MEETING THE DEMAND FOR SUPPLY
MEETING THE DEMAND FOR SUPPLY
The Rs 15 lakh crore transport and logistics sector is the beating heart of the Indian economy. The sudden national lockdown on March 24 paralysed it, worsening the already gloomy economic outlook. The government must move quickly to mitigate the crisis
M.G. Arun, Anilesh S. Mahajan and Shwweta Pun

In ordinary times, the Indian transport and logistics sector sees perhaps 7.5 million trucks, 7,400 freight trains and scores of cargo planes criss-crossing the country every day, alongside millions of vehicles carrying raw materials to factories and goods to grocery shops, supermarkets and customers’ doorsteps. The Union government’s announcement on the evening of March 24 of an almost immediate national lockdown—beginning midnight that very night—brought all essential supplies to a dead halt. Realising soon, but perhaps not early enough, that this was a disruption India could ill afford, the Centre issued fresh orders next week to clarify that transportation of all goods—not even just essentials— would be exempt from the lockdown. But by now the human chain of skilled, semi-skilled and unskilled workers that keeps those wheels turning were returning in their droves to the sanctuary of their villages, raising the very real prospect of acute shortages in markets across India in the coming weeks.

This sudden seizure in the country’s economic body has also doubtless further impaired economic growth projections, with ratings agencies raising red flags soon after the lockdown was imposed. On March 26, Crisil slashed its growth forecast for India’s GDP in fiscal 2021 from 5.2 per cent to 3.5 per cent. On March 27, Moody’s Investors Service revised its estimate of growth in the current fiscal to 2.5 per cent, less than half its earlier projection. Experts say the pain will remain for several quarters to come, especially if the government is forced to extend the lockdown beyond the initial 21 days.

At the end of March, as the first week of the lockdown ended, Union minister for railways, Piyush Goyal, and minister for external affairs, S. Jaishankar, got on a call with some of India’s top industrialists to get a sense of the situation on the ground. Participants included Reliance Industries chairman Mukesh Ambani, Kotak Mahindra Bank MD Uday Kotak and Tech Mahindra CEO & MD C.P. Gurnani. Sources say a major point of discussion was how to get freight moving again, with business leaders highlighting the crippling difficulty of transporting even essential goods, talking of truck drivers being harassed by officials and red tape, with cargo of all kinds stuck on highways across the country.

Although Prime Minister Narendra Modi had, while announcing the lockdown, said the government had “made provisions to ensure that the supply of essential items continues smoothly”, the legal vagueness of ‘essential items’ resulted in transport paralysis. To break the logjam, on March 30, the Union ministry for home affairs (MHA) permitted the transport of all goods— ‘without distinction of essential and non-essential’—throughout the country. Highlighting the complexity of economic supply chains and the confusion in administrative processes, the notification even took pains to name specific groceries that were considered essential items, such as ‘hand wash, soaps, disinfectants [and] body wash’, among many others.

“There is paralysis across the entire supply chain,” says an official with a large fast-moving consumer goods (FMCG) company, asking not to be named. “Things were expected to ease up a bit after the clarification from the MHA, but the supply chain cannot be restarted with the push of a button.”

OFF-ROAD TRANSPORT

While the core of the problem is the COVID-19 pandemic, a major problem relates to the transport sector’s size and complexity. A single major event—like a sudden freeze in the movement of vehicles—can have consequences that reverberate for days and weeks.

For instance, according to the All India Motor Transport Congress Toll Committee, an apex body of Indian transporters, the sudden announcement of the national lockdown has left 20 per cent of the 7.5 million trucks—or 1.5 million—stuck on highways and roads across the country. Along with these vehicles were stranded nearly 3 million drivers and helpers. At the time of writing, many long-distance shipments that were en route when the lockdown was announced remain stuck on highways and at toll plazas and petrol pumps across India. The immediate hope is that the MHA’s March 30 notification will unclog these bottlenecks, but this has not yet happened.

How does this affect the movement of goods across India? What is crucial to note is that the Indian transport sector is primarily truck-based—a November 2019 report by Care Ratings estimated that roughly 60 per cent of India’s logistics movement is by road, with 30 per cent by rail. What is also unavoidable is that last-mile transport from railheads to warehouses and markets remains dependent on trucks. India has a total road network of around 6 million km, of which national highways comprise about 114,000 km, and state highways, 175,000 km. The fact that most goods transport takes place by road is borne out by the sector’s contribution to the national GVA (gross value added, a measure of the value of goods and services in the economy). In 2016-17, the transport sector accounted for 4.85 per cent of the country’s GVA , with road transport accounting for 3.12 per cent, railways 0.77 per cent and air transport, 0.16 per cent.

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April 13, 2020