In 1950-51, Indian Railways monopolised the nation’s logistics sector commanding 85% of market share in terms of volume. Since then its share slipped to 60% in 1991 and 27% now as it lost enormous cargo businesses to the road sector. If the national transporter continues to just chug along, treating the freight sector as business as usual — an annual growth rate of just 4% — the market share will drop to 22% in FY30, warns an internal report authored by 10 railway board officers and submitted in May this year.
The report, titled “Mission 3000 MT”, is a roadmap to achieve 3,000 million tonnes (MT) of freight by FY27, up from 1,418 MT in FY22. It has called for an expansion of network, augmentation of rolling stock and up to 30% reduction in cargo tariff for most commodities by 2026-27. This move, the report says, would help the Railways rebound in India’s cargo market and grab 45% market share. ET has had a preview of the report, which has not been made public yet. The committee that wrote the report was headed by a principal executive director-ranked officer of the Railway Board.
“The railway board has accepted the panel’s report and the work is already on to implement its recommendations,” confirms a senior railway officer, requesting anonymity. “Though the panel’s recommendations are for an interim milestone of achieving 3,000 MT of freight by 2026-27, our overall strategy is to achieve a 50% market share by 2030,” the officer adds, showing a slide of a recent PowerPoint presentation.
According to Railways’ blueprint, if roadways and railways have a 50-50 market share by 2030 (which would mean the share of railways has to increase from 27% and that of roadways will fall from 73%), the projected logistics cost in India will only be 11% of the Gross Domestic Product (GDP) as against 14% now. This 3% drop, it is estimated, will translate into an annual savings of about Rs 15 lakh crore (over $180 billion), assuming that India’s GDP rises to Rs 500 lakh crore in 2030. The paltry share of cargo (in decimals) carried by airways and waterways has not been factored in this calculation.
While officially, Railways sticks to a target of 45% market share as calculated in its earlier document, “National Rail Plan (NRP) for India – 2030”, un- officially it has been revised to 50%.
The question remains the same, though: can this ambitious target be achieved in a short span of time, especially when Railways has failed to reverse the constant drop in its logistics market share in the last seven decades. While launching the national logistics policy (NLP) in New Delhi on September 17, Prime Minister Narendra Modi said, “Luggage should move quickly like a cheetah”, referring to the release of the fastest animal at the Kuno National Park that day.
In his speech, the PM did not mention any railway target. But Railway Minister Ashwini Vaishnaw, in a written reply to a question in Rajya Sabha in February, had referred to the transporter’s plan to increase the modal share in freight to 45%.
The NLP says the Ministry of Railways should lay down actionable points for improving service reliability through time-tabled freight services, reducing cost of rail-based supply chains, using dedicated freight corridors and providing end-to-end solutions, including first- and last-mile connectivity. The Railways’ internal report, “Mission 3000 MT”, has also made a few recommendations to increase its logistics share. It says the average cargo speed should be enhanced to 50 kmph (from 24 kmph now).
It has recommended a lowering of tariff (the report says “cost to customer”) by up to 30% for several commodities such as cement, food grains, pig iron, etc. In container movement, too, it has suggested the same formula of enhancing speed and lowering tariff to gain a 32% market share, up from 16% now.
It says there is no point in reducing tariffs for four items — coal, fertiliser, iron ore and raw material for steel — as the share of these commodities is unlikely to increase by more than 5% even if the tariff is reduced, according to its projection.
The urgency in enhancing railway’s market share and reducing road traffic is also guided by environmental reasons. Carbon dioxide (CO2) emissions from freight transport are projected to grow by 450% to 200 million tonnes in 2020 and 1,214 million tonnes in 2050, according to the report. As of now, road freight is the biggest culprit, contributing 95% of such emissions.
An increase in railway freight market share will have double dividends — a steep fall in India’s overall logistics cost and a massive reduction in CO2 emissions.
While the railway report has emphasised on network expansion and augmentation of rolling stock (locomotives and wagons), these will only provide marginal benefits in the form of about 400-500 MT cargo shifting from road to rail. The report says: “Garnering 3,000 MT cargo by FY27 necessitates proactive interventions for attracting incremental tariff and inducing modal shift through marketing strategy, dynamic pricing, assured transit time, higher efficiencies, diversification of commodity basket, enhanced containerisation, enabling piecemeal loading, door-to-door service through intermodal integration and customer centric service delivery.” No doubt, Indian Railways’ freight segment faces some key challenges —poor reliability, not-sogreat customer services and rigid policy framework.
Meanwhile, the road network has improved both in quality and quantity post-1991, facilitating industries to have faster door-to-door and cost-effective solutions.
What is also damaging the Railways is its skewed freight basket — coal, iron ore, steel, cement and food grains constitute 74% of its freight volume. However, India’s logistics industry handles over 10,000 types of products, generating some 4,500-5,000 MT cargo. Policymakers in Rail Bhawan are worried, and rightly so, that the Railways carries just 5.5% of non-core goods commodities. This segment, which has 2,150 MT cargo, forms 40% of India’s logistics market. The Railways is hardly present in this significant category.
The report has recommended 17 measures for capacity enhancement (e.g., 50 new firstand last-mile connectivity projects), and four interventions to increase rolling stock since 1,55,000 additional wagons and 7,000 electric locos will be required from FY23 to FY27. Some of these suggestions may figure in the Union budget in February 2023, it is learnt.
The report has also called for five policy interventions, including improving containerisation and wooing more automobile traffic. “The rail share of automobile traffic in India is very low (3.45%) due to many reasons concerning rolling stocks as well as pricing issues,” says the report, adding specific measures on how to woo two-wheeler traffic.
All these measures will require massive resources for implementation. The report estimates the total capital expenditure for these specific works in the next five years to be Rs 8.5 lakh crore ($102 billion) Anurag Sachan, former managing director of Dedicated Freight Corridor Corporation of India Limited, says augmentation of infrastructure and rolling stock is not enough to achieve a 45-50% share in the logistics market.
“Once the dedicated freight corridors are fully operational by next year, the Railways will become more competitive. Speed of freight trains will increase too.
But that is not sufficient. Railway freight tariff has to be competitive with roadways. It has to be reduced,” he says. While passenger fares have been marginally revised in the last one and half decades, the Railways have randomly hiked freight tariffs mainly to compensate for its losses from the passenger segment. Significantly, the passenger segment contributes only 30% of Railways’ revenues even as it occupies 60% of total capacity.
The future scenario is clear. If the Railways doesn’t change — its freight volume grew annually by 4.1% in the last one decade — it will carry only 1,728 MT of cargo in FY27 and 1,862 MT in FY30. To clock 3,000 MT, the volume has to grow at a 16.2% compound annual growth rate (CAGR).
It’s easier said than done. Railways will have to adopt a disruptive mechanism to come closer to the target let alone achieving it. Diversification of its commodity basket, rationalisation of tariffs, assurance of transit time and door-to-door service will require disruptive solutions.
“Someone in Rail Bhawan once mooted the idea of Railways buying hundreds of trucks for its last-mile delivery of goods. A target of 45-50% logistics market share requires such out-of-the-box ideas,” says an officer.