India Freight Transport Report Q1 2008

The Indian economy is one of the fastest-growing in the world, but the boom is not without its stops, starts and bottlenecks, all of which make themselves felt in the country's freight-transport sector. In fact, according to a recent study by the Confederation of Indian Industry, the country needs US$330bn in infrastructure investment over the next five years to sustain its economy's growth at 8% annually.

Inadequate port facilities, poor road infrastructure and frequent power cuts prevent Indian industries from operating efficiently and expanding sales. India needs to increase its spending on infrastructure projects to 8% of the country's GDP from 4.6% at present. Despite these obstacles, however, BMI's India Freight Transport Report Q4 2007 concludes that the country will reach average annual freight-traffic growth of 11.1% in the 2008-2012 period.

Strong economic and foreign-trade growth is underpinning the freight upturn. Demand in the road-freight sector is boosted by door-to-door logistics, the move to higher-value/lower-bulk shipments, the rising size of the vehicle fleet and the new impetus to improve and extend the network, using private-sector highway operators and build-operate-transfer (BOT) schemes. Rail will experience steady but less spectacular growth, given the predominance of the state-controlled Indian Railways; however, even here some promising signs of reform are beginning to emerge. All other transport modes should experience faster growth, with international air cargo turnover performing strongly as more private airlines join the market.

Sea transport through India's major ports will also perform well. A major factor over the next few years will be the rising competitive pressures from cargo operators among India's immediate neighbours and main trading partners.

The dynamic pace of development and competitive wages are delivering a significant boost to the industry, largely offsetting the traditional problems of poor infrastructure and bureaucracy. To this must be added a favourable operating environment. BMI has given India a composite score of 51 (out of a possible maximum of 70 and a regional average of 44.8) in our freight sector business environment index, which places it at the top end of the regional ranking list. It scores very highly in the freight growth category, but performs less well in the regulatory environment, long-term economic risk and infrastructure growth categories.

For the 2008-2012 forecast period we expect the transport and communications sector to outpace the economy as a whole. It will achieve average annual growth of 8.4%, versus 8.1% for overall GDP. The total value of transport and communications GDP will rise to US$100.28bn in nominal terms by 2011, representing 7.6% of India's GDP.