an immense pressure on the natural energy resources of India is imposed.43

Air Pollution

The cities in India have to cope with environmental problems due to strong air pollution. The increasing number of fuel using vehicles, lead to increased pollution. The vehicular emissions alone contribute to 72% of air pollution in total in Delhi and the burning of fossil fuels accounts for about 83% of the carbon dioxide emissions.44 The most common particles associated with motorized vehicles polluting the atmosphere are nitrogen oxides, hydrocarbons, carbon monoxide, as wells as sulphur oxides. The air pollution in most Indian cities has become dangerous and has badly influenced the health of the population with regard to diseases in respiration.45

Transport systems and air pollution are directly related whereas the emissions of vehicles depends on different factors such as their speed, age and emission rate. The Centre of Science and Environment states that that there is a negative correlation between the quantity of the pollutants, above all nitrogen oxide, hydrocarbons and carbon monoxide and the speed of a vehicle. Since the average speed in peak hours is very slow, during these times the air pollution drastically increases. Hence,

41 see Singru (2007), p. 942 see Padam/Singh (2004), p.3843 see N.N. (2009), p. 144 see N.N. (2009b), p. 145 Padam/Singh (2004), p.37



congestion in cities leads not only to delays but also to an increase in pollution. Further, personalized vehicles such as two-wheelers and cars and para transit modes such as rickshaws have a high emission rate, i.e. the number of pollutants per km, compared to mass transport modes such as buses and trucks. Thus, as mentioned before increases in personalized modes of transport also increase the vehicular emission. 46

2.4.2 Industrial/economic barriers

Fragmentation of Industry

The fragmented structure even in the organized sector of the road industry and the numerous dominating unorganized operators in this sector, make development and fair competition very difficult.47 However, small operators depend on other players for handling and marketing, for example: brokers depend on booking agents. The last mentioned group of handlers is the dominant one with the ability to set freight rates. This system increases the price for the end users, leading to low quality of services as well as low profitability for truck operators.48 More over, because of this fragmentation of the industry, economies of scale can rarely be achieved. 49

Bureaucracy

There exist numerous barriers, concerning the movement of road freight between different Indian states:One major hindrance for freight vehicles is the non-uniform state tax structure and a huge bureaucracy in checking essential documents, e.g. the vehicle registration book, the driving license and the imposed taxes, as well as octroi at some of the the state borders. Moreover, documentation requirements vary from state to state and make this industry unattractive and ineffective. A violation of these rules can lead to penalties such as detention. Such barriers cause long delays in freight transportation and increase transaction and operational costs which create opportunities for rent-seeking, e.g. dodging the taxes and norms. To give an example, a transport vehicle loses 1 to 2 days complying with all formalities on Indian roads and has to pay up to 25% of its transported value for taxes annually. Due to this, the freight costs including all these operational costs are major components of the product costs themselves.50

When internationally compared, this results in a lower competitiveness of Indian logistics providers.

Infrastructure

Infrastructure is a significant set back in India. Other than on highways, running trucks is only possible for firms using trucks smaller than 20 feet.51 Hence, the road

46 Padam/Singh (2004), p.3747 Mitra (2006) p. 548 see Ganguli (2008), p. 3149 Mitra (2006) p. 550 see Mitra (2006) p. 551 see Kilgore/Joseph/Metersky (2007), p. 38



infrastructure constitutes a major hurdle.For example, for large vehicles such as multi-axle trucks.52 The infrastructure of India’s roads is limited and the conditions of the roads make it difficult to have a smooth transportation and operation system. Therefore, the few but better conditioned national highways are overloaded and filled with the big vehicles lowering the average speed to 10-20 miles per hour.53 Further, this leads to more accidents, shorter lifespan of vehicles, an increase in the fuel consumption, higher operating costs caused due to making detours and reduced efficiency.54 However, the infrastructure investments are merely 4%.55

Additionally, the difficulties in inter-state movement mentioned above is also hampering the logistics companies, resulting in delays. Thus, the presence of a system of using containerized trucks would be better for logistics because it would fasten the transfers at ports and avoid great thefts at checkpoints.56

Labour policy

The almost non-existing labour policy is yet another barrier in the road transport system.. The drivers of trucks are poorly trained due to lack of formal training institutes for related areas like proper handling etc. and due to a lack of participation in driver training schools. So there is a higher demand in getting a drivers license than the supply of training institutes. Further, the quality and standards of the few existing ones is often not controlled.57

2.4 Potentials in Developing the Road Sector

Bus Transport

Regarding the challenges of high energy costs and air pollution, bus transport may play a major role to provide passenger mobility with a certain level of safety. In comparison with the other vehicles, bus transport is favourable in its efficiency from the environmental point of view. Since it is not easy to make people change their habits in using private vehicles, a certain quality in bus services as well as a given variety of bus transport modes is necessary to cater to the demand of wide segments of society.

Optimum public satisfaction can only be reached through flexibility in determining the transport factors, such as frequency of service or the routes and sizes of vehicles used. Too much government influence and governmental restrictions in these factors may lead to lower quality and inefficiencies. Therefore, a policy with private public participation would be a potential for operators becoming more responsive to the needs of the customers.

52 see Ganguli (2008), p. 3153 see Kilgore/Joseph/Metersky (2007), p. 38 54 see Ganguli (2008), p. 3155 see Kilgore/Joseph/Metersky (2007), p. 38 56 see Ganguli (2008), p. 31f57 see Ganguli (2008), p. 32



With the rapid growth of population and the related travel demand, bus transport services may have an even higher demand and an expansion of public mass transport systems is a solution.58

Road Infrastructure and Automobile Sector

Also, in the infrastructure and transport management system strategy, there is potential to increase the existing capacity and safety on the roads. This may be seen not only in constituting a uniform traffic system, but also in improved signals and bus priority lanes. In the short run, the potential in the infrastructure is in improving the quality of roads, providing ring roads and detours and in construction of new footpaths and roads. In the long term however, an upgrade of technology is important for improvement in this sector and hence this constitutes a potential for investments.59 India has already made some bilateral investments, inbound and outbound deals with EU companies, e.g. with Elsamex SA to finance and organize the development of the road infrastructure. 60

Due to the growth of the population and the related demand in personalized vehicles there exists a potential for the automobile industry, i.e. an increase in car sales and use.61 Also the Indian know-how in this sector becomes convenient for global car companies, e.g. to test their vehicle performances and to get internationally certificated. Many auto and engineering firms also located their international purchase offices in India.Some of the EU original equipment manufacturers like Ford Motor Company, Volkswagen, BMW, and Man Force Trucks Private Ltd. have established manufacturing facilities in India.62 Robert Bosch GmbH has also established some manufacturing facilities to produce its automotive components in India.63

Coping with Energy and Climate Change

Developments in the field of renewable energy have the potential to reduce India’s dependence on carbon-emitting fuels. Hydropower and new energy such as solar and wind power could lower this dependence.64 Indo-EU co-operations could support this, e.g. the British BP has already built a Joint Venture with Tata called TataBP Solar, to promote solar power as an alternate source of energy.65 In order to reduce the environmental impact of the fast economic growth and huge motorization, an improvement in the coal-based power plant efficiency is needed. Currently, the Indian power plants are based on sub-critical steam cycle technology. More efficient and cost-effective plants are an option for EU-India collaborations exploring possibilities of lower cost plants through foreign direct investment in this sector.66 Further potential for a collaboration with the EU in R&D work, is the Zero Emission Power Plant with Carbon Capture and Storage (CCS) as a solution for carbon emissions to identify suitable geologic storage sites.67

58 see Padam/Singh (2004), p.4059 see Padam/Singh (2004), p.4160 see Parera (2009), p. 33f61 see Bose/Sperling (2001), p. 362 see Parera (2009), p. 40

63 see Parera (2009), p. 3864 see Kumar (2007), p. 1265 see Parera (2009), p. 5966 see Kumar (2007), p. 1267 see Kumar (2007), p. 11



3.The railway network in India



3.1 Development of the Rail Sector

Since 1980, the share of railways in total transport economy recorded a decline of 20% in passenger as well as freight transport. The total kilometres effected with transport by rail was approximately 553 billion in the 1990s which is only one-fifth of those from the roadways.68

Figure 3 illustrates a comparison of the road and railway development since the 1990s which underlines the transformation of the transport sector from railways - to roadway-dominated.

Figure 3: The Demand Growth of the Transport Sector in India in the 1990s


FreightPassenger

Moreover, the demand for rail transport did not grow as fast as the road sector. In the passenger traffic, the demand is growing at just 3.6% annually and in freight transport, the growth rate is only 1.4% per annum.

Table 5 gives an overview of the development in the railway sector since 1980 to underline the small growth rate in this sub-sector. The total route length increased from 1980 merely from 61,240 km to 62,759 km in 2000. The passenger traffic increased from 3,613 million passengers in 1980/81 to 4,585 million passengers in the year 2000 and the freight traffic had a rise from 220 t to 456,4 t over a period of 20 years. 69

2

0

4

6

8

10

12

14

Road Rail Domestic Air

International Air

Seaports

Ave

rage

Ann

ual G

row

th R

ate

(%)

68 see Ramanathan/Parikh (1999), p. 1769 see Singru (2007), p. 2




Table 5: Profile of the Railway Sector 3.2 Actual Circumstances

Parameter Unit 1980-81 1990-1991 1997-98 1999-2000

Route Length km 61,240 62,367 62,495 62,759

Freight Traffic metric ton (t) 220 341,4 429,4 456,4

Passenger Traffic

million 3,613 3,858 4,348 4,585

3.2 Actual Circumstances

In sharp contrast to these historical data of merely 3-4% of growth rate, the freight and passenger traffic in the railway sector has been growing at an average rate of 9.4% and 7.4% in the last years and the revenue has grown even faster.70 Both, freight and passenger carriage, keep on continuing to expand annually.

The Indian Railways are the single national domestic provider since the 19th century. It owns and presently operates 63,221 route km, has 1.42 million employees, 440 billion km of freight and 615 billion passenger km and thus is one of the world’s largest rail networks. This railway infrastructure constitutes the mainstay of transport infrastructure of the entire country71 and is further the fourth most heavily used one.72 At present, the freight and passenger revenues of Indian Railways are rising with the international trade and growing traffic flows on rail and road.

Indian Railways holds 44 steam locomotives, 4801 diesel and 3065 electrified ones. These locomotives are equipped with more than 220000 wagons to carry the high passenger and freight demand. Daily, 16021 trains run whereof about 40% of them are trains used to transport freight and 60% are passenger trains to carry nearly 15 million passengers per day.73 Compared to 5 million passengers in the year 2000, the demand in railways has increased tremendously.

Further, most of the rolling stock and other elements are produced by domestic companies but more and more commercial agreements with foreign enterprises exist to manufacture components for the railway sector.There exist some high speed routes in India and the use of them is also increasing. Besides, several urban passenger rail systems are also used in India. Chennai for example has a rapid transit system, Kolkata has a full metro system and the metro system in New Delhi is expanding. Further, there are suburban rail networks, e.g. in Bangalore and Mumbai.74

70 see N.N. (2006c), p. 371 see N.N. (2006c), p. 372 see N.N. (2004), p. 1473 see N.N. (2006c), p. 374 see N.N. (2004), p. 14



The broad upturn in the performance results of the railways, results from a strategy for regaining the predominance of railways in the whole transport sector. This strategy was built around the optimization of already existing equipment, infrastructure and another approach to the traffic segment. Some examples of innovations are: an increase in axle load (from 20.3 to 22.9 t), a reduced turnaround time of 5 days, a rise in popular passenger trains using spare stocks of coaches, all in all providing an adequate freight-loading and carrying capacity per train.In comparison to other countries, as it can be seen in Table 6, the pay load is even smaller in India. Indian Railways can carry 450kg of wagons with dead weight for every 1000kg of freight carried. In the US for e.g. for the same amount of freight carried, only 170kg wagons with dead weight can be carried.75

Table 6: Load Capacities in different Countries

Countries Parameter

India Australia/Europe/US

Average Speed (kmph) 23.3 100

Capacity (TEUs) 90 150

Axle Load of Wagons (TONs) 22 30

Load Capacity per Wagon (TON) 88 120

Pay Load: Tare Weight of Wagon 2.-2.6 4.5-5.5

Indicator 2000-2001 2005-2006

Freight unit cost (paise per net ton-km) 61 52

Freight operating margin (%) 22 57

Net ton-km per wagon per day 2,042 3,000

Source: Vaidyanathan, (2007), Current Status of Logistics in India, p. 16

Source: Singru (2007), Profile of The Indian Transport Sector, p.10

All these reinventions linked with All these reinventions linked with the new strategy led to a positive by-product of lower unit costs of operation, which can be seen in Table 7.

Table 7: Improvements in the operations of Indian Railways76

With these measures, With these measures, the railways could act and operate again as a competitive and feasible option to road transport and redefined the transport sector India. Now, this sub sector is regaining market share and exceeds with its traffic growth the growth in GDP. Operating margins are only some advantages of the transformation. Moreover, huge efficiency gains and financial surpluses were delivered.77

75 see Vaidyanathan, (2007), p. 1676 see Singru (2007), p. 10

77 see N.N. (2006c), p. 4ff



3.3 Improvements and Potentials of the Railways

Indian Railways set up a strategy to avoid or remove bottlenecks and increase the capacity of handling traffic to match the demand. The most important elements of this strategy would lead to investments in development of infrastructure, in the modernisation of the technology of the wagons and in a better signalling- and telecommunication system, as well as in high horsepower locomotives and information technology. All in all, the aim is to improve transit times, operation unit costs and terminals and to bench mark to get best standard in the world.78

The measures for keeping and further improving the new advantages include amongst others:

• Commercial development of railways land and air space (non-tariff) to generate revenues

• Roll-on roll-off services on Konkan Railways• Tie-up with Central Warehousing Corporation• Door-to-door transportation of freight.79

The Metro City Railway Stations in the metropolis like Delhi and Mumbai and so on, also need modernization to offer world-class services for passengers mainly due to the large quantity of passengers using these stations. There is a pilot project for Delhi Station already ongoing.80 Other plans for metro, light rail, or both exist for Bangalore, Coimbatore, Hyderabad, Jaipur, Lucknow, Mumbai, and Pune.81

Another potential to generate revenues is the commercial use of around 43,000 hectares of vacant land owned by Indian Railways. These areas around railway stations are mostly installed in lengthwise strips along the tracks and could serve as capital for modernization.82

In addition, the Ministry of Railways also decided to develop the rail tracks with building dedicated freight corridors in high-density routes in Western and Eastern India, e.g. the Delhi- Mumbai Industrial Corridor, to enable the Indian Railways to compete with the road sub-sector. This includes new tracks for freight trains along the Golden Quadrilateral and a possibility for the trains to run over 100 km per hour. By the way, those separate tracks help to avoid accidents with passenger trains and resulting delays.

Further initiatives are technological upgradation and modernization, transformation from bulk- to multi-modal transporters and Public Private Partnership envisaging new railway stations, routes and logistics parks. Attracting private investments by

78 see N.N. (2006c), p. 379 see Singru (2007), p. 1080 see N.N. (2006c), p. 681 see N.N. (2004), p. 1482 see N.N. (2006c), p. 6



allowing the areas around stations to be commercially developed while operational/passenger-handling areas are separated from commercial ones, are some of the plans of the Ministry to implement the initiatives.83

Another initiative of the government to improve the current situation is the National Rail Vikas Yojana. It’s objective is to develop and improve capacity in sections of the railway network that are critical. Further, it has three components:

• Golden Quadrilateral rail services and strengthen diagonals• Rail connectivity to ports strengthen/ develop multimodal corridors

(particular to hinterland)• Construct 4 major brigdes (Bogibeel, Munger, Patna Ganga, brigde over

Kosi river). 84

With these improvements, railways will be able to handle twice as much traffic volume as at present, by 2012.

3.5 Challenges

In the railways sector the incidence of hurdles is lower than in the road sector as reported from logistics companies. It can be noticed that the major barrier liess in the lack of a dedicated freight corridor. 85

Obligations of Service Providers

A major barrier in this industry is the high dependence on external operators or agencies, such as Indian Railways, which is the only provider of the railway network. 86

Indian Railways, offering the entire infrastructure such as signals and containers has many social obligations, e.g. low cost passenger service and is coping with them by subsidizing which involves excessive freight tariffs to cover the running costs of the railway.87 Also other operational issues such as service guarantee and dedicated freight corridors are still unresolved. There exists such a volume fragmentation because of too many operations and uncontrolled haulage costs.88

Furthermore, financial constraints such as the fare structure determined by the policy, hamper the railway sector traffic.89

83 see N.N. (2006c), p. 684 see Singru (2007), p. 1085 see Ganguli (2008), p. 3286 see Vaidyanathan, (2007), p. 1687 see Ganguli (2008), p. 3288 see Vaidyanathan, (2007), p. 1689 see Ganguli (2008), p. 32



Infrastructure : Inadequate Connectivity

In addition, delays even in transports on the main railways between the metropolises are attributed to inadequate rail corridors, as it takes nearly a week to transport cargo from Mumbai to Delhi. Lack of proper connections to ports is another cause for hindrance in a smooth transport system. Often there is only a single track line directly connected to one of the Indian ports.90 For example, about 60% of the, port traffic on the west coast, is moved by rail to the northern hinterland implying huge congestion on these routes.91

However, barriers such as red tape and high taxes, and the associated additional costs as in the road sector is not applicable in the rail sector.92

90 see Ganguli (2008), p. 3291 see Vaidyanathan, (2007), p. 1692 see Ganguli (2008), p. 32



4. Indian aviation traffic



4.1 Progress of Indian Airways

The Indian civil aviation traffic, especially aircraft movement and passenger traffic, is growing in great leaps.93

Regarding the aircraft movement in general, the traffic increased from about 500,000 flights in 2001-2002 to nearly 840,000 flights in 2005-06, as shown in Figure 4. This describes a leap in the growth of aircraft movement from 9.9% to 16.8%.94 As can be seen in the Figure, the domestic traffic is even higher than the international one.

Figure 4: Development of Aircraft Movement since 2001

Source: Ministry of civil Aviation (2006), p.2

Since 1980-81 the number of Indian airports increased from a total of 84 to 122 in 1999-2000 and 125 at present. Collectively, they handled about 40 million passengers at the beginning of 2003.95

Table 8 illustrates the passenger traffic for the several airports in 2003-04.

93 see Ministry of civil Aviation (2006), p. 194 see Ministry of civil Aviation (2006), p. 295 see N.N. (2004), p. 14f



Source: Ministry of civil Aviation (2006), p.2

Source: N.N. (2006d), Airports. http://www.infrastructure.gov.in/airports.htm

Airport Passenger traffic

(million, 2003-04)

Bangalore 3.2

Chennai 4.6

Delhi 10.3

Hyderabad 2.2

Kolkata 3.0

Mumbai 13.3

Table 8: Airport Statistics in 2003-04

By 2004 and 2005 about 60 million passengers were handled at Indian airports. From 2001 the growth rates in passenger traffic jumped from 9.4% to 23.7% in 2005-06.96 This development of passenger traffic is illustrated in Figure 5.

Figure 5: Development of Passenger Traffic since 2001

In the first half of 2006-07 the domestic passenger traffic grew at 48% and the international passenger traffic at a rate of 16.3% compared to the previous year.97

At the beginning of 2003, Indian airports handled around 900,000 tonnes of cargo and by 2004-05, 1.3 million tonnes of cargo has been handled..98 In this sector, the growth rates also showed a growing trend even if there were some upsurges and some downturns in the yearly growth rates. For example in 2002-03, there was

96 see Ministry of civil Aviation (2006), p. 297 see Ministry of civil Aviation (2006), p. 298 N.N. (2006d), p. 1



Source: Ministry of civil Aviation (2006), p. 2

a growth of 14.6% compared to the year before and in 2003-04, the growth rate compared to 2002-03 was only 9.1% but grew again in 2004-05.99 The cargo traffic development is shown in Figure 6.

Figure 6: Development of Cargo Traffic since 2001

As can be seen in Figure 6, international cargo traffic is more likely in demand than domestic cargo traffic.

4.2 Current domestic and international traffic

Compared to world’s aviation industries, the aviation industry in India, is one of the fastest growing with an annual growth rate of about 18%. In 2008, it was worth US$ 5.6 billion. These results are not only as from the open sky policy of the government and the fast air traffic growth, that has exceeded 20% in the last two years, bringing out many foreign players and new private airlines to enter the market. Further, higher frequency of flights for international airlines could also be noticed.100 So, the industry could grow in terms of players as well as in terms of number of aircrafts. From the 12th position in the world’s aviation market, India reached the 9th position in 2009. By 2010, more than 100 million passengers on the total market are expected from the Centre for Asia Pacific Aviation (CAPA).101 Currently, the Airports Authority of India (AAI) regulates and controls all 125 airports

99 see Ministry of civil Aviation (2006), p. 2100 see N.N. (2009c), p. 1101 see N.N. (2009c), p. 1



whereof 11 are declared as international airports.102 The scheduled domestic air services can be provided from 82 airports to match the high demand, compared to 75 in 2006. As forecasted by the Centre for Asia Pacific Aviation (CAPA), the traffic at domestic airlines will increase by 25-30% by 2010.103

The prognosis of the CAPA for the international traffic mentions an increase in growth by 15% by 2010.104 Big cities like Kolkata, Chennai (Madras), Mumbai, New Delhi and Thiruvananthapuram posses the major international airports. But also Bangalore, Guwahati, Hyderabad provide international service.105 India’s cultural heritage and nature are an interesting destination for leisure travellers from overseas but also due to a growing economy, India is attractive for international business travellers.

Currently, several policies to support aviation infrastructure are in place. Foreign direct investments under the automatic route, are permitted up to 100% for green field airports and partly for existing airports. Further, private players developing the infrastructure are allowed to setup general airports and airstrips at a distance of 150 km to the existing airports. Moreover, for new airport projects, a tax exemption is given over a period of 10 years. While 100% equity ownership is allowed to be held by non-resident Indians in domestic airlines, only 49% FDI is permitted under the automatic route, however, not for foreign airlines. In cargo, nearly 75% of FDI is permissible.106

Delhi and Mumbai airports are already privatised and expanded in 2006 at an estimated investment of US$ 4 billion. Also new international airports are operational in Bangalore and Hyderabad which are built by private players or consortiums at an investments of about 600 million.107

4.3 Airlines in India

In 1953,the government of India nationalized all existing airlines and built the Indian Airline Corporation engaged in domestic air services and Air India International offering international services. These two companies had a monopoly position on the Indian aviation market until the year 1991. In 1994, private airlines were also allowed to operate scheduled air services. In 2003, the aviation industry witnessed a major change. Air Deccan introduced budget flights by offering lower transportation expenses down to 17% of the prices of other airlines. Currently, the list of budget airlines consists of Spice Jet, Go Airways and Kingfisher Airlines, as well as the Paramount Airways. They mainly own the major market share on Indian aviation industry market and set off newer trends. 108

102 see N.N. (2006d), p.1103 see N.N. (2009c), p. 1104 see N.N. (2009c), p. 1105 see N.N. (2004), p. 14f106 see N.N. (2006d), p.1107 see N.N. (2009c), p. 1108 see N.N. (2009d), p. 1



National airlines

The central government of India currently owns two airlines, i.e. Air India and Indian Airlines, as well as one helicopter service, the Pawan Hans. Both airlines are international as well as domestic flag carriers.109

The development of Air India and Indian Airlines since 1980 is given in the following figure.

Figure 7: Transport Profile – Air India and Indian Airlines

Available ton-km: Air India

million

Available ton-km: Indian Airlines

0

500

1000

1500

2000

2500

1980-81 1990-91 1997-98 1999-2000

Ave

rage

Ann

ual G

row

th R

ate

(%)

Source: Ministry of civil Aviation (2006), p. 2

In 2003, the government has divested more than the half of the equity in both of the airlines. The major regional airports are located amongst others in Ahmadabad, Allahabad, Chandigarh, Cochin, Nagpur and Pune.110

Private Airlines

Currently, there are 12 privately owned airlines, e.g. Jet, Sahara, Kingfisher and Spicejet, that account for round about 75% share of the general domestic aviation market and especially for around 60% of the domestic passenger traffic. They are also offering international flights to certain destinations.111

The airlines continuously offer new flights/routes and an innovative pricing structure to attract more customers.112

109 see N.N. (2006d), p.1110 see N.N. (2004), p. 15111 see N.N. (2006d), p.1112 see N.N. (2009d), p. 1



In support of the aviation industry growth, ten of the major domestic airlines promoted the Federation of Indian Airlines (FIA) for growth in the airport infrastructure, to cope with potential problems in the domestic segment and to create new trends in this sector. The research of the Ministry of Civil Aviation ensures technological advancement.113

4.4 Potentials Creating Projects

Successful demographics and a fast growing economy, indicate a continued increase in domestic passenger traffic as well as in international outbound traffic. The inbound traffic at the international level will also grow further with additional trade activities and investments.114

To boost the growth in civil aviation, significant measures are on the anvil. Opportunities and potential in the Indian aviation sector can be seen through increasing investments in new aircraft, development of airport infrastructure as well as maintenance, repair and training. 115

Modernisation of existing airports is one of the measures of the government, with the plan to invest about US$ 9 billion. In addition, the development of around 300 unused airstrips is planned. 116

Huge investments are planned during the next 5 years.. Nearly half of this investment will be used for the metro airports in Chennai, Kolkata and Trivandrum. The balance will be used to upgrade non-metro airports, city airports, aeronautical equipment, as well as Greenfield airports for resort destinations or for emerging metros like Goa, Pune and Kannur. The Greenfield international airports in Bangalore and Hyderabad will be modernized and are under construction. Also Delhi and Mumbai airports are listed to be modernized. A plan for 35 non-metro airports is also projected to keep a balanced airport development.117

There are different companies showing interest in the aviation industry of India. Nearly two-thirds of the Investments in airport infrastructure are expected to come through public private partnerships.118 To provide a “level playing field” to all players, including foreign companies, the government wants to set up an Airport Economic Regulatory Authority.

113 see N.N. (2009d), p. 1114 see N.N. (2006d), p.1115 see N.N. (2006d), p.1116 see N.N. (2009c), p. 1117 see N.N. (2006d), p.1118 see N.N. (2009c), p. 1



Some companies and their plans concerning investments in Indian aviation sector are given in Table 9 below.

Table 9: Investment plans in India’s aviation sector

Company Plans Estimated costs

Tata Advanced System Limited

Helicopter manufacturing at the Aerospace Special Economic Zone near

Hyderabad international airport

113.63 million

Global Vectra Helicopters Increase its fleet and consolidate its operations in dedicated offshore

transportation

130 million

Boeing Co. Delivering 100 planes 17 billion

Source: N.N. (2009c). http://www.ibef.org/industry/aviation.aspx, 15.11.2009

Also for EU companies, the Indian aviation sector seems to be worth a potential in investments. The Siemens Projects Venture, Germany, together with L&T and Unique Zurich formed a consortium and hold about 17% stake developing the Bangalore International Airport Ltd.119

A further successful example of a bilateral investment in the Indian airports is of Fraport AG. Fraport AG in a consortium amongst others with GMR, holds a 10% stake in developing the Delhi Airport. Its noticeable experience in the development and management of airports globally could be advantageously used in the Delhi airport development project. 120

Aims of the projects are amongst others the creation of an infrastructure able to handle about 280 million passengers and therewith a growth in passenger traffic of over 15% in the following 5 years. Additionally, handling of more than 3.3 million tonnes of cargo traffic and therewith an envisaged growth rate of more than 20% should be possible.121

119 see Parera (2009), p. 93120 see Parera (2009), p. 94121 see N.N. (2006d), p.1



5. Indian Waterways



5.1 Progress and Current Situation of Seaways and Ports

India possesses round about 14,400 km of inland waterways of which more than 3,600 km are navigable by large vessels. However, only 2,000 km of them are used. With the aim of developing water navigation and maintenance or conservation, 3 of the inland waterways have been pronounced as National Waterways: the Allahabad-Haldia part of Ganga-Bhagirathi-Hooghly rivers with about 1,620km, the Sadiya-Dhubri partition of Brahmaputra River with 891 km, as well as the combination of western canals with 205 km. In general, the transportation potential is underused.122

The ports in India handled about 519 million tonnes of cargo in 2004-2005. This constitutes a growth of 11.8% compared to 2003-2004. There are 12 major ports in India, six each on the west and east coast that together handled 383.75 million tonnes, which is around 75% of the total sea-borne traffic. Almost all major ports are administered by the government except for one -Ennore. In addition, there are 187 minor ports along 7,517 km of Indian coastline , as well as seven shipyards under central governmental control, 2 shipyards under the control of state governments and 19 private ones.124

Regarding the freight, nearly three-quarter of the traffic in the major ports are dry and liquid bulk, like coal, iron or crude oil. The remaining traffic is general cargo and containers, growing at a rate of 14% over the last half decade. The cargo that is handled at India’s major ports is 75% of the total traffic and has increased over the last 3 years at 9.5% annually. All in all, the international trade is handled up to about 95% by volume (and 70% by value) by the major ports and a number of the other ports.125

122 see N.N. (2004), p. 14123 see N.N. (2006a), p. 3124 see N.N. (2004), p. 14125 see N.N. (2006a), p. 2ff



Source: Singru (2007), Profile of the Indian Transport Sector, p. 3. / Vaidyanathan, (2007), Current Status of Logistics in India, p. 16.

Source: Singru (2007), Profile of the Indian Transport Sector, p. 3

Major PortsNon-Major PortsOverall

050

100150200250300350400

mmt

1980-81 1990-91 1997-98 1999-2000

Figure 8 shows the development of traffic growth in Indian ports during the last few decades.

Figure 8: Traffic Growth in Indian ports

Table 10 gives an additional overview of the development of the major ports and the length of useable waterways, since 1980.

Table 10: Profile of Indian Ports and Waterways, since 1980

Parameter Unit 1980-81 1990-1991 1997-98 1999-2000

No. of Major Ports: number 10 11 11 12

Inland Waterways- length of navigable

waterways

km 14,544 14,544 14,646 14.646

By the year 2000, approximately 102 shipping companies were operating in India. Five of them were owned by private players based in India and one single company was government owned, the Shipping Corporation of India. Regarding the ships, there were about 640 ships including those owned by the Indian government having 91 oil tankers, 70 dry cargo bulk carriers and 10 cellular container vessels.

In the past, the Indian government controlled and dominated the maritime activities. However, the current indications are towards the private sector leading in the development and operations of port activities. Hence, the sub sector ports, has experienced significant investments by major global operators in the ports business. Effects can be seen for example in some major ports now acting as landlord ports or in minor ports which are to some extent already developed by domestic and international private investors, as Pipavav Port by Maersk and



Mundra Port by Adanai Group. Above all, the growing merchandise exports and the increasing demand involved with it makes it necessary to invest more and more in infrastructure of ports.126

Maybe, ports have the best potential for wide-ranging investment and modernisation in India, besides telecommunication and roads. The country’s efforts to modernise the infrastructure of ports got a quick start with the first private international container terminal ever in India, the Nhava Sheva International Container Terminal (NSICT).127

5.1.1 Major Ports

There is high traffic congestion at several ports. The Major ports which are important to handling the increasing international traffic will be specified below.

At first, there is an artificially-made, all weather harbour; Chennai Port. It has a wet dock and boat basin on its outer harbour, with a twenty-four-seven navigation facility. Recently, it is rapidly appearing as a hub port and has connectivity to the road from Channai to Kolkata, from Chennai and Dindigul, as well as connectivity to rail to reach the southern parts of Tamil Nadu and the rest of India.

Moreover, in 2005-2006 47.25 million tonnes of traffic, above all iron ore, coal, cars and sugar were handled at a capacity of 48.80 million tonnes annually. 128

Another all weather port is the Cochin Port, more and more developing into an important maritime gateway to India. Two bridges, on the Mattanchery Channel and on the Ernakulam Channel, build the road connectivity from the mainland to the port. Also a single rail line from Shornur-Trivandrum to Ernakulam goes to the Cochin Port. Concerning the transported freights, Cochin Port handles mainly all the trade of tea, spices and coffee. In 2005-2006, about 13.94 million tonnes were handled, against a capacity of 19.35 million tonnes per annum.

The Ennore Port is the first major corporate port in India and recently is a landlord port with only coal being transported. Ennore Port has road and rail connectivity and a traffic of merely 9.17 million tonnes in 2005-2006 against a capacity of 13 million tonnes a year.

The largest container handling port dealing with more than half the national container traffic, is Jawaharlal Nehru Port (JNPT) in the south of Mumbai Port where, two out of three terminals are operated by private players. This port hub is connected with Mumbai- Pune expressway as well as with Mumbai-Goa highway to western India. A rail connectivity to Panvel is also given. In the year 2005-2006, against an annual, new capacity of 36.1 million tonnes, it handled 37.35 million tonnes of traffic.

126 see N.N. (2006a), p. 2ff127 see N.N. (2006a), p. 2ff

128 see N.N. (2006a), p. 9f



The Kandla Port is located in the well developed Gujarat State on the west coast of India. It constitutes a gateway to the north western part of India with access to huge hinterland up to Jammu and Kashmir. The port is also connected with the big cities of Mumbai and Delhi by rail. Iron, steel and salt are the major freights transported. In 2005-2006 the Kandla Port utilized almost its entire annual capacity of 46 million tonnes.

Under the Kolkata Port one should understand the Kolkata Dock System and the Haldia Dock Complex. The first mentioned is a riverine port, constituting a gateway to the eastern part of India. Its connectivity by road and rail is well pronounced, e.g. through city roads, national highways connecting the port with the airport. The general cargo and other traffic handled in 2005-2006 was 10.61 million tonnes against 12.60 million tonnes of total capacity. However, Haldia Dock Complex transports above all fertilizers, minerals and thermal or coking coal, exceeding its annual capacity of 42.20million tonnes, in 2005-2006.

One of the first natural harbours of the world is the Mormagao Port also on the west coast of India. About 32% of India’s iron ore exports are handled fromthis port. A connectivity by road and rail is given. The yearly capacity of 29.50 million tonnes is insufficient to cope with the high demand.

In the commercial capital of India, the Mumbai Port has a natural deep harbour with three dock systems and 50 berths. Various national highways and Indian Railways build the connection to almost all parts of India. There, pulses, sugar and electronics are transported at a recently enhanced capacity of nearly 44 million tonnes a year. 129

At Panambur, Mangalore, the artificial New Mangalore Port is situated. While having connectivity to the industrial hubs of Southern and Northern India through broad-gauge railway line and diverse national highways, about 38 million tonnes of traffic, mostly food grains, can be handled annually

The Paradip Port, situated in Orissa, the state which is developing into a steel production hub has a high potential for growth. State and national highways build the connectivity to iron ore mines and steel plants and further rail lines are under construction. However, the capacity of 51,40 million tonnes of cargo per annum is only utilized up to about 60%.

The Tuticorin Port, is located in the eastern part of India and is considered as being the best south Indian gateway port with connectivity by road and rail to the big cities. Palm oil and raw cashews are some of the freight handled there at a total recent capacity of about 20million tonnes.

The top ranking port in India with an inner and outer harbour and about 55 million

129 see N.N. (2006a), p.10f



tonnes handled yearly is the Visakhapatnam Port. It is connected to a national highway and the main railway line of the east coast. 130

Table 11 shows the major ports in India and the cargo handled by them. For the Kolkata Port, the Kolkata Dock System and Haldia Dock Complex are separately mentioned.

Table 11: Cargo handled by Major Ports

Major PortTrade

(04-05, MMT)

Container Traffic (04-05)(million TEU*)

*Twenty foot equivalent unit

Chennai 44 0.62

Cochin 14 0.19

Ennore 9.5 —

Haldia 36 0.13

JNPT 33 2.37

Kandla 42 0.18

Kolkata Dock System 10 0.16

Mormagao 31 0.01

Mumbai 35 0.22

New Mangalore 34 0.01

Paradip 30 —

Tuticorin 16 0.31

Vizag 50 0.05

Source: N.N. (2006b). http://www.infrastructure.gov.in/port.htm

Summarizing, the west coast ports cope with more than three-quarter of total container cargo of which almost 70% of west coast traffic is handled by Jawaharlal Nehru Port Trust (JNPT).131

5.2 Potential for Growth and Projects

To handle the large and sudden increase in cargo traffic which grew as already mentioned at round about 10% annually the ports in India focus more and more on expanding their cargo handling capacity. In 2006, the aggregate handling capacity was about 456.20 million tonnes annually, in the major ports, as against a demand or traffic of 423.42 million tonnes in 2005-2006. However, the minor ports coped with 150 million tonnes during the same period.132

130 see N.N. (2006a), p. 12f131 Vaidyanathan, (2007), p. 14

132 see N.N. (2006a), p. 3



Nr. Name of the projectEstimated Costsin US$ (million)

Deepening Channels/Berths1. Deepening and widening of Main Harbour Channel 177.78

Berth Development2. Extension of container berth by 330 m and other facilities 100.66

3. Development of fourth container terminal 976.00

4. Marine Chemical Terminal 936.00

Equipment Procurement/Modernisation5. Acquisition of new cranes 66.67

6. Replacement of tugs 20.00

Others3. Infrastructure facilities for Warehousing etc. 79.11

5. Infrastructure facilities for port based industries 42.67

Source: N.N. (2006a), p. 20ff

The Governement of India, has different plans underway to bring the handling capacity of the major ports, up to a level of 1000 million tonnes per annum by 2011-2012 per annum in order to cope with increasing international trade and to smoothen the traffic flow. The aim is to boost the capacity by about 545 million tonnes within the next 6-7years. One of them is the “Sethusamundram” project which shall facilitate maritime trade through dredging of the Palk Strait in Southern India. In order to expand and modernise the capacities of the Indian ports another project, the National Maritime Development Programme (NMDP) has been established.

Under the NMDP about $13.5 billion investment in the major ports and $4.5 billion investment in the minor ports is required to improve their infrastructure within the next 7 years. The government plans different measure to reach their goals concerning the handling capacity:

• Projects to develop the ports, like construction and development of berths and jetties

• Maintenance and upgrading of the cargo handling equipment at ports• Improvement of drafts while deepening the channels• Diverse projects concerning the connectivity of ports.133

Some investment examples are given in Table 12 and 13 showing the major projects of the Jawaharlal Nehru Port and Chennai Port.

Table 12: Major planned Investments in Jawaharlal Nehru Port

133 see N.N. (2006a), p. 2ff



Nr. Name of the projectEstimated Costsin US$ (million)

Deepening Channels/Berths1. Deepening of Channels, Basin and Berths 31.77

Equipment Procurement/Modernisation2. Modernisation of Chennai Port 44.44

Others3. Creation of additional open storage yards by reclamation 44.44

4. Multilevel stack yard for Automobile Exports 11.11

5. Construction of Marina 66.66

Source: N.N. (2006a), p. 20ff

Table 13: Major planned Investments in Chennai Port

To finance these 276 planned projects for maintaining and improving the major and minor ports, the government encourages the public-private partnership model, including direct foreign investment up to 100% - like in the other sub sectors of the transport and logistics industry. In order to provide common user infrastructure facilities, the plan is to use public funds.134 Given these facts, 64% of the submitted investments are expected to be financed by the private sector, particularly the commercially viable projects like the construction of berths and operation of terminals. Already 15 private sector projects are recently operational.135

Also EU companies are attracted to invest in the Indian port sector. An example for this is Maersk, being a player who is already present in India in the context of the Projects of Port Development initiatives e.g. at Gujarat.136

5.3 Challenges in the Maritime Sector

Congestion

The main problem or barrier for logistics companies in the maritime sector in India is the congestion at over-burdened ports.137 However India has a long coastline and its port system is not well utilized. The seaborne trade is handled to about 70% by 2 of the 12 major ports. The 180 minor ports having infrastructure problems are almost unused. Resulting from this is a long turnaround time which is lagging behind other global ports. Further, even the larger ports can’t support larger containerships making about 25% of the shipping volume.138

134 see N.N. (2006a), p.4135 see N.N. (2006a), p.4136 see Parera (2009), p. 92137 see Ganguli (2008), p. 33f138 see Kilgore/Joseph/Metersky (2007), p.38



Moreover, inadequate cargo handling equipments, frequent breakdowns and extended clearance time for cargo, make it difficult to handle the increasing traffic at ports.139

Transhipment

Due to missing main lines, cargo containers from India take a high transit time because they still have to go through a transhipment centre.140 Furthermore, due to delays in loading and unloading, many larger shipping liners avoid the Indian ports. This causes the Indian exporters to have to use ports such as Dubai and Singapore to tranship which causes additional costs and delays in transportation.141

The lack of connectivity is a major problem for the ports. In addition, there is no connection to the hinterland and no guarantee of fixed timings with the trains.142 Moreover, this sector is highly dependent on external operators such as shipping lines and port terminal operators.143

Labour policy

Skilled labour for operating the equipment at ports and for administration is scarce144 and among the Indian shippers there exists a lack of trust and awareness concerning outsourcing of logistics. Compared to developed countries the volume of outsourcing by Indian shippers still lies at a very low level of 10%. There exists a scepticism concerning losing control of sensitive information when outsourcing and there arre expectations of more visibility and the ability to a real-time tracking system.145

139 see Ganguli (2008), p. 33f140 see Ganguli (2008), p. 33f141 see Mitra (2006) S. 5142 see Ganguli (2008), p. 33f143 see Vaidyanathan, (2007), p. 16144 see Ganguli (2008), p. 33f145 see Mitra (2006) S. 5



6. Urban Transport



6.1 Development of Urbanization

The urban population of India almost doubled during 1981-2001, from 160 million to 285 million, and is constantly growing. The size of cities has increased therewith considerably. The growth of urban population was in the 1980s about 36% and slowed down a bit in the 1990s with a decadal growth rate of 31%. Despite the “slowdown” in urban dwellers, metropolitan cities had their upturn. From 5 metropolises, with more than 1 million inhabitants, in 1951, e.g. Mumbai, Delhi, Hyderabad, Chennai and Hyderabad the number of metropolises raised to 35 in 2001 having huge growth rates, e.g. Dehli (51.9%), Surat (85.1%) or Pune (50.6%).

All in all, the metropolises accounted for a larger portion of total urban population due to the decadal growth of these huge cities with at a rate of 34% and the 31% decadal growth of urban population.146

Table 14: Progress of the Share of Indian Metropolises

Year 1981 1991 2001

Nr. of metropolises (>5) 23 35

Share of metropolises (in%) 26.4 32.5 37.8

Source: Padam, Singh (2004), Urbanization and urban transport in India: the sketch for a policy, p. 27

The public transport system in India could not keep up with the increasing demand of the past decades. Passengers turned more and more to personalized vehicles rather than using the degraded bus services leading to traffic congestion.147

6.2 Current Situation of Urban Transport Systems

6.2.1 Travel demand

The range of urbanization varies from state to state. Transport is one of the factors that contributes to that variation. The states with a high urbanization level also present a higher economic development which implies a positive correlation between those two characteristics.148 The travel demand of urban population increased over the years substantially. In general, there are some specific factors that are responsible for that. One is the increasing Indian population. Due to urbanization, the population size of an area in India grows in two decades by itself. The second factor is the average number of trips per person daily, i.e. the mobility

146 see Padam/Singh (2004), p.27147 see Padam/Singh (2004), S.27

148 see Padam/Singh (2004), S.27



rate. In India, the mobility rate continuously increases annually. To give an example, the mobility rate in Delhi grew from 0.49 in 1969 to 1.10 in 2001. But also other big cities in India witnessed such an increase in the average trip rate, e.g. in Mumbai it was 1.26, in Kolkata it was 1.26 and in Ahmedabad 1.57 respectively. The third factor, is the increasing trip length contributing to the travel demand. It can be seen as a result of the physical expansion of the cities. Hence, for example in Delhi the average trip length of 5.4 km in 1969 raised to 13.5 km in 2001. Additionally, there is an observed change in how the trips are distributed within the different purposes such as work and education, etc. The trend in pattern of trip distribution goes to more and more trips in urban areas because of jobs or education. In Mumbai for example approximately, about 60% of the trips are being made for work and 31% for education.149 As a Result, there is a huge increase in demand for transport in Indian cities.

6.2.2 Potential for Urban Transportation

The urban cities account for 60% or more of the national Indian income, providing many jobs to migrants from rural areas and are therefore important for the development of the national economy and its growth.150 Hence, a certain mobility is required to maintain the productive efficiency and transport is a significant factor in the functionality and effectiveness of an economy.151

If the transport system is poor, the domestic and international markets may be less competitive.152

Provision of Public Transport

To ease the huge congestion due to the population increase, a greater use of public transportation instead of personal vehicles is necessary. To achieve this, an increase in capacity and an improved quality of the transport system is required. Moreover, most metropolises have no rail transit system to handle intra-city movement so that an enhanced need for bus services is necessary to meet the demand in public transport.153

Therefore, an optimal share of mass transport needs to be developed, with regard to the high population in the Indian cities. While the share of personalized transport and para transit is above the desired share, the share of mass transport is below the optimal range. In Delhi, the mass transit share between 1982 and 2001 stayed at 62% while the city has more than10 million inhabitants. Hence, the mass transport should contribute to more than 75% of total travel demand instead of merely 62%. In small and medium size cities, bus transport plays a minor role in transport for urban inhabitants. Due to the absence of public mass transport systems in these cities, intermediate public transport (IPT) is important to match the travel demand. Therefore, the personalized transport modes such as two-wheelers are common.154

149 see Padam/Singh (2004), p.32f150 see Padam/Singh (2004), p.27151 see Deb/Sundar (2001), p. 1

152 see Padam/Singh (2004), S.27153 see Deb/Sundar (2001), p. 1154 see Padam/Singh (2004), S.32f



6.2.3 Challenges Facing Urban Transport

Motorization

An increasing number of vehicles, as mentioned in chapter 1, and a resulting congestion on the streets decreases the efficiency of urban transportation and mobility in the form of lower speeds.155 Although the number of vehicles per capita in India is lower than in other developing countries, the country has to cope with delays, congestion and accidents, even more than some industrialized countries. One problem is the over concentration of vehicles mainly in the Indian metropolises. An example for the bad conditions in urban areas is Kolkata where, during peak hours, the speed is at an average, about 10 km/h, which indicates a waste of time and energy. Another example is Mumbai, where the average utilization of a suburban train exceeds 4000 passengers at a real maximum capacity of 2600 passengers. Such a mismatch of supply and demand can be seen in almost all Indian cities. For the Indian metropolises there are even estimates of a demand of about 80 million trips againstt a supply of only 37 million trips that can be provided by rail and bus mass transport. Additionally, the constantly growing urban population creates a further need for transport capacity, e.g. a growth of 1 million inhabitants in a metropolis generates a need for 3.5 – 4 million extra trips.156

Urban Transport Infrastructure

Compared to the developed countries, the space used for transportation in cities is very small. As mentioned earlier, the road space is not adequate. Moreover, the major roads in Indian cities are occupied by parked vehicles. As a result, the road space which is already insufficient is even more restricted.157 The urban mass transport systems are hardly maintained. The existence of rail services is rare. Kolkata has a passenger rail or metro system, in Chennai there exists a rapid transit system and some suburban rail networks are available in Bangalore and New Delhi.158 The bus transit is the main public transport system in the metropolises and in some smaller cities it has never been developed to be an efficient mode of transport. All in all, the available urban transport services are unreliable, tardy and overcrowded so that using them is not very comfortable. Due to this, the people shift to other transport modes, such as personalized vehicles, e.g. two-wheelers and intermediate public transport modes, e.g. taxis or auto-rickshaws. In Indian’s metropolises these intermediate public transport modes constitute a replacement for buses and suburban rail.159

155 see Deb/Sundar (2001), p. 1f156 see Padam/Singh (2004), p.27157 see Padam/Singh (2004), p.35158 see N.N. (2004), p. 13ff159 see Padam/Singh (2004), p.35



Urban Road Safety

India, as well as other developing countries face serious road accident problems. Those accidents cause costs up to 1% of GPD per year that India cannot really afford.160 In 2002 alone, there were about 85000 road accident deaths in India.

Figure 9 below, illustrates that all of the metropolitan cities in the sample, showed a high number of accidents in the year 2000.

Figure 9: Road accidents in Indian metropolises in 2000

Accidents

0

5000

10000

15000

20000

25000

30000

Ahmedabad

Bangalore

ChennaiDelhi

Hyderabad

Kolkata

Mumbai

Source: Padam, Singh (2004), Urbanization and urban transport in India: the sketch for a policy, p. 36.

The main victims in these accidents are cyclists and pedestrians. A huge proportion of this are the poor people, walking or cycling, that live in urban areas and cannot afford the costs for public transportation. Hence it is necessary to make public transport available especially to the poor, in order to provide them with certain safety on the roads for cycling and walking.161

160 see Padam/Singh (2004), p.35161 see Padam/Singh (2004), p.35



7. Logistics in Private Sector



7.1 Importance of Logistics (in India)

Since Logistics is a holistic, integrated part of each company, an efficient management of this is really needed to be competent in the global market situation.Whether a company functions successfully, is related to its logistics management technologies since the end-user also determines his satisfaction by good logistics management. Contributing to this, are performance indicators, optimization techniques and logistics software to build a corporate logistics system for customers and suppliers. An understanding of the technologies in these areas is a chance to transfer well-versed technologies from Europe to India.162

The concept of logistics helps to leverage certain advantages existing with the company. It is an integral effort to create costumer value at the lowest cost and is related to getting products and services at the time and place where they are needed to satisfy customer requirements. Hence, a clear understanding of the customer demand is important to find a strategy to meet the expectations.163

Moreover, in logistics, it is a balance of service priority and costs and therefore becomes a challenging operation within the business to implement the best practice of logistics, involving amongst others integrated information, transportation, warehousing and inventory. Material flows and product distribution are also one of the logistical operations.164

The strategic management of the material procurement, movement and storage is determined by Logistics. It is resolved in such a way that profitability is maximized in the form of fulfilling orders cost-effectively.165 Thus, effective logistics management provides for competitive advantages.166

7.2 Potentials in Logistics and Technologies

Logistics Service Provider – Competitiveness through efficient Logistics

Due to the rise in manufacturing, retail and trade in India, the need of the hour is efficient and competitive service from logistics service providers (LSPs) as well as the system of outsourcing, that is third party logistics (3PL). These services consist of diverse operations. Some of these operations are material handling, warehousing, inbound and outbound logistics.167

162 Balachandra/Matzner (2005), p. 1163 Balachandra/Matzner (2005), p. 5164 Balachandra/Matzner (2005), p. 1165 Balachandra/Matzner (2005), p. 2166 Balachandra/Matzner (2005), p. 12167 see Ramaswamy/Srinivas (2009), p. 5



Characteristics of the operations done by the logistics service provider are:

• Involving multiple parties, e.g. in 3PL services• Contracting and Vendor Management• Scheduling and Coordination• Monitoring and Information Sharing• Transportation: route and transport mode planning, vehicle placement• Warehousing: planning of resources, forecasting of demand• Use of scientific tools168

They are improving their efficiencies through initiatives, processes and monitoring systems. With this they are able to maximize their competitiveness. To achieve this competitiveness among logistics service providers, an improvement in the operations is needed. The logistics service providers are able to run with cost- efficiency and can offer value-added services at competitive prices, providing value to their customers and shareholders. Their operation can be monitored and controlled uniformly. LSPs may have impact on vendor management processes helping to ensure relationships that are beneficial and constitute competitive advantage.169 Currently, third-party logistics account for almost a quarter of India’s transport industry and its market is expected to grow in the next years up to $3.6 billion by large investments in automotive and telecom manufacturing. A 3PL example is Menlo Logistics that is not only organising distribution but also offering assembly and manufacturing manpower. Also, real-estate developers in industry such as Prologis and Aeroterm have entered the market. Since 2005, where the Value Added Tax was partially introduced, India’s transport and logistics industry as well as other industries are expected to move more and more towards the use of 3PL services benefiting large warehouses in hub cities. These are investments that companies expect the service provider to make.170

IT and Technology

The Indian Institute of Science conducted a survey and made a demand analysis in this sector to understand the technologies adopted by Indian companies as well as to show the gap in the technologies, thus constituting a potential for transfer of technology from Europe. They also conducted a case study with some selected companies in India in order to identify the used technologies, the problems they were coping with when adopting advanced technologies as well as the areas where demand for technologies exists. Additionally, the problems that have to be overcome when doing a technology transfer and the solutions for such problems were studied.171 This gives an insight into the relevant areas in logistics that could be processed and made available to companies in India to enable them to become competitive and to facilitate bilateral cooperation.

168 see Ramaswamy/Srinivas (2009), p. 5169 see Ramaswamy/Srinivas (2009), p. 5170 see Kilgore/Joseph/Metersky (2007), p. 40171 Balachandra/Matzner (2005), p. 1



Participating in this survey were amongst others, companies from the automobile sector in Mumbai, Pune and Delhi. They regularly evaluate and review the quality of their logistics services in customer delivery and also share customer complaints regarding their logistics services. The companies are quite flexible to the demands of customer delivery requests. Since most of the companies outsource their logistics to a service provider, they regularly analyze these services, for their profitability and feasibility in ancillary areas like distribution, transport and return management. JIT, JIS and warehouse concepts are familiar to most of the companies and are being regularly used. Majority of the companies practice cooperation/networks with other companies to reduce logistics costs.

From the study it is identified that there are quite a number of companies that have the potential for technology transfer. Various technologies which can be incorporated for the enhancement of the logistics services are listed below.172

• JIT, JIS and warehouse concepts.• Collaboration with the customers in inter-company planning process.• Logistics planning incorporated in the company’s target system.• Integration of SCM in ERP.• Participation in electronic market places.• Online inventory management.• Electronic Data Interchange (EDI).• Utilization of supply centers.• Complete IT integration.• Barcodes and RFIDs.173

Use of logistics target system, such as balanced scorecards tailored to the company’s needs is a potential area. State-of-the-art logistics planning tools can be implemented. Knowledge about the advantages of cooperation/networks, IT integration and implementation of barcodes has to be acquired. Use of SCM tools is also one area of potential for technology transfer. Some technology has to be thought of in the field of vehicle tracking system, as the geography is a very complex one. Further, use of cooperation/networks with other supplier companies to combine volumes in logistics process can be one of the potential areas. Often, a good scope for the implementation of real time tracking facilities can be seen as they feel a two-way communication is the need of the hour. The skill level of the suppliers has also to be improved. Global Positioning System (GPS) is one of the technologies that should be implemented. Cost effective and beneficial training is necessary.

Real time tracking system is what the companies are looking for. They also look for logistics service providers, as mentioned before, who can handle large volumes especially when there is an increase in production. EU companies can cooperate and also educate them with the advantages of merging their demands with key suppliers and joint stock management with their suppliers. RFID is another potential

172 Balachandra/Matzner (2005), p.60f173 Balachandra/Matzner (2005), p:60f



area for technology transfer. The most needed technologies are those that could reduce the inventory and lead times. Even if too many new technologies can not be implemented, efforts could be made in improving the existing technologies.174

A gap analyse for this sector was made to observe the potentials due to high demand.

Figure 10: Gap analysis- Automobile Sector

Source: Balachandra/Matzner (2005), p. 116

Gap in %

05

101520253035404550

Performance Indicators

Optimization Concepts

Optimization Measures

IT Deployment

From the above graph it is evident that in the automobile sector there is a considerable gap in IT deployment. Also, there is a significant gap for optimization concepts and measures which indicate that there is a potential for training and technology transfer.175

In Addition, since the Indian market is only slightly penetrated by PCs and internet, it provides the IT companies an opportunity to explore the potential.176

This shows a high potential for the future of technology transfer of logistics technologies between Europe and India. Much can be learnt from the experiences of both countries. India has a vast experience in currently used logistics technology and practices. Europe is advanced with R&D in logistics technology.177

Currently, there already exist Indo-EU investment projects for example with SAP, Germany. The SAP Labs India is a global development hub of SAP Germany contributing to the product value chain areas of SAP. Further, the British IT company Xansa is located in India with 3000 employees and wants to increase it even more. Another example is the TCS that bagged an IT outsourcing contract from Volkswagen. 178

174 Balachandra/Matzner (2005), p:62ff175 Balachandra/Matzner (2005), p.116176 see Parera (2009), p. 87177 Balachandra/Matzner (2005), p.131178 see Parera (2009), p. 87



7.3 Challenges in Logistics services

Nascent Stage of LSP

The market for third party logistics is rapidly increasing and has to cope with different challenges. One of these challenges is the lack of infrastructure, e.g. the fragmented warehousing and cold storage chains.179 Further, through the huge number of unorganized private operators, as mentioned, economies of scale cannot be realized. Last but not least, since processes and automated monitoring systems are not efficient or technologically advanced it also imposes a challenge for outsourcing.180

Warehousing

In India, there are no real existent warehouse standards, no set-up for distribution centres or standards for suppliers.181 Further, local clearing and forwarding (C&F) agents usually manage warehouses, but the warehousing structures are very fragmented and the facilities are small due to the poor knowledge of warehousing technology. Also, the warehousing practices are not very well known, so companies often percieve an increased risk of cargo damage or pilfering.Third Party Logistics (3Pl) providers often complain about the difficulties in obtaining land to build warehouses. They often cannot offer warehousing services by themselves and if they cannot get land, that hinders them to provide their logistics services. Warehouses would be most efficient near airports or seaports but land is not easily available to private companies in these areas. Therefore, warehouses often are smaller than planned because of these problems to acquire land in India.182

In addition to that, companies entering the market have to build their own infrastructure including supply of electricity, water and road access.183

Limited Technology Basis

The study conducted by the Indian Institute of Science also identified some challenges mentioned below that may hinder the technology transfer. Most of the companies surveyed are still of the opinion that logistics means only transportation. They are unaware of the latest technologies involved in logistics. Most of them follow certain techniques that are conventional and they need to be convinced on how technology transfer can improve their company’s performance and how it will enhance their return on investment. Yet a few of them feel that upgradation of technology is not the need of the hour because the infrastructure in

179 see Ramaswamy/Srinivas (2009), p. 4f180 see Ramaswamy/Srinivas (2009), p. 4f181 see Kilgore/Joseph/Metersky (2007), p. 38f182 see Ganguli (2008), p. 18ff183 see Kilgore/Joseph/Metersky (2007), p. 38f



the country is not mature enough for the companies to adopt high-end technologies. The basic factors like road, IT backbone and taxation are major barriers for a company.184 Majority of the companies mainly rely on the software that is developed in-house for logistics and have also integrated logistics in the company’s target system. However, there is no seamless flow of information and customization in this area and therefore this would be a potential market for tailor made software.185

Logistics Infrastructure and Supply Chains

Due to poor condition of roads, inefficient ports and scarce distribution infrastructure, India’s supply chains rely on a slow transit network. Further, the lack of next-day deliveries for transport companies managing nationwide networks and unlimited distribution channels, hinders the logistics development and therewith the countries growth. Moreover, logistics costs are extremely high.186

184 Balachandra/Matzner (2005), p. 114f185 Balachandra/Matzner (2005), p. 114f186 see Kilgore/Joseph/Metersky (2007), p. 38f



8. Summary of the main challenges and opportunities



8.1 Facing challenges

All in all, a city’s efficiency depends on the development of a functional transport system. As mentioned before, the Indian transport system faces some challenges but at the same time, also offers some potentials. The main problems in India are congestion, delay, accidents, wastage of energy and air pollution, implying high costs.187

8.1.1 Natural Challenges

Energy, Natural Resources and Pollution

The strongly increasing population and urbanisation, as well as motorization in India imposed tremendous pressures on the natural resources of India, i.e. energy. Moreover, it is expected that the Indian growth will reach an energy consumption of 4 times the current value in 2030.189 The largest part of the energy demand in India is fulfilled by coal and fossil fuel. About 70% of the electricity supply in India comes from coal.190 Figure 11 indicates the division of the electricity production.

Figure 11: Indian Electricity Production 2006

Source: Balachandra/Matzner (2005), p. 116

However the Indian energy sector matches only 90% of the required energy. India suffers from energy shortages and there exists an inadequacy in the energy supply that has to be balanced, e.g. through energy imports. An estimation of the peak shortage of power is about 13-14% and large areas are without power for long

187 see Padam/Singh (2004), p.39, 188 see N.N. (2009), p. 1

189 see Wish (2007), p. 1190 see N.N. (2009b), p.1



periods.191 Further, the reserves of the energy resources are reduced more and more and in contrast, the energy prices keep rising and are at 8-10ct/unit at the moment.192 Since India has to import large quantities of fuel at high prices and fuel accounts for 83%193 of India’s carbon dioxide emissions, alternative energy and a proper energy management system is needed to meet all the demand and to avoid or to deal with a potential energy crisis.194

Also the huge air pollution caused due to the high vehicle growth especially in the urban metropolises explains the need for alternative energies, e.g. diesel with low particle emission to match the international emission norms.195

Moreover, in terms of climate change, India has to cope with environmental challenges such as the greenhouse effect.196

Why Care about Climate Change?!

The phenomenon of climate change may have harmful effects on Indian’s economy. These are mainly with regard to the sea level, agriculture, rural development and generally the occurrence of extreme events which will lead to adverse impacts and possible threats or challenges

for the country in the long run.197 Since coal is the particular resource for energy relating to the climate change, India needs to change the coal-based energy strategy, as mentioned above. This change in energy sources may be expensive but necessary.198

The risk of lower agricultural production due to the effect of global warming on agricultural crop yields, leads to significant losses e.g. for rice and wheat and hence farm revenues, which also constitutes a risk for GDP growth and welfare. For India as a developing country, this can be the cause for misery for its people.199 Also, the risk of a rising sea level implies high emigration from coastal regions and an infiltration of sea water into the ground water may cause a risk to the economy. Additionally, the risk of increasing extreme events, e.g. cyclones or monsoons may lead to serious effects in water and power supply, loss of property or even deaths.This will also have an impact on instability in housing and infrastructure such as roads.200 To sum up, India may be highly affected by the climate change. The food production could be affected, a large number of people could be displaced and extreme

Challenges:

• Erratic supply of water and electricity• Wastage• Air Pollution• Greenhouse Gas Emission• Climate Change• Global Warming• Precipitation and Humidity

191 see Parera (2009), p: 42192 N.N. (2006e), p.1193 see N.N. (2009b), p.1194 see N.N. (2009e), p.195 see N.N. (2009), p.1196 see Bose/Sperling (2001), p. 3197 see N.N. (2009b), p.1

198 see Parikh/Parikh (2002), p. 5f199 see Parikh/Parikh (2002), p. 5ff200 see N.N. (2009b), p.1



events could occur more often. Hence, the development of the economy may be hindered through those impacts and progress of improving poverty may be retarded.201 Recent IPCC reports indicate India as having the greatest increase in energy and greenhouse gas emissions worldwide when sustaining the high economic growth numbers. Further, the International Energy Agency suggests that India could become the third largest greenhouse gas emitter by 2015.202

8.1.2 Industrial/Economic Challenges

As mentioned in the earlier chapters, the transport sector in India faces different challenges. The increasing population and rising incomes call for a higher demand in mobility and hence create a high level of motorization of personal vehicles. The result is a huge congestion on roads, rail and ports as well as an increasing air pollution and energy waste caused by high numbers of vehicles and low average speeds

of around 10 km per hour during peak periods and long waiting times at traffic lights. Further, a lack of safety on the roads through the absence of or poorly maintained footpaths, related to a high number of accidents, generates a challenge in the Indian transport sector. In urban areas, lack of sufficient and reliable public transport system, leading to an over-crowded mass transport system, constitutes a problem for the mobility of the passengers. All in all, this leads to significanly poor use of roads and infrastructure investments.203

These challenges may increase with further growth in the Indian population and reduce the business efficiency and competitiveness as well as the quality of life of the Indian inhabitants.204

To sum up this chapter, limitations in physical and communication infrastructure, play a key role in almost all the sub sectors of the transport and logistics industry with regard to industrial and economic barriers. Meeting deadlines for international customers is mostly impossible for exporters coping with slow cargo movement because of bad road conditions, huge documentation requirements and a lot of check posts, as well as acute congestion at seaports due to lack of dedicated freight corridors. Often, freight has to be booked as airfreight to handle the increasing sea freight and to expedite shipments hence resulting in higher costs and lower international competitiveness.205 However, market access barriers are rare.206

Challenges:

• High tax levels• Under-developed infrastructure• Congestion• Delay• Accidents• High cost of capital• Upgrade of technical and managerial

skills

201 see Parikh/Parikh (2002), p. 5ff202 see N.N. (2009b), p.1203 see Bose/Sperling (2001), p. 3204 see Padam/Singh (2004), p.41205 see Mitra (2006), p. 6206 see Ganguli (2008), p. 33



8.2 Opportunities for India and EU

8.2.1 Opportunities for India

The increase in trade of textiles, handicrafts or packed food imply an increase in demand, above all in containerization services. Hence, there exists a huge potential in this new greenfield market.207 Also due to the growing economy and GDP, more outputs there is a rise in demand in transport and logistics services.208 The immense potential of the transport and logistics industry attracted numerous Indian corporate companies, e.g. Tata and Reliance Industries. They established divisions and implemented the provision not only of in-house logistics services but also services to other corporates.

Further, the Transport Corporation of India (TCI) and Blue Dart, constituting express cargo and courier enterprises, used their advantage of being already well established in the Indian market and having a large, existing distribution network, to became operational in logistics. Others with distribution networks are also foraying into business and the interest among entrepreneurs wanting to venture into this business grows more and more.209

Potentials in Railways

The high congestion on the roads and the limited margin for excavation creates opportunities and potentials for competing facilities to develop. For a better use of the rolling stock and the capacity on the tracks, having double stacked trains is a potential that can be seen in the current situation. Running them would also imply lower haulage charges. With additional capacity for container handling, a higher container query and therefore a further growth in container trade would be possible. Another potential in the railway sector is the existence of private container trains to provide a smooth handling of high volumes and to overcome the lack of hinterland connectivity with regard to Indian ports.210

Further examples to be able to cope with the growth in trade and containerization are, e.g. the Golden Quadrilateral project, as well as the east-north and south-west corridors to connect the metropolises, as mentioned in the earlier chapters.

Opportunities in the Financing Policy

Also the allowance of 100% Foreign Direct Investment in Special Economic Zones (SEZ) and Free Trade and Warehousing Zones (FTWZ), as well as public

207 see Vaidyanathan, (2007), p. 16208 see Mitra (2006), p. 7209 see Mitra (2006), p. 7210 see Vaidyanathan, (2007), p. 16



private partnerships (PPP) in infrastructure development are expected to boost the investments – from domestic as well as foreign companies- in the transport and logistics sector.

Presently, most of the large global logistics companies have their presence in India. They are particularly present in the form of freight forwarders and have tie-ups with Indian companies concerning domestic transportation. As an example, in 2004 DHL Danzas, the leading worldwide provider of freight transportation and related logistics services took over Blue Dart211 and acquired it to cover about 13000 locations in India. Also TNR and Fed Ex are entering the market with success to create global networks.212

Opportunities in Indian Energy Policy

The Indian energy policy including mass energy conservation and efficient use of it, states several energy zones to harvest energy on a large scale and a shift from non-renewable to more efficient renewable resources. This implies that the current dialogue of energy being a huge potential for India is an important measure to avoid wastage and could develop into a big industry. India has even established an energy conservation building code to meet energy performance standards.213 In addition to this, a further potential can be seen in the independent industry of alternative and renewable energy that attracts investments not only from the government but also from individual companies.214 The implementation of renewable energies has a large scope in countries like India suffering from energy shortages.215 One alternative to coal may be natural gas. Hence, to use this substitute resource, it is necessary to change infrastructure for its distribution, which is a potential opportunity as well.216 Additionally, India also considers bio-diesel and hydrogen-fuelled vehicles as an alternative source of energy.217 In the renewable sector, there are already domestic companies such as Suzlon Energy and Tata- BP Solar making investments in large scale products across India.218

8.2.2 Industry Potential for EU Companies

Recent Global trends increased business opportunities between India and EU. Spends in infrastructure and huge investments make way for India and the EU to fix the potential in a multitude of sectors. These investment perspectives in the Indian industry are possible through the allowance of privatization amongst others in the Indian transport and logistics sector. Hence, there exist promising sectors in India with potential investment opportunities for the EU companies.219

211 Mitra (2006), p. 7212 see Kilgore/Joseph/Metersky (2007), p. 40f213 see N.N. (2009e), p. 1214 see N.N. (2009e), p. 1215 see Parera (2009), p. 42216 see N.N. (2009), p. 1217 see Parera (2009), p. 43

218 see Wish (2007), p. 1219 see Parera (2009), p. 34



Research & Development

Since India is an attractive destination world-wide as a Research and Development location, especially with Indian companies drawing on local engineering design capability, many companies have already set up their bases for R&D in India. Hence, a high potential for the future of technology transfer of logistics technologies between Europe and India exist. Much can be learnt from the experiences of both countries. India has a lot of experience in current run logistics technology and practices. Europe is advanced with R&D in logistics technology.220

Further, a high number of auto and engineering companies such as Bosch, Volkswagen an MAN having their international purchasing offices in India and use the Indian regions to source its components.221

Energy and Emission Slow-Down

The support in renewable energy has the potential to reduce India’s dependence on carbon-emitting fuels. Hydropower and new energy such as solar and wind power could lower this dependence.222

In the field of hydrogen vehicles a technical Indo- EU- cooperation may be seen.223

Already existing inbound deals in the energy sector consist e.g. with the Italian Eni Spa targeted as Hindustan Oil Exploration Co and outbound deals e.g. with the Britain Oil and Natural Gas Corp. Ltd.. 224 The Britain BP built in 1989 a Joint Venture with the Indian Tata to form TataBP Solar. Further bilateral investments are shown in the following table.

Table 15: Indo-EU Projects

Source: KPMG; India Calling 2009 p. 59

Company - Country Project Details

Caim - UK with ONGC for Barmer fields, Rajasthan

Norsk Hydro – Norway ONGC tied up with Norsk Hydro Produksjon AS, to develop Deepwater Oil & Gas blocks off the Indian coasts

Shell – Netherlands Shell sells lubricants in India; Earlier it had a JV with BPCL

220 Balachandra/Matzner (2005), p.131221 see Parera (2009), p. 34222 see Kumar (2007), p. 12223 see Parera (2009), p. 43224 see Parera (2009), p. 33f



In addition to this, potential for a collaboration with the EU in R&D work are the Zero Emission Power Plant with Carbon Capture and Storage (CCS) as a solution for carbon emissions and more efficient supercritical steam cycle technology plants.225

The rise in vehicle emissions from the transportation sector may be slowed-down through different ways:

• Shift from road to rail transport• Higher confidence in public transport• Improved efficiency standards.

The experiences of the EU in this sector could enormously help India and offer high values for the industry.226

Logistics Management and Transport

Additionally, road and trucking operations, port management and management of warehouses are proposed sectors for a co-operation between India and the EU. Also a collaborated training and development of skills with the logistics- dominant EU would represent an advantage for India.227

Manifold potential in sub-sectors of the transport and logistics industry are also expected from the Indo-EU Trade and Investment Agreement (TIA) such as in road freight, support in all modes of transport as well as in non-freight logistics.Transport and logistics are closely related. Therefore, an optimal use of transport infrastructure is required to be able to provide efficient logistics.228

Companies are not able to manage transport and logistics in India from their offices for example, in Amsterdam. Therefore, they will also have to build a physical presence in India. An example for that is Samsung, having successfully entered India with an experienced operating team and being familiar with regional service providers and regulations.229

225 see Kumar (2007), p. 11226 see Kumar (2007), p. 12227 see Ganguli (2008), p. 33f228 see Ganguli (2008), p. 33f229 see Kilgore/Joseph/Metersky (2007), p. 40f



Despite the immense growth of India’s economy, according to the global retail opportunity index, it is the greatest underserved market having significant opportunities for companies waiting to invest in this market.230

As mentioned in the first chapters concerning the sub sectors in transport and logistics industry, reforms and plans to improve the road, rail and maritime sector are already in the pipeline. These regulations shall improve the transport and logistics industry and make it more competitive.Thus, reforms for each mode of transport have to address different barriers:231

In the road sector, the problem of inter-state movement of freight and the fragmentation of the structure have to be addressed. In the railway sector, the development of the dedicated freight corridor is projected to overcome this barrier. Concerning sea transportation, connectivity between ports and the inland transport network constitutes an important opportunity. Some reforms may be mode-overlapping. All in all, an expanded capacity and upgraded technologies are required for each mode of transport.232

If the regulations and improvements are not realized, it would lead to inefficiencies in the Indian transport and logistics sector. Moreover, since logistics is entirely dependent on modes of transport, it is necessary to improve them, e.g. through liberalization and fair competition.233

Thus it concludes on a positive note that is a great future, for the technology transfer in the logistics sector between Europe and India. Much can be learned from the experiences of both countries. India has a lot of experience in current run logistics technology and practices. Europe is advanced with R&D in logistics technology. Consultants will help bridge the gap between Europe and India with respect to the success of transfer.234

Hence, there exist promising sectors in India with potential investment opportunities for the EU companies. For example, in the field of hydrogen vehicles a technical Indo- EU- cooperation may be considered. Additionally, road and truck operations, port management and management of warehouses are proposed sectors for a cooperation between India and the EU. Also a collaborated training and development of skills with the logistics- experienced EU would represent an advantage for India.237

Conclusion

230 see Kilgore/Joseph/Metersky (2007), p. 36231 see Ganguli (2008), p. 33f232 see Ganguli (2008), p. 33f233 see Ganguli (2008), p. 33f234 Balachandra/Matzner (2005), p.131235 see Parera (2009), p. 34236 see Parera (2009), p. 43237 see Ganguli (2008), p. 33f



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The European Business and Technology Centre (EBTC) supports EU companies and researchers on their market entry to India by offering long-term hands-on support with a myriad of services. With offices in India’s metros of New Delhi, Mumbai, Bengaluru and Kolkata, EBTC is well placed to offer complete end-to-end solutions to companies who want to enter and flourish in the Indian market.

EBTC’s efforts focus on 4 key sectors – Biotech, Energy, Environment and Transport – all of which offer enormous scope for closer EU-India collaboration, be it in business, science or technology. As the connecting platform between business, research, and government, EBTC ensures that EU players are well networked with a solid base from which to develop their venture.

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