Role of indian_logistics_industry_in_international_trade-dissertation-ac

dissertation 2014
HEISENBERG/AC/2014/Do Not Copy
“STUdy of The Role of indian logiSTicS
indUSTRy in inTeRnaTional TRade”
A Dissertation Report

CONTENTS
__________________________________________________________________
Executive Summary
Chapter 1 Introduction
1.1 Introduction
1.2 Role of Logistics in International Trade
1.3 Problem Statement
Chapter 2 Review of Literature
Chapter 3 Research Methodology
3.1 Objective
3.2 Scope of research
3.3 Sources of data
Chapter 4 Trade and Logistics Analysis
4.1 Trade Analysis
4.2 Logistics Analysis
Chapter 5 Infrastructure of the Indian Logistics Industry
5.1 Seaports
5.2 Railways
5.3 Roadways
5.4 Air cargo and Airports
5.5 Warehousing
Chapter 6 Private Public Partnership Models
6.1 Challenges in PPP
6.2 Key Sectors/Industries for PPP
Chapter 7 FTA, FTZ, FTP
7.1 FTA
7.2 FTZ
7.3 FTP
Chapter 8 Recommendations and actions required
Chapter 9 Conclusion
References
Annexure

EXECUTIVE SUMMARY
__________________________________________________________________
With increasing globalization, there has also been an increase in the trade volumes
between nations. Developed countries have and will continue to form trading blocks, which
might jeopardize the developing and emerging economies, because of their lack of infrastructure,
poor policy and regulatory environment, technology, skills and manpower. Even though Asia is
said to become the trading hub in the near future, the question remains if India will play a major
trading hub in Asia.
To sustain and drive economic growth, the movement of goods associated with a mature
economy will require a vastly superior service sector as well as physical logistics infrastructure.
The transformation of India‘s logistics landscape needs a clear, long-term and sustainable vision
encompassing initiatives that are proactive rather than reactive to leverage India‘s economic
potential in the future.
This study proves that a country‘s ability to trade globally depends on its traders‘ access
to global freight and logistics networks. And the efficiency of a country‘s supply chain (in cost,
time and reliability) depends on specific features of its domestic economy (logistics
performance). Better over-all logistics performance and trade facilitation are strongly associated
with trade expansion, export diversification, attractiveness to foreign direct investment and
economic growth.
This study analyzed the current trade and logistics scenario of India. In the trade analysis,
India is compared with the other BRIC nations, Germany and Poland, with respect to cost and
quality of trade. With the help of the Logistics Performance Index, these countries are
graphically ranked. In the logistics analysis, we study the industry characteristics, infrastructure
status, various private partnership models and other policy and regulatory concerns. Towards the
end of the study, various recommendations are provided.

CHAPTER 1: INTRODUCTION
__________________________________________________________________
1.1 Introduction:
Economists have known that international trade is one of the most important ways in which
societies can increase their standard of living, since the time of Adam Smith and David Ricardo,
with their work on specialization and comparative advantage. The connection between
international trade and economic growth is supported by evidence from every period of human
history. The Roman Empire was rich in part because it was able to trade over long distances. The
spice trade between Europe and Asia was the first example of how trade between these two
continents could enrich both places. The 19th
century saw an unprecedented rise in trade, with a
big reduction in piracy and huge improvements in the quality and speed of shipping. Nineteenth
century ―clipper ships‖ established that there really was a market for premium priced speedy
logistics, and that such a market was large. This was also the period in which modern economic
growth first became established. Between the wars, in contrast, the rise of protectionism and the
collapse of world trade exacerbated and extended the Great Depression, bringing and extending
economic misery to millions of people. The post world war saw trade increase dramatically,
bringing with it new found and unprecedented prosperity. International trade increased the
standard of living, both for those in developed and for those in developing countries.
The modern world trades like never before. In simple weight terms, more than seven times as
many goods are traded now as fifty years ago. Even more impressively, after stripping out the
effects of inflation, the value of goods traded internationally has increased by more than 16-fold
in the last half century. That the value of international trade has been increasing more rapidly
than the weight of goods traded tells us that immediately that the types of good being traded have
changed. Although bulk cargoes such as grain and oil remain important in volume terms, today
high value added merchandize is critical to trade performance.
The increasing value of goods shipped means that, now more than ever, time matters. No longer
is trade simply concerned with low value bulk goods that can be stored on arrival until needed.
Trade today is increasingly dominated by high value, time critical goods, both as part of global
supply chains and for the final customer.
Moreover, the direction of global trade is set to change as a mega agreements like the Trans-
Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (TTIP) come
into force. The TPP includes 12 of the pacific rim countries including the US and Australia,
whereas TTIP is between the US and European Union. Respectively they represent around 39%
and 60% of the world GDP. They have the potential to adversely affect excluded countries such
as India by diverting trade and investment away from them and weakening their positions in
global value chains.

As a result of TPP and TTIP, India‘s nominal GDP is expected to be reduced by more than one
per cent and the resultant negative multiplier effects on revenue ad employment generation will
be substantial. Much of this impact will not be on account of reduction in tariffs in TPP and
TTIP countries (as they are already low), but as a result of removal and/or harmonization of non-
tariff measures, particularly in respect to process and product standards, the application of
intellectual property rights and other behind-the-border trade facilitation measures.
As a result, some of the TPP and TTIP countries are expected to enhance their internal supply
potential which can further shrink their existing export markets that India enjoys with them.
Which is why, now more than ever, India needs to improve its trade scenario. And not just with
the exports and imports, but it is important to improve the countries‘ logistics infrastructure,
regulations and policies surrounding the tariffs and non-tariff measures in order to put India on
the mark.
1.2 Role of Logistics in International Trade:
International trade does not happen by itself. Companies make conscious decisions as to where
to produce their goods, where to sell them, and how to move them from one to the other. There
are many aspects to that decision, but one important aspect is the quality and cost of logistics. It
is of no use having very low production costs in a particular place if the finished product cannot
be moved easily, cheaply and reliably to the customer.
There are two principle aspects to good logistics. The first is cost: lower costs are self-evidently
attractive to firms. The second is quality: logistic reliability is paramount for many companies.
There are clear interactions between cost and quality, but these are not straightforward. At one
level it is always possible to pay more for better quality. But it does not follow that higher costs
in a country necessarily imply higher quality logistics. Some countries have higher wage rates, or
greater restrictions and regulations that increase cost without increasing quality. Other countries
have regulations and restrictions that make logistics unreliable, or poor quality infrastructure that
means that delays are common. It is therefore necessary to consider that these two aspects of
logistics separately. It is also necessary to remember that individual firms will have different
preferences over cost and over reliability. Producers of relatively low-costs goods will be willing
to take more risks on reliability in exchange for lower costs. In contrast producers of relatively
high-value goods, especially high-technology or other products with limited shelf life, will be
more willing to pay higher prices for greater reliability. The last 25 years have seen a particular
increase in the quantity of high-technology goods that are exported, often over very long
distances. For that reason we concentrate particularly on the effects of logistics quality on trade.
It is also worth noticing that it is transport and logistics cost, not tariffs that are the biggest
barrier to trade While reductions in tariffs would be extremely beneficial for particular products,
reductions in transport costs are more important for trade as a whole. These reductions can be

achieved both by governments reducing obstacles to trade, and by private sector logistics firms
becoming more efficient.
1.3 Problem Statement:
With the increasing pace of global integration, there is a need for India to compete in terms of its
ability to link with global and regional markets - competitively and effectively. This study
focuses on the status of the Indian logistics industry and the various facets of improvement
required in its trade logistics. Improving the quality of logistics and transport systems and
simultaneously reducing costs improves international market access, and leads directly to
increased trade.

CHAPTER 2: REVIEW OF LITERATURE
__________________________________________________________________
As the pace of global integration continues, developing countries will compete
increasingly in terms of their ability to link with global and regional markets competitively and
efficiently (Schware and Kimberly, 1995). In making trade happen, both government and private
sector play roles, which may either improve or worse the conditions for trade (Tim Leunig, Chris
Minns and Diana Weinhold). In their study – International Trade, Express Logistics and
Globalization: part and parcel of the solution to current economic problems, they explained that
those countries that create the best conditions will attract companies that are part of the global
economy. This is particularly important for developing countries for which access to world
markets is an absolutely critical part of their drive for prosperity. Although innate geographical
location and hard-to-change wage and skill levels explain a great deal of world trade, our
research sows that trade infrastructure, both physical and legal, matter a great deal in explaining
which countries are most successful in international trade
But why focus on logistics? Because reducing cost and improving the quality of logistics and
transport systems improves international market access and leads directly to increased trade, ad
through this to higher incomes and the scope for significant reductions in poverty (Robin
Carruthers, Jitendra N. Bajpai, David Hummels). In their study – Trade and Logistics : An East-
Asian Perspective, they have noted that East Asia‘s progress on logistics has failed to keep pace
with its growth in trade. Developing countries in other regions are now catching up, and so faster
progress on logistics development will be crucial to sustaining East Asia‘s competitive
advantages. For most countries in East Asia, including India, high logistics cost derives from
poor transport infrastructure, underdeveloped transport and logistics services, and slow
bureaucratic procedures for dealing with both exported and imported goods. The balance among
these three varies among countries, but in each country a complementary approach to address all
of them will be needed to produce a sustainable improvement in competitiveness. Recent studies
have indicated the importance of efficient ports (in terms of operational and document
facilitation) for trade competitiveness, but the arguments presented in this study shows that ports
are only one aspect of the connection between logistics and trade growth. While understanding
the total cost of getting products from producers to markets, ‗land transport to ports‘ accounts for
a higher proportion than processing within the port or the maritime voyage itself; its
improvements in land access that offers the greatest scope for increasing trade competitiveness.
AWorld Bank Study by Wilson and others (2002) shows that APEC (Asia Pacific Economic
Cooperation) countries differ substantially in the quality of their logistics and trade facilitation
across a broad range of measures, including port infrastructure, customs clearance, regulatory
administration and e-business use. They find these differences are significantly related to

differences in trade performance, and conclude that substantial growth in trade within their block
could be accomplished by bringing lagging countries up to media performance levels.
Logistics, organizing the movement of goods over time and space, has evolved from its
19th
century military roots to today‘s international supply chain. As the backbone of international
trade, logistics encompasses freight transportation, warehousing, border clearance, payment
systems, and many other functions. These functions are performed mostly by private service
providers for private traders and owners of goods, but logistics is also important for the public
polices of national government and regional and international organizations. The improvements
in global logistics over the past two decades have been driven by innovation and a great increase
in global trade, as mentioned in Conecting to Compete: Trade Logstics in the Global Economy
(2012), a study by World Bank. According to this study, the LPI (Logistics Performance Index)
measures the on-the-ground trade logistics performance, helping national leaders, key policy
makers and private sector traders understand the challenges they and their trading partners face
in reducing logistical barriers to international commerce.
As discussed in Deloitte‘s Knowledge paper on Intermodal and Multimodal Logistics,
India has experienced fast-paced growth over the last decade. Though the growth has primarily
come from the services sector, manufacturing and exports have also risen substantially. Logistics
as a function is being increasingly outsourced by manufacturers. However, the Indian logistics
sector I may ways still lags behind the global standards of performance. This is evident from the
fact that we are ranked as low as 46th
among 155 countries in the World Bank LPI.
Comparatively, our neighbor China got the 26th
rank. The average logistics cost in India is
around 13% of GDP. Given there is a substantial need to invest in, and improve efficiencies in,
intermodal and multimodal logistics sector so that the friction costs do not impede the desired
shifts.
Coming back to India‘s trade, in the process of globalization which is escalating India‘s
position in world trade, transport volume has climbed rapidly in recent years. In the study done
by DHL, Discover Logistics, it is said that a vital step in developing Indian infrastructure is
expansion of road and rail networks, and also modernizing harbors and airports. However, the
expansion of the logistics infrastructure has been incapable to keep up with this pace. For this
reason, transport capacities have already reached their limits. The transshipment times for ships
in Indian harbors are three to four times longer than the average time in the west. Logistics costs
are also very high in international comparison because of the poor infrastructure. For this reason,
India will have difficulties positioning itself as a global logistics hub in years ahead.

CHAPTER 3: RESEARCH METHODOLOGY
__________________________________________________________________
3.1 Objective:
With increasing globalization and growth in India‘s manufacturing sector, trade volumes from
and to India have been increasing. To cater to the growth in export and import, it is necessary to
step ahead and focus strongly on improving logistics and trade infrastructure. The study therefore
lies in finding out the gaps in the existing systems and revolves around the questions ―What India
must do to improve its logistics performance?‖ and ―How India can become a major trade hub in
Asia?‖
3.2 Methodology:
This is a descriptive study done on the industry and trade scenario of India. The study is done
based on previous research and material. A qualitative analysis is done on the logistics industry,
and on the basis of that various facets for improvement are studied further.
3.2 Scope of research:
This study will cover analysis of logistics and trade scenario pertaining to India, with a few
references (for purpose of comparison) to the other BRIC nations, Far East Asia , Europe and
America.
The research done for the study is descriptive. This study is therefore doe on a collection of
research papers, articles, blogs and white papers to help gain an idea of the current logistics
industry and trade outlook of India. Based on the research done, both trade and logistics analysis
of the Indian industry is done.
3.3 Source of data
 Internet
 Reference books
 Research articles
 White papers
 Blog pages

CHAPTER 4: TRADE AND LOGISTICS ANALYSIS
__________________________________________________________________
4.1 Trade Analysis:
In this section we will concentrate on the experience of companies who trade with four important
nations: Brazil, Russia, India and China. All of these countries are large and important in
themselves, together accounting for 40% of the world‘s population and 15% of the global
economy, and in addition they also serve as exemplars of the situation of other emerging
economies. Brazil is in many ways the most developed of these economies, but despite its greater
wealth it is in many senses less developed in terms of its role in world trade. Russia is notable
for the extent of its mineral wealth, and its trade position is determined to a much greater extent
by the commodity cycle. India is the least developed of the four nations, but in many ways the
export sector, with a high emphasis on services, is remarkably modern. And China, of course, is
now the workshop of the world. In order to place the experience of these four nations into
context, we will also include two other countries in our analysis. The first country is Poland.
Poland is also an emerging economy, but one that is remarkably different because of its position
within the European Union. This matters both in general and obviously for logistics: it is very
easy to move goods from Poland to Western Europe. And finally we will consider the position of
Germany, which we use as a representative developed nation. Emerging economies increasingly
benchmark themselves not only against each other, but against developed nations such as
Germany.
4.1.1 Cost
The two most important means of transporting goods for international trade are by air and
sea. Freight sent by air express will always be more expensive than sea borne freight, but
there is no constant ratio between these two costs over time. The responsiveness of air
express supply to changes in demand is reasonably high, since additional aircraft can be
usually leased at relatively short notice. In addition, a significant proportion of air express
is carried on passenger flights, where additional capacity is usually available. The ability
of supply to respond effectively to peaks and troughs in demand is one of the attractions
of air-borne freight, and keeps the price constant year on year. Of course, the cost of air
express varies over time, with fuel prices playing an important role in determining the
charges in this sector
The cost of sea-borne freight varies more dramatically, as shipping capacity is essentially
fixed in the short run - it is hard to lease additional ships, and only little cargo can be
carried on passenger vessels. When demand rises, cargo ships take time to build, so
prices can rise substantially in the short run. And since ships, unlike planes, require
significant levels of maintenance even when not being used, shipping companies

generally prefer to have their ships sailing even when the returns are low. This means that
when demand falls, prices can fall dramatically. The prices of sea-borne freight are also
volatile because ships built to carry one type of cargo cannot easily carry other sorts of
products. A liquefied natural gas tanker cannot carry cars, a car carrier cannot carry grain,
a grain carrier cannot carry oil, and so on. In addition, some ships are too large o be used
o some routes or in some ports : Post-Panamax freight ships for example, are too large to
pass through the panama canal, while only a handful of ports in the world are large
enough to fully laden ultra large crude carriers.
It is clearly not feasible to show the cost of freight to and from each and every country in
the world. Therefore, I have concentrated on the four most important emerging countries,
Brazil, Russia, India and China, as well as a representative of the Eastern European EU
accession states, Poland. In some cases we also include data for Germany, as an example
of good practice. It is not that case that Germany is the ―best‖ country for logistics, but it
is a good example of a country with a reasonably high performing logistics sector. In
each case data for the United States, or any other developed nation would be very similar
to that presented for Germany.
The cost of air-borne freight is relatively constant for the countries in this sample. At one
level, this is to be expected, because international air service is a relatively standardized
service, with broadly the same type of planes flying to different locations, lading at
airport with relatively similar facilities, and so on. But despite these apparent similarities,
it is worth noting the strong performance of China, which has significantly lower costs
than other competitor countries. This is due to their efficiencies and economies of scale :
if planes are full, then the cost of the plane can be divided up across more packages.
Air-borne
frieght costs
Prices are quoted
regularly by all major
international logistics
firms
The standard cargo is
generally small, and
measured in kilogram
rather than by the
ton.
Sea-borne
freight costs
The most relaiable
measure is the cost of
transporting a
container
The cargo are
generally larger, and
measured by volume

Source : DHL
(Please check annexure for further details – table 1)
The cost of sea-borne transport varies much more dramatically around the world. It costs,
for example, four times as much to import and export goods into the Russian Federation
as it does into China. Conventional ports for cargo vessels are not nearly as homogenous
as airports. They vary much more in terms of the sorts of vessels that they can
accommodate, and their efficiency is heterogeneous. It is also worth noting that high
wage countries such as Germany do not have the highest logistics costs: they are able to
offset much of the high cost of labor by technological and organizational efficiency.
Once again, China stands out as having exceptionally low logistics costs.
Source: http://www.cinver.cl/archivos/LogisticsPerformanceIndex2007WorldBank.
pdf - World Bank Logistics Performance Index 2007

4.1.2 Quality
Measuring quality is more complex, because there are many aspects of quality and
reliability. Many countries appear to have very efficient practices on paper, but the reality
does not always live up to the country‘s aspirations. It is therefore critically important
that this measure is based on customer‘s reports about how things actually work, not a
country‘s claims as to how well they work. Because of the critical importance of quality,
particularly for the sort of high-value imports ad exports that are now so important to
trade, we will examine a number of different measures of quality. These consists of :
 Number of days that importers and exporters report that it takes for shipment to
clear customs
 Likely of goods going through physical inspection
 Lead times necessary to import or export
 Ability to request a review if your goods are delayed
(please check annexure for further details – table 2 and 3)
1. Time to clear customs
The time that importers and exporters expect a cargo to take to clear customs is a
critically important measure of a country‘s attractiveness as a place in which to do
business. Being able to move swiftly trough customs procedures is important for any
legitimate business. Customs processes generally work most efficiently in developed
economies, and in that context it is o surprise to find that, Germany ( the representative of
a developed economy) performs most strongly, with an average time to clear customs of
less than one day. China and Russia stand out as having effective customs operations,
with Brazil proving a real laggard.

1. . Chance of physical inspection:
It is not only the speed to pass through customs that matters to those involved in
international trade, but it is also the chance of a delay. This is particularly important for
cargoes that are time sensitive (this by definition includes all air-freight cargo). The big
question here is whether all cargo should be physically inspected. All states have the right
to ensure that the cargo entering the country is keeping with the documentation, but
effective customs procedures should be able to tell legitimate imports and exports from
those that need to be inspected without having to physically inspect a particularly high
proportion of goods entering and leaving the country
Once again, developed countries always do well on measures such as these. Their long-
standing relationships with trading partners generate good information on which cargoes
are legitimate and do not need to be physically inspected. German authorities inspect only
2% of the cargoes, and Polish only 3%. These countries are confident that they have other
ways of detecting the entry of illicit cargoes.
China leads the way among emerging economies, posting a significantly better
performance than Brazil, Russia or India. Cargoes are almost four times more likely to be
inspected by Indian authorities than the Chinese, and in total Indian authorities inspect
25% of shipments. When one in four cargoes are stopped and physically inspected it is
clear that those involved in importing and exporting have to include a time allowance to
take account of this threat. This sort of uncertainty is a particular problem for those who
intend to import or export time sensitive goods, including high-value added electronics,
and thus makes Russia and India less attractive places to produce such goods.

2. Availability of Reviews
Both delays in customs in general, and the inspection of cargoes are legitimate actions
that states need to take time from to prevent smuggling and to ensure that tariffs and
quotas are correctly applied. Nevertheless, there will be times when importers and
exporters feel that the rules have not been enforced in a manner that is fair and impartial,
or proportionate to the likelihood that the rules have been transgressed. At such times it is
useful to be able to have the decisions reviewed.
Furthermore, the very existence of such review procedures makes it more likely that the
initial decision will be correct, since the person making the decision knows that it can be
contested. In theory, almost all countries have such procedures, but to be effective they
have to be quick, cheap and impartial.
Interestingly, international trade believes that the review of procedures is notable, more
by their absence than by their existence in many countries. Germany again stands out:
traders believe that they can cheaply and efficiently contest any decision made by
German customs agencies if it seems to be unfair. Developed countries have such review
procedures, and they are tremendously trade enhancing. Unfortunately, such review
procedures are questioned to be a reality in India and China, and are held to be non-
existent in Russia, Brazil and Poland.
3. Lead Times
Goods have to be brought from the factory to the sea or air port, and after customs
clearance, to the customer. Efficient infrastructure makes a country appealing to
importers, exporters and those who need to move goods from one part to another. If the
ports are congested, the cargoes have to wait to be loaded; or if the road and rail systems
are slow or prone to delays, those who want fast and reliable connections may well look
elsewhere.

Unsurprisingly, developed countries, which have far more infrastructure than developing
and emerging economies, top the poll. German infrastructure is considered to be adequate
for journeys that international traders fid necessary. Of course, in part that reflects not
only the quality of infrastructure, but also the proximity of industrial locations relative to
ports. In particular, locating factories near to ports and airports will reduce the time taken
to move cargoes from factory to its point of departure. Therefore, location as well as
infrastructure matter.
4.2 LOGISTICS ANALYSIS
It has been seen that globally the key driver of demand for world-class logistics services is a
critical mass of multinational corporations (MNCs), who typically require low-cost
manufacturing locations connected to highly efficient supply lines. Although India is already an
important sourcing country, the surge of business is not coming to the country on account of the
fact that some pieces of logistics hardware are not up to the global standards. At the ports, ships
have to wait long in the channel for berthing, and productivity in loading and unloading is low.
There are gaps in hinterland connectivity as well. While significant progress has been made in
improving the roads in the Golden Quadrilateral, there are deficiencies in the full network
connecting cities and production and consumption centers. Ribbon development and mixing of
motorized and non-motorized traffic slow down the movement of vehicles. In addition, there is a
lack of capabilities in some segments of the supply chain, absence of common standards for
equipment and technology, and inter-state as well as intra-state barriers. These factors lower
India‘s attractiveness as an investment destination.
An effective logistics provider should have the expertise and global connectivity to manage
cargo through an integrated network from the time the cargo leaves the origin and upto the time
it reaches the destination. Expertise in freight analysis, audit, and payment, plus service-level
reporting move freight more efficiently. Transportation is an essential and a major sub-function
of logistics that creates time and place utility in goods. In fact, the backbone of the entire supply

chain is the transportation management that makes it possible to achieve the well-known seven
‗R‘s—the right product in the right quantity and the right condition, at the right place, at the right
time, for the right customer at the right cost. Transportation decisions affect the other sub-
functions, and there is a close linkage between them.
4.2.1 Industry Characteristics
The Indian logistics industry has seen the emergence of a large number of players, both
organized and unorganized, in the recent years. The dynamics of market competition and
demand from consumers has brought forth certain characteristics of the industry, as indicated
below:
1. The logistics industry is highly fragmented. The road transportation service provider
segment is completely dominated by small trucking companies and individual truckers.
The freight forwarding service provider segment is also represented by thousands of
small Customs brokers and clearing and forwarding agents. Few service providers have
the capability to provide more than one service and it is very rare that a single service
provider has the capability to provide all the logistics services. Such fragmentation has
led Indian industries to outsource packets of individual logistics functions to different
service providers while retaining the overall control of logistics in-house, at heavy
administrative and infrastructural costs.
2. The logistics industry in India is seeing intense competition between the established and
new players, resulting in lower prices. In order to sustain their profitability, these players
are tempted to even lower the quality of services offered and evade taxes. The standards
of service are further eroded by cost-cutting measures involving non-compliance of the

operating norms stipulated in the various regulations and acts, such as the Motor Vehicles
Act relating to drivers and vehicles, volume and weight restrictions, etc.
3. Due to its highly fragmented and underdeveloped nature, the Indian logistics industry is
characterized by the absence of economies of scale. Typically, the expansion of scale and
scope of operations generate reductions in costs. Differing rates of State Value Added
Tax (VAT) are an additional disincentive for the Indian logistics service providers to
increase in size by expanding their operations across states.
4. Apart from the non-uniform tax structure, logistics providers have to face multiple check
posts and harassment by the enforcement agencies. According to one estimate, informal
taxes on account of police, check posts, and others may constitute well over 20 per cent
of the freight cost. High costs of operation and delays involved in compliance with
varying documentation requirements of different states further raise the costs of
operations.
5. Indian shippers expect 3PL providers to own quality assets, provide more value-added
services to act as an integrated service provider, and establish world-class information
systems for greater visibility and real-time tracking of shipments. At the same time, there
is also customer pressure to keep the prices low and competitive and stagger the schedule
of payments, often resulting in inadequate working capital for the logistics operators.
Moreover, the inability of service providers to go beyond basic services and provide
value-added services such as small repair work, kitting/dekitting, packaging/labelling,
order processing, distribution, customer support, etc. has demotivated shippers from
going for outsourcing in a big way.
The development of the logistics sector in India is hampered by poor physical and
communications infrastructure. Slow movement of cargo due to bad road conditions, multiple
check posts and documentation requirements, congestion at seaports due to inadequate
infrastructure, and delay in procedural clearances, coupled with unreliable power supply and
slow banking transactions, make it difficult to meet the deadlines for international customers.
Low penetration of Information Technology (IT) and lack of proper communications
infrastructure also result in delays and lack of cargo in-transit visibility and real-time tracking
ability. The absence of a seamless flow of information among the constituents of logistics service
providers creates a lot of uncertainty, unnecessary paperwork and delays, and lack of
transparency in terms of cost structures and service delivery. For example, presently, there is no
real-time process by which a shipper may know about the availability of trucks and going rates at
the destination market. Therefore, since return loads cannot be ascertained, the shipper has to pay
a higher freight rate if it cannot ensure return load. With the availability of market information to
both the shipper and the service provider, the service provider can ensure return load from the

origin itself and the shipper does not have to pay a higher rate for his shipment. This can enable
rationalization of rates as the service provider‘s cost structure would become in line with the
actual market rate. A similar example is that of Less-than-Truck-Load (LTL) shipments costing
more than Full-Truck-Load (FTL) shipments. At present, due to the absence of shipment
tracking systems, a shipper booking a LTL shipment cannot track the status of the shipment after
it leaves the warehouse at the origin and before it reaches the warehouse at the destination. The
service provider may convert this LTL shipment into a FTL shipment at its own warehouse
before delivering at the destination. However, the shippers are placed at a disadvantage as they
end up paying LTL rates for a FTL shipment. Information availability before and during delivery
can address this problem and beneﬁt both the shipper as well as the service provider.
Indian freight forwarders face stiff competition from multinational freight forwarders for
international freight movement. Because of their size and presence in many countries,
multinational corporations (MNCs) are able to offer low freight rates and extend credit for long
periods. Indian freight forwarders, on the other hand, because of their smaller size, lack of access
to cheap capital, and the relative infancy of the Indian logistics industry, are unable to match the
same. Moreover, clients of MNCs often want to deal with single service providers and,
especially for free-on-board (f.o.b.) shipments, specify the freight forwarders, which most of the
time happen to be the multinational freight forwarders. This is unfair for Indian freight
forwarders. However, as the Indian logistics industry develops, it will enable Indian freight
forwarders to bring down costs and improve their service and price offers.
The above features of the Indian logistics industry are reflected in varying degrees in the
characteristics of the individual industry segments. The following industry segments constitute
the overall logistics industry:
(i) Transportation infrastructure providers [through rail, road, air, waterways (sea,
coastal, and inland), etc.], carriers (rail-roads, motor carriers, parcel companies, barge lines, air
freight), and facilitators (port/airport and Customs authorities, and Central and state government
departments related to logistics activities);
(ii) Warehouses, Inland Container Depots (ICDs), and Container Freight Stations (CFSs);
(iii) Intermediaries [Freight forwarders, Non-Vessel Operating Common Carriers
(NVOCCs), Inter-modal Marketing Companies, Customs House Agents (CHAs), etc.];
(iv) Logistics providers: 3PL and 4PL providers.

4.2.2 Porter’s five forces analysis of the Indian Logistics Industry
Bargaining power of customers: The logistics market in India is not regulated and prices are
market determined. The market is fragmented and competition among existing players is high.
The homogeneity of the logistics market and the ‗ready to offer‘ services of logistics players
make it easy for companies to shift from one logistics player to another without incurring
significant collateral costs. Moreover, players in the warehousing, trucking and 3PL segment
incur significant capital cost and hence need high volumes in order to recover the capital costs.
These factors result in high bargaining power of customers.
Bargaining power of suppliers: Suppliers to the logistics industry can be primarily classified
into infrastructure providers and services providers. Infrastructure providers include government,
truck manufactures, container suppliers and construction companies. Service providers primarily
include employees and providers of technology. Government is dominant player since it not only
sets up the policies but also actively participates in evaluation of the bids for infrastructure
projects involving public private participation. As far as other providers are concerned, there is
intense competition with no dominant player in the market. This lowers the bargaining power of
suppliers(except the government).
Threat of New Entrants: There are high barriers to entry in the sector. To offer differentiated
services such as PAN-India service/integrated service/outsourced logistics, new players need to
make significant investment to set up the infrastructure This makes the sector unattractive for
Bargaining power of customers (HIGH)
1. Prices are market driven
2. Homogeneous markets makes it easy for
companies to change logistics providers
Bargainig power of suppliers (LOW)
1. Intense competition among the infrastructure
providers
Threat of new entrants (LOW)
1. Highly competitve market
2. Requires significant investment in
infrastructure
Threat of substitutes (LOW)
1. Trend reflects increasing share of outsourced
logistics to total logistics.
Rivalry (HIGH)
Numerous players with not
much differentiation. No
single player domiates the
market

players who are unable to raise the requisite capital. There are numerous players offering basic
services in the Express cargo and courier segment. High competition will make it difficult for a
new player to grab a reasonable share of the market. Hence threat of new entrants is low.
Threat of Substitutes: The main threat faced by the logistics players in India is from their
customers opting to handle logistics in-house. However, past trend suggests that the share of
outsourced logistics is increasing steadily. This ratio is expected to increase further as more
companies start seeing outsourced logistics and the resulting gains in efficiency in supply chain
management, as a tool to gain competitive advantage.
Rivalry between existing players: Competition between existing players is high as there are
many players (organized and in the unorganized sector) offering only one or two services such as
Express cargo and Courier services. There is not much differentiation between players, hence
there is intense rivalry leading to price wars.
The study aims to find ways to improve the competitiveness and effectiveness of India‘s trade,
and that only means improving the structure of the India logistics industry and improving the
quality of regulations and policies. For this it is important to have strong financial funding also,
which the government alone may find difficult to fund for. Only through improved quality of
logistics and transport systems, which inherently should reduce costs, will help in better
international market access, leading to improved trade.
The following chapters will focus on these aspects.
Improved
Trade
Improved
Logistics
Infrastructure
Better
regulations
and trade
policies Better
financing
through PPP
models

CHAPTER 5: INFRASTRUCTURE OF THE INDIAN LOGISTICS INDUSTRY
__________________________________________________________________
Infrastructure development is a critical enabler to economic growth of a country.
Logistics infrastructure, which covers the road, rail, waterways and air network of a country, is
the backbone on which the nation marches ahead. The need to develop infrastructure had been
realized almost a decade ago, but the task still seems daunting. The present infrastructure is
insufficient, ill-equipped and ill-designed to support the expected growth rates of 7-8% over the
next decade. And the expected 2.5 fold growth in freight traffic will further increase the pressure
on the existing infrastructure, if immediate actions for improvement are not taken. India needs to
pursue an logistics infrastructure strategy that minimizes investment, maximizes cost efficiency,
reduces losses for users and is energy efficient.
We will now focus on each of the modes that comprise logistics infrastructure in India.
5.1 Indian Sea ports
India‘s ports serve as gateways to India‘s international trade and facilitate 90 percent by
volume and 70 percent by value of India‘s external trade via maritime traffic. The country‘s long
coastline spans across 7,500 kilometers (kms) with 13 major ports governed by the Centre and
about 176 non-major ports, of which only 60 are operational, governed by respective state
governments and union territories. Of its major and non-major ports combined, 139 are along the
west coast, while the remaining 50 ports are along the east coast
The Indian port market has witnessed significant growth over the last decade, growing
from 368 MMT in 2000–01 to 898 MMT in 2011–12 at a CAGR of 8.5 percent. Following a
temporary deceleration in cargo traffic (at a CAGR of 6 percent) — due to the global economic
slowdown between 2007–08 and 2011–12 — cargo traffic across India‘s ports is expected to
touch 1,304 MMT by 2016–17 at an accelerated CAGR of 8 percent.
5.1.1 Issues related to sea ports
The following shortcomings impact on the performance of Indian ports and lead
to escalation of logistics cost:
 Ships have to wait long in the channel for berthing, and productivity in
loading and unloading is low. The national average turnaround time of
vessels for dry bulk and containers is estimated at 5.7 days and 1.9 days,
respectively.
 The ports are labour-intensive and the mechanization process is slow.
Equipment used is outdated and obsolete, causing further reduction in
efﬁciency and productivity.

 Restrictions in navigation channels do not allow bigger vessels to be
berthed. The hinterland links to ports are insufﬁcient and need to be
improved.
 Delays in co-ordination between ports and the Customs authorities delay
quicker. Port-side constraints further contribute to increases in dwell time
before both incoming and outgoing cargo is cleared.
Outlook on traffic at Indian ports
Source: KPMG in India analysis
The Government of India has planned to replace the National Maritime Development
Program (NMDP) with the Maritime Agenda 2010-2020, with the objective of increasing the
port capacity. It aims at increasing the port capacity of both major and minor ports, and bring the
port performance of Indian ports at par with international standards. An estimated amount of
2,870b INR will be invested to generate port capacity of 300 MMT and cater to cargo traffic of
2,500 MMT by end of 2020.
Source: Maritime Agenda 2010-2020, Ministry of Shipping Website

In order to develop capacity of port sector, it is important to focus:
 Development of Non-major ports
 Development of east coast ports
 Containerization
1.Development of Non – major ports: The cargo traffic at no-major ports increased at a
CAGR of 13%, over a CAGR of 2% at major ports, during 2007-08 and 20122-12. Its
share increased to 39% from 28%, clocking 338 MMT in total traffic versus the 560
MMT at major ports. During the same period, the cargo handling capacity at non-major
ports also witnessed a higher growth than that of major ports.
The development of non-major ports was fuelled by capacity overruns at major
ports, aided by a substantial increase in the cargo traffic of fertilizers, building material
and coal. Under the Maritime Agenda, maritime states have set ambitious targets to
create additional capacity of 1,290 MMT at an estimated investment of INR 1,680b
between 2010-11 and 2019-20. Growth of non-major ports have been primarily led by the
development of ports in Gujarat (Mundra, Pipavav, Hazira), which aimed at catering to
the north Indian industrial belt, and thereby reducing load on JNPT and Mumbai ports.
Market Share of major and non-major ports
Source : KPMG In India analysis
2. Containerization: The growth in the container market (CAGR of 12% in past five years)
is expected to continue in the medium term, as a result of rising containerization levels
and growth in trade. However, at 51 % the containerization level in India continues to fall
short of that in developed countries, which have achieved significant levels of 70-80%.

Container traffic and containerization levels
Source: Ministry of Commerce, Indian port association database, KPMG in India analysis
The following trends are expected to drive growth in containerized cargo:
 Increasing containerization level for break-bulk commodities (e.g. steel, cement, rice,
sugar)
 Healthy growth prospects for industries contributing to container cargo (e.g. textiles,
food products, machinery, paper, scrap)
 Development of dedicated freight corridors (DFC) and the Delhi-Mumbai Industrial
corridor (DMIC) along the north-west corridor, is expected to drive the demand for
container logistics infrastructure.
 Growing thrust on developing container terminals on the east and west coasts of India
 Development of dedicated logistics parks for handling container and bulk cargo.
3. East Coast Ports: With their contribution to India‘s total trade expected to increase
from 23 % (in 2010) to 34 % (In 2014), east coast ports are expected to significantly
drive the growth of port sector. Through the Maritime Agenda 2010-2020, he GOI plans
to create additional port capacity of 900 MMT and invest INR 1,126 b to boost cargo-
handling capacity at ports along the east coast.
East coast ports are closer to iron ore/coal deposits, power , steel or fertilizer plants, and
therefore have traditionally handled bulk commodities; whereas west coast ports have
mainly handled POL and container cargo. Container handling capacity along east coast
ports are expected to increase from 2 million TEUs(In 2009) to 10.8 million TEU (by
2020)

Capacity at east coast ports
5.2 Railways
Spanning 64,456 km with more than 7,133 railway stations, India‘s rail network is the
largest in Asia and the second largest in the world (behind the US). The Indian Railways
operates 19,000 trains daily, transporting 2.65 MMT of freight and 23 million passengers across
the country. However, India‘s rail infrastructure suffers from chronic under investment, due to
which its potential for freight movement remains largely untapped. Rail freight has grown at
around 7 % over the past five years, and is expected to touch the 1 billion ton mark in 2013, with
a 31% share of total freight movement across all modes of transport. Rail has consistently lost
out to roads as the preferred mode of transport.
5.2.1 Issues related to railways
Even though IR has made notable strides and achieved remarkable growth in freight
transportation in recent years. However, there are
 Capacity constraints and freight tariffs are still higher than in the developed and advanced
developing countries.
 Moreover, freight transportation by rail lacks reliability and trackability and is deﬁcient
in terms of quality of operations, speed, and customer orientation. For many customers,
whether manufacturers or end users, assured delivery of consignments, and the ability to
verify periodically that the delivery schedule will indeed be met, is as important as the
freight cost. Since the IR cannot provide assurance of delivery and arrangements for
tracking consignments are not in position, the shippers prefer higher cost road transport,
thus increasing the logistics cost.
 Absence of competition and lack of regulatory oversight further affect the quality of
service and also keep the tariffs higher than the levels prevalent in the developed and
advanced developing countries.

Rail freight
Furthermore, passenger traffic enjoys significant priorities over freight traffic; passenger
rates are highly subsidized by freight operations and utilize up to 60 % of network capacity but
contribute only 30% to revenue. Nonetheless, rail continues to remain the most fastest and
economical mode of transport. The capital cost of setting up rail capacity is around 40 % lower
than that of comparable modes such as expressways, when measured on a ton-kilometer basis.
Further, costs of rail transportation specifically on high traffic density corridors are considerably
lower than for other modes. Additionally, rail offers speed and capacity related benefits.
One of the important developments in the rail sector is the Dedicated Freight Corridor
(DFC), which is expected to mark at paradigm shift in the transportation scenario In India. This
will help cater to high speed movement of freight cargo, with no hindrance from passenger
traffic, and thus improve service delivery and generating additional freight-carrying capacity.
The project envisages the construction of two corridors, one each on the west and east
routes, spanning a total length of about 3,300 km. The Eastern corridor, starting from Ludhiana
in Punjab will pass through the states of Haryana, Uttar Pradesh and Bihar and terminate at
Dankuni in West Bengal. The Western corridor will run from Dadri to Mumbai, passing through
the states of Delhi, Haryana, Rajasthan, Gujarat and Maharashtra.
Timely completion of the WDFC and EDFC will result in an increase in total rail freight
volume movement along particular routes. However, given that the project is significantly behind
its original timeline, the potential increase in freight volume has been analyzed I two distinct
scenarios, such as ―The DFC Scenario‖ and ―The No-DFC Scenario‖. In a ―No-DFC Scenario‖,
freight would continue to move along existing rail and road network resulting in gradual
saturation of the rail network over a period of time. This would increase the modal share of road
transport from 25% in 2016-17 to 36% in 2021-22. In a ―DFC Scenario‖, the share of rail would

significantly increase due to added capacity and efficiency of new infrastructure. This will mark
a shift in the modal mix increasing the share of rail from 84% in 2016-17 to 87% in 20221-22,
along these routes.
5.3 Roadways
Roads continue to constitute the most significant component of India‘s logistics industry,
accounting for 60% of total freight movement in the country. As the demand for goods – either
for mass consumption or industrial development – grows beyond the conventional demand-
supply hubs of metropolitan cities to a number of widely dispersed tier 1 and tier 2 cities, the
share of road transport can expect additional growth, give its ability to facilitate last-mile reach
and limited supporting rail infrastructure. Road freight has increased to 1,250 BTKMs in 2011-
12. Over the next five years, from 2012-13 to 2016-2017, assuming a GDP growth of 8% road
freight is expected to grow at a CAGR of 9.6% taking the total road freight opportunity to 1,700
BTKMs.
The length of district, rural and other roads is 4,455,511 km, followed by 163,898 km of state
highways and only 70,934 km of national highways. Of this, approximately, half of the total road
length is paved. Consequently, road networks continue to lag behind world averages, with road
density at 2.83 km per 1,000 people and 770 km of road length per 1,000 sq. km as compared to
6.7 km and 840 km, respectively, globally. India‘s low average trucking speed of 30-40 km per
hour (kmph) as against the global average of 60-80 km per hour (kmph) can thus, be attributed to
the constrained and poor quality of the country‘s road networks.
However, the completion of the National Highways Development Programme (NHDP),
which is aimed at developing 50,000km of national highways by 2015 in seven phases with an
investment of INR 3,000 billion and modernization of the road cargo transport community will
be game changers for the road transport sector. (Annexure – table 4 and 5)
5.3.1 Issues related to road freight
 The existing Indian road freight transport industry is highly fragmented, with 70-75
% of truck owners operating a maximum of five trucks each, while operators owning
more than 20 trucks constitute about 9-11 % of the ownership pie. This disaggregated
ownership has resulted in fierce competition amongst operators resulting in truck
owners resorting to overloading to recover investments which in turn impacts service
quality and overall economics of road transportation, as a result of increased incidents
of accidents, breakdowns, spoilage and pilferage. Also due to the limited investment
capacity, operators have been unable to high average age of trucks at 10 years and
limited adoption of technology for tracking and fleet management.
 High delays caused at border crossings/checkpoints. This happens when there is
physical inspection of the freight or also because of overloading of freight, because of
which freight does not get clearance immediately.

5.4 Air Cargo and Airports
Air cargo serves as a vital link between domestic and international markets. The
contribution of air cargo, thus needs to be adequately and appropriately focused upon, so that
India‘s fast growing international and domestic trade by air is facilitated, integrated and
expanded. While the total volume of air cargo traffic currently constitutes about 1% of total
trade, it accounts for close to 29% of total trade value.
Over the next decade, total air cargo traffic is expected to grow at a CAGR of 10.3% to
reach 5.9 MMT, with domestic and international cargo expected to grow at CAGRs of 11.6%
and 9.5% respectively, and contributing 2.4 MMT and 3.5MMT, respectively by 2020.
5.4.1 Issues related to air cargo and airports
Although the air trafﬁc growth in recent years has surpassed industry expectations and is in fact
expected to rise further, air freight has remained neglected for many years. Certain issues have resulted
in hindering the smooth movement of cargo and the expectations of the customers for timely and
prompt delivery have remained unfulﬁlled. These include:
 The absence of integrated cargo infrastructure
 Inadequacies in gateway and hinterland connectivity through rail and road;
 Need for streamlining of Customs procedures in air cargo;
 Need of technological upgradation of cargo handling processes
 Formulation of performance based service
Air cargo throughput for all Indian airports

Three trends are expected to cater to the growth of air cargo industry:
 Emergence of tier-II cities, as new cargo centers
While metros have led the initial charge, opportunities in the air cargo sector now extend
to tier-II cities, which constitute the majority of the country‘s population. Against a
CAGR of 10.5 % at metro (tier I) cities between 2006-2011-when volumes increased
from 1.3MMT to 2.1MMT- the tier II cities witnessed increased growth of 14.5% during
the same period, with volumes increasing from 0.13 MMT to 0.26MMT.
Among the relatively large micro-markets, Pune, Kochi and Kozhikode showed
significant growths of around 14-16% between 2006 and 2011. In markets that handled
sub 10,000 tonne cargo, Amritsar and Nagpur, catering to India‘s regional pockets,
displayed CAGR of over 25% over the same period. While Jaipur with a growth rate of
27.3% is expected to be the next crucial destination catering to increasing freight demand
in north-western India. In the north-eastern region, Guwahati (CAGR 13.1%) and
Agartala (CAGR 19.2%) have been the traditional leaders.
 Increasing participation of service providers
Opportunity attractiveness for 3PL players and freight forwarders
Source: KPMG in India Analysis
 Improved air cargo infrastructure at airports
A comparison of air cargo infrastructure at India airports with global practices highlights
the prevailing lack of focus on air cargo infrastructure:

Global best practices Cargo operations in India
Segregated facilities for different types of
cargo
Most terminals do not offer separate facilities,
except cold rooms
Dedicated perishables handling facilities that
cater to supply chain requirements
Investment in cold storage infrastructure
(trucks and warehouses) to handle agriculture,
pharma and other perishables is inadequate
Promotes transshipment handling/hub
operations
Cargo terminal operators need to have separate
license area for transshipment operations
Suitable waiting area for trucks Cargo terminal landsides are used as
parking/holding area for trucks, which leads to
congestion.
Agent warehouses, office areas and other
facilities situated near terminals
Agent warehouses are often located within
cities
Dedicated facilities for air-express operations,
with air-side and city-side access, multiple
freighter parking bays
There is no fixed model, and cargo handlers
are dependent on decision of individual airport
operators. Very few dedicated freighter parking
bays exist at present.
Source: “Air cargo logisitics in India” – AI-SATS, MoCA
An increase in the spending in airport infrastructure through various airport projects is expected
to improve air cargo infrastructure across the country. Investment in airport infrastructure has
grown substantially over the last three Five-year plans. The twelfth Five year plan (2012-17)
outlines investments worth INR 675 billion, an increase of 86% over the eleventh Five year plan
allocation.
5.5 Warehousing
In recent times, the Indian warehousing segment has evolved significantly, resulting in a
gradual metamorphosis from the traditional concept of godowns to modern formats. Further,
interest and traction in the potential advantages that free trade warehousing zones (FTWZs) offer
has increased.
The market in India consists of industrial and agricultural warehousing, with both segments
expected to witness a significant evolution in their shares (by value) over the next 5 years. The
share of the industrial segment, which includes both bulk and non-bulk commodities, is expected
to increase from about 86 % in 2010-11 to around 90% in 2015-16. This is likely to be at the cost
of a corresponding decrease in the share of agricultural warehousing in contrast to the industrial
warehousing segment, which is highly fragmented. The agricultural warehousing segment is
dominated to the extent of two-thirds by government entities such as Food Corporation of India,
The Central Warehousing cooperation and all State Warehousing cooperations. This trend is
likely to vary relatively less in the next few years.

Warehousing market size
Source: CRISIL report on warehousing industry, November 29, 2011; KPMG in India analysis
Factors influencing warehousing market
Inhibitors Drivers
Difficulty in access to capital Increasing outsourcing/demand for modern
assets
Low level of customization Rising share of organized retail
Issues in land acquisition/project
implementation
Expected rollout of GST
Overall production and consumption growth
The share of modern warehousing is anticipated to grow from 15% (62 million sq.ft) in
2010 to 30% (178 million sq.ft) by 201548. This sharp growth is expected to be driven by rising
domestic and EXIM freight volumes, increased outsourcing to 3PL players, strengthened
investment in infrastructure, organized retail and the impending implementation of Goods and
Services Tax (GST). However, several challenges may hamper the warehousing sector‘s wider
growth potential. High price sensitivity among customers and infrastructure issues tend to limit
the ability of service providers to offer world-class services; their usually underdeveloped
capabilities to offer industry specific solutions, the asset heavy nature of their business, the need
for substantial capital and concerns related to land acquisition make operations increasingly
difficult.
Apart from the significance of location in the modern warehousing era, industry
stakeholders need to be wary of two crucial aspects – customer‘s key buying criteria and critical
service factors. Price sensitivity, strategic location and manpower availability rank as leading
buying criteria; however, service providers need to offer high-quality, industry specific value
added solutions, skilled manpower-both management and operational- and IT/technology
solutions such as ERP, put-to-light, and GPS. Focus must also be on developing strong

relationships with customers, as well as facilitating long-term contracts and, thus, regular and
predictable volumes.
FTWZ: The Free Trade Warehousing Zone model offers significant potential to overhaul the
supply chain. Given the high level of fragmentation associated with the transportation and
logistics segments, the quality of warehousing in particular and, service levels in general, are
grossly sub-optimal. These hindrances ultimately lead to unreasonably high logistics costs.
Against this backdrop, the FWTZ concept plays a pivotal role by offering world-class, single-
window solution for multiple logistics activities, with special focus on EXIM flow. It is widely
believed by industry experts that with excellent infrastructure, mechanization and regulatory
incentives, the FTWZ model offers significant potential to save costs in the overall supply chain.
Key
Parameters
Dubai Singapore China India Time
frame for
evolution
(years)
Brief insights
Well
developed
port infra
Yes Yes Yes No 5-10  Development of mega terminals
at major ports (JNPT, Chennai)
 Additional capacities at major
ports(Ennore, Vizag)
 Development of large private
ports (Gangavaram, Dhamra)
 Development of transshipment
hubs (Vallarpadam)
Strong
hinterland
connectivity
Yes No Yes No 10  Development of DFCs
 Development of expressways and
NHAI-led highways(GQ, EW_NS
fed routes)
Favorable
positioning
on trade
lines
Yes Yes No No N/A Indian ports are not on key international
trade lanes.
Strong
manufacturi
ng support
Yes No Yes No N/A India scores low on manufacturing
support for FTWZ demand
High export
potential
No Yes Yes Yes 5-10 Over the next 5-10 years India is expected
to evolve as a moderate-sized export hub
for key sectors such as automotive,
engineering goods, pharmaceuticals and
processed foods.
High import
potential
No No Yes Yes 2-3 Consumption led economic growth is
likely to continue supporting imports
Well defined
regulations
Yes Yes Yes No 2-3 Policies in India are still evolving to
support FTWZs (e.g. 2011 Budget
treatment of MAT)
Processing
cost
arbitrage/
pricing
flexibility
No No Yes Yes 2-3 Like China, India offers a significant cost
of arbitrage opportunity when compared
with other regions.

CHAPTER 6: PUBLIC PRIVATE PARTNERSHIP MODELS
__________________________________________________________________
A public private partnership is an agreement between the government and the private
sector for the purpose of provisioning of public services or infrastructure. With a common vision
in place the public and private sector brig to their table their own experiences and strengths
resulting in accomplishment of mutual objectives. The PPP model is increasingly seen as a
means of harnessing private sector investment and seeking operational efficiencies in the
provision of public assets and services.
While the preferred form of PPP models is the one in which the ownership of the
underlying asset is lying with the public entity during the contract period and the project gets
transferred back to public entity on contract termination, the final decision on the form of PPP is
determined using the Value for Money Analysis.
The following are the PPP models supported by the government:
Modified design-build
(Turnkey) contracts
•The designbuild contracts yield
benefits in the form of time and
cost savings, efficient risk
sharing and improved quality.
•The Turnkey approach with
milestone-linked payments or
penalties or incentives can be
linked to such kind of contracts.
BOT (Build-Operate-
transfer) model
•The BOT form of models and its
variants are the most common
form of PPP models in India,
accounting for almost 2/3rds of
the PPP models in the country.
The 2 types of this model are:
•User-fee based BOT model
(roads, ports, airports)
•Annuity Based BOT model (rural,
urban, health, education)
Performance based
management/maintenance
contracts
•The PPP models that lead to an
increased efficiency are
encouraged in an enviromet that
is constrained by the ability of
ecconomin resources.
•The sectors meant such form of
PPP models include water
supply, sanitation, solid waste
management, road maintenance
etc.

The PPP process should comprise of 4 phases:
PPP identification
stage
Development Stage Procurement stage PPP contract
management and
monitoring stage
Consists of strategic
planning, project pre-
feasibility analysis,
Value for money
analysis, PPP
suitability checks and
internal clearances to
proceed with PPP
development
Consists of project
preparation (technical
feasibility and
financial viability
analysis), project
structuring,
preparation of
contractual documents
and obtaining of
project clearances and
approvals.
Consists of
procurement and
project reward
Consists of project
implementation and
monitoring over the
life of the PPP
project.
 GOI is likely to establish MIS for the continuous monitoring of the performance of PPP
projects.
 The development of a sustainable PPP program requires a strong and well defined
institutional structure:
 Supporting the creation of nodal agencies such as PPP cells at the state or sector level
 Laying down of appraisal mechanism for PPP projects by the PPP Appraisal
Committee (PPPAC)
6.1 Challenges of PPP in India:
Regulatory
environment
•There is no independent PPP regulator as of now. In order to attract more domestic
and international private funding of the infrastructure, a more robust regulatory
environment, with an independent regulator is essential.
Lack of
information
•The PPP program lacks a comprehesive database regarding the projects/studies to be
awarded under PPP. An online database, consisting of all the project documents
including feasibility reports, concession agreements and the status of various
clearances and land acquisitions will be helpful to all bidders.
Project
development
•The absense of adequate project development by authorities leads to reduced
interest by the private sector, mispricing and many times delays at the time of
execution.

While most of the above challenges are being worked upon by the GOI, the limited availability
of sources of funding is the biggest bottleneck for success of the PPP model.
6.2 Key Industries/Sectors for PPP:
1. Highways
PPP format Project Value (in INR billion)
BOT - Toll 48 93.3
BOT- annuity 8 23.5
Special Purpose Vehicle
Projects
24 46.8
Source: Ministry of Road Transport and Highways
Several GOI initiatives to include private sector participation in road sector:
 Viability Gap Funding in the form of capital grant subsidy of up to 40% of project
cost
 100% tax exemption in any consecutive 10 years out of 20 years
 Duty-free import of certain identified high quality construction plants and
equipments
 Allowing FDI up to 100% in this sector and relaxed ECB norms
 Long concession period of up to 30 years
 Right to collect and retain toll
 Model concession agreements for state highways
 Standardizing model bidding documents
Investments required: The national highways constitute just 2% of the entire road
network, but carry approximately 40% of the total road traffic indicating existence of
significant potential to be unleashed. Investments worth INR 4,902 billion had been
planned as planned as part of 12th
five year plan. The contribution of private sector is
likely to range from INR 1,667 billon to INR 2,451 billion, for the same period.
Lack of
instituional
capacity
•The limited instituitional capacity to undertake large and complex projects at various
central ministies and especially state and local body levels, hinder the traslation of
targets into projects.
Financing
availability
•The private sector is dependent upon commercial banks to raise debt for PPP projects.
With commercial banks reaching sectoral exposure limits, and large Indian
infrastructure companies being highly leveraged, funding the PPP projects is getting
difficult.

2. Railways
The Railways sector just experienced 4 PPP contracts valued at 15.7 billion. The projects
have been contracted either through domestic competitive biddings or through negotiated
MOUs. Due to the large size of the projects, the PPP projects in railways have to be
supplementary or an extension to an existing large railway network.
The Recent PPP data indicates around nine projects being contracted so far in Gujarat (4),
Orissa (2), Haryana(1), Karnataka(1) and Andhra Pradesh (1). The nine projects have
BOT (or its variants) format (including one on DBFOT) PPP as the preferred BOT
model. The PPP experience in railways has proved to be a mixed bag so far. In projects
with clear cut demarcations of responsibilities, the model has proven successful in the
case of last mile connectivity (for instance, the last mile connectivity to mundra port with
the pallanpur-ghandhidham railway line). On the other hand, the railways have been
facing problems in using the PPP route for manufacturing rolling stock and locomotives.
Some of the PPP project initiatives taken by the railway sector include:
 Container Corporation of India Limited (CONCOR) – for developing multimodal
transport logistics infrastructure to support domestic container traffic.
 Pipavav Railway Corporation Limited (PRCL) – to provide broad gauge rail link
for Pipava port in Gujarat.
 Rail Vikas Nigam Limited (RVNL) – for port connectivity works and
improvement of the Golden Quadrilateral to meet future transportation needs.
The project proposed for PPP format include:
 High speed rail corridor
 Dedicated freight corridor
 Locomotive and coach factories
 Multi-modal logistics hubs
Investment Requirement: The Railways needed INR 5.2 trillion public investment
during the Twelfth five year plan (2012-17), of which the Indian railway corporation will
raise 1 trillion and the balance needs to be raised internally or though PPP. The IR
announced its plans of restructuring to attract funding of INR 500 billion to meet its
expansion targets proposed in the twelfth five year plan. To carry this out, the railways is
currently working out strategies to design and award PPP projects.

CHAPTER 7: FREE TRADE AGREEMENTS (FTA), FREE TRADE
ZONES(FTZ) AND FOREIGN TRADE POLICIES(FTP)
__________________________________________________________________
7.1 Free Trade Agreement (FTA):
All countries, including the poorest have resources – human, natural, financial – which they can
employ to produce goods and services for their domestic markets or to compete overseas.
Economics tells us that we can benefit when these goods and services are traded. Simply put, the
principle of ―comparative advantage‖ says that countries prosper by concentrating their resources
in on what they can produce best, and then trading these products for products that other
countries produce best. In other words, liberal trade policies – policies that allow the unrestricted
flow of goods and services – sharpen competition, motivate innovation and breed success. The
importance of global free trade can be grasped by the fact that there are currently 153 countries
that are members of the World Trade Organization (WTO) – the international organization
whose main function is to ensure that trade flows smoothly, predictably and freely as possible.
Free trade, in its purest form, refers to the unfettered export and import of goods and
services between one country and another, with no government intervention on either country‘s
side. However, barriers to free trade are an observed phenomenon and manifest themselves as:
 Tariff barriers: A ―tax‖ on imports that are invoked by counties mainly to protect
the domestic industries from the possible consequences of greater competition.
 Non-tariff barriers: These can be in form of quantitative restrictions on
imports/exports or existing government regulations governing technical and safety
standards for products that can have the effect of restricting imports. Another
form of non-tariff barrier to free trade is found in ―Domestic Content
Requirements‖ that are regulations wherein importers are forced to import goods
that contain minimum prescribed amounts of domestically produced components.
Such restrictions are commonly imposed on the domestic operations of foreign
firms that engage in foreign direct investment in production facilities in the
regulating country.
Given the existence of trade barriers (regardless of origin) at any point in time, the question often
arises as to what countries can do to lower or eliminate trade barriers among themselves. Efforts
to do so are broadly referred to as ―trade liberalization‖ and can take several forms. Markusen et
al., state that trade liberalization often occurs in the form of a multilateral agreement such as the
various trade negotiation rounds of the General Agreement on Tariffs and Trade (GATT), or an
agreement among smaller set of countries, typically with some geographically proximity. This

latter type of agreement is called a ―preferential trade agreement‖ (PTA). A Free Trade Area is
the least restrictive of PTAs and consists of a number of countries that agree to eliminate all
trade barriers among themselves while keeping intact their existing tariffs with non-member
countries. The North American Free Trade Agreement (NAFTA) signed by the United States,
Canada and Mexico is an example in this regard.
7.1.1 Beneficial Effects of FTAs:
 Increase in Incomes/Growth: An FTA expands trade volumes among member countries
and tends to increase incomes/growth of the members. Intuitively, starting from a
situation of tariff-distorted trade, the elimination of tariffs allows each member to
specialize in the production of the goods in which it has a comparative advantage and
trade those goods in exchange for imports of other goods from fellow members.
 Achievement of Economies of Scale: An FTA, by eliminating tariffs, expands a member
country‘s export market thereby allowing it to expand its scale of operations and lower its
average cost of production.
 Reduction of Monopoly Inefficiencies: If inefficient monopolies exist in the domestic
market, then increased competition from foreign products dampen domestic monopoly
inefficiencies, if not eliminate them altogether.
 Availability of Greater Product Variety: The opening up of free trade increases trade
flows and expands the variety of products available to consumers in the home country.
7.1.2 FTAs in Asia:
Market driven forces of cross border trade, FDI flows and finance as a result of
multilateral and unilateral trade liberalization processes has deepened the economic ties in the
Asian region. The last twenty years have witnessed an upsurge of bilateral trade agreements
being convened in this part of the world. Asia is thus considered to be at the forefront of FTA
activity.
India has bilateral agreements with the following countries and blocks:
 SAFTA (Bangladesh, Bhutan, The Maldives, Nepal, Pakistan, Sri Lanka and
Afghanistan)
 ASEAN (ASEAN-India Free Trade Area)
 European Union (final stage)
 Sri Lanka
 Singapore
 Thailand (separate from FTA agreement with ASEAN)
 Malaysia (separate from FTA agreement with ASEAN)
 Japan
 European Free Trade Association (EFTA) (negotiation ongoing)
 Canada (negotiation ongoing)

 South Korea (India-Korea CEPA)
7.2 Free Trade Zones (FTZ):
Liberalized conditions for cross border trade, as signaled by free trade agreements, have
been an important factor in the development of international trade flows. Such agreements are
critical, however within regions, additional measures have been proven to be important in
encouraging cross-border trade and capital flows. Many governments have established so-called
special economic zones or free trade zones. Governments typically subsidize companies which
relocate inside the zones, making them particularly attractive for manufacturing and exporting
companies.
Companies who move to free trade zones are rewarded with tax and customs exemptions
and in some cases with streamlined procedures which reduce red tape. Some free trade zones are
also specifically designed to serve the needs of particular industries, such as chemicals or
pharmaceuticals. Often such areas create economies of scale in terms of transport, as the
presence of multiple producers facilitate better capacity utilization. Free trade zones may also
feature superior infrastructure, such as excellent connections to export facilities and ports.
The main objective of free trade zones is to attract foreign direct investments by
facilitating market entry for foreign investors. Foreign direct investment inflows may provide
capital either directly or through other related enterprises. Foreign direct investment represents
the most important source of capital for emerging markets. Free trade zones stimulate foreign
direct investment inflows to a country, since companies looking to invest will benefit from better
accessibility and reduced transport cost. Historically, the establishment of free trade zones has
fostered the industrialization and economic growth of countries ( like Taiwan, South Korea and
Singapore, which are some of today‘s most important industrialized economies).
In the emerging markets, the number of free trade zones and similar arrangements is
expanding rapidly. Currently 600 special economic zones are in the approval process in India.
Free trade zones alone are no guarantee for obtaining higher growth rates or attracting foreign
direct investments, however certain factors significantly increase the likelihood of success, such
as:
 Quality infrastructure, a supportive government, lighter regulation, strong export focus
and large warehousing and handling capacities.
 Free Trade zones will facilitate opening markets for international trading partners,
providing benefits especially for those economies that are strong in export.
 In addition, free trade zones can support further globalization if strategically located
inventory buffers are established, allowing exporters to respond with quicker lead times
to demand from the destinations which they serve.

In India, the following Free Trade Zones exist:
 Madras Export Processing Zone
 Noida Export Processing Zone
 Falta Export Processing Zone
 Navi Mumbai Special Economic Zone
 Kandla Free Trade Zone
 Santa Cruz Electronics Export Processing Zone
 Vishakapatnam Export Processing Zone
 Cochin Export Processing Zone
 AP Special Economic Zone
 Surat Special Economic Zone
7.3 Foreign Trade Policies (FTP):
While India has gradually opened up its economy, its tariffs continue to be high when
compared with other countries, and its speculation norms are still restrictive. This leads some to
see India as a ―rapid globalize‖ while others see it as a ―highly protectionist‖ economy.
Nevertheless, in modern years, the government‘s stand on trade and investment policy has
demonstrated a marked shift from protecting ―producers‖ to benefitting ―consumers‖. This is
revealed in its foreign trade policy of 2004-09 according to which, ―For India to become a major
player in world trade we have to also make possible those imports which are required to
stimulate our economy‖.
Along with economic transformations, globalization of the Indian economy has been the
leading factor in devising trade policies. The reform procedures pioneered in the subsequent
policies have focused on liberalization, ingenuousness and lucidity. They have given export
friendly surroundings by simplifying the procedures for trade facilitation. In the present Foreign
Trade Policy 2009-14, the focus lies in reversing the declining trend of exports and to provide
additional support to those sectors which have been hit badly by recession in the developed
world. However, the long term objective is to double India‘s share in global trade by 2020.
Also keeping in mind the mega agreements such as the Trans-Pacific Partnership (TPP)
and the Trans-Atlantic Trade and Investment Partnership (TIPP), which when fully in force can
alter the direction of global trade. They have the potential to adversely affect excluded countries
such as India, by diverting trade and investment away from them and weakening their positions
in global value chains. This calls for immediate actions including taking appropriate measures
through India‘s Foreign Trade Policy.

CHAPTER 8: RECOMMENDATIONS AND ACTIONS REQUIRED
__________________________________________________________________
8.1 Actions required for improving the logistics infrastructure:
8.1.1 PORTS
Indian ports do have significant potential for progress in the future, however many
challenges still exist which impedes growth. In order to facilitate growth, both Center and
States should address these challenges:
 Coordination among sectors: An integrated transport system that facilitates the
inter-coordination between roads, railways and shipping departments must be
developed. This will help better movement of goods from ports to hinterland via
road and rail.
 Developing Mega-ports: Ports which have high-supporting surroundings have
potential to become a mega-port. Such ports can provide further expansion in
draft size or berthing facilities (Eg: Vishakpatnam and JNPT). Through the right
policies, incentives and fast-tracking measures, the GOI can facilitate such
projects.
 Improving the capacity utilization: Ports which do not have hinterland
connectivity need to develop operational efficiency, in order to compete with
other large ports. This would help them remain profitable even at low traffic
volumes.
 Reduction in focus on sub-optimal ports: The increase in sub-optimal ports
should be kept in check. For this reason, it is important to properly plan coastal
shipping from both environmental and commercial perspective.
 Improving port infrastructure: In order to facilitate easier cargo flows from
larger vessels to ports, there needs to be improvement in berthing facilities and
increase in draft size at ports. There is need for mechanization of ports, and this
can be done by upgrading the quality of material handling equipments and also by
use of improved IT infrastructure which will enable electronic flow of
information.
 Enhancing manpower skill: There is need to invest in institutes in order to
provide key personnel with the best training, so as to improve develop the
adequate skills required in the shipping sector and cut down on talent-pool
shortages. Learning the best practices followed world over can be obtained
through collaborations with foreign universities.

Parameters Indian ports International Ports
Average number of
containers handled per ship
per hour
15-23 Colombo: 25
Singapore: 30
Annual container
throughput capacity
JNPT: 4.3m TEUs Hong Kong: 25 m TEUs
Singapore: 30 m TEUs
Maximum crane capacity –
per quay crane per annum
NSCIT: 188,000 TEUs Hamburg: 252,200 TEUs
Hong Kong: 272,700 TEUs
Maximum quay
productivity
JNPT: 2,000 TEUs per
meter
Hong Kong: 3,050 TEUs
per meter
Source: World Shipping Council Website, KPMG in India Analysis
8.1.2 RAIL
 Capacity Creation: In addition to the WDFC and EDFC, there is need to create
adequate freight-carrying capacity within the Indian rail network. The proposed
creation of four additional DFCs – North-South (Delhi to Chennai), East-West
(Howrah to Mumbai), Southern (Chennai to Goa) and East Coast (Kharagpur to
Vijaywada) – would meet the increased freight demand and also elevate the
quality of service to global standards. Moreover, the Indian Railways also needs
to establish and improve connectivity with ports and road networks to form an
inclusive intermodal strategy for first and last mile connectivity.
 Rail-Siding Warehousing: It is necessary to create warehousing facilities along
railway lines, so that direct unloading can be facilitated from wagons to
warehouses. This would allow traders to avoid multiple handling costs, which are
quite expensive. Rail-side terminals such as those being created by the Central
Rail-side Warehouse Corporation (CRWC) – a subsidiary of Central Warehousing
Corporation (CWC), could offer a win-win proposition for all relevant
stakeholders. Rail-side terminals can further be expected to lower logistics costs,
which also include inventory carrying costs, transit times and holding time for the
warehouses.
 Private Investments: The PPP model should be encouraged for the development
of the route network, as well as for the modernization of coaches through the
transfer of technology. This would likely drive India towards the status of an
export hub for modern passenger coaches and stations to provide multifarious
facilities such offices, retail, entertainment, restaurants, theatres, hotels and health
and education services. Private freight terminals should be set u for bulk and
container handling.
8.1.3 ROADS
 Promotion of Fleet Exchange: Creation of an efficient marketplace similar to
Stock Exchange or Commodity Exchange to bring together transport vendors for

the largely unorganized transport customers and transport could revolutionize the
trucking landscape. Collaboration of fleet exchanges with the existing Road
Traffic Offices (RTO) could be a win-win with Fleet Exchanges providing a
online Real Time Technology platform while RTOs provide the on-field support.
Such exchanges will not only reduce the element of cost that a middleman makes
but will also give visibility of loads to the vehicle owner on PAN-India basis.
 Electronic Toll Collection: Give that there are about 52545 toll plazas across
India, the smooth application of ETC would amount to estimated fuel savings
worth INR 10 billion annually. Although this may command significant
investment from road developers/operators against a small contribution of about
INR 100 from vehicle operators, the benefits are expected to result In a win-win
scenario for all stakeholders. This would save significant avoidable logistics costs
for the wider industry and the Indian economy.
 Encourage use of larger trucks: Larger trucks are cheaper to operate as
compared to smaller and medium trucks by over 25% and the incremental cost of
a larger vehicle can be recovered in less than three years. Measures to encourage
the use of larger trucks could be considered including excise duty reductions for
larger vehicles, stringent monitoring of overloaded trucks and enforcing pollution
and safety norms, which could result in the retirement of old trucks.
8.1.4 AIR CARGO
 Development of air freight station (AFS): This will permit the transfer of cargo
to designate/customs-notified freight stations – AFS or ICDs – and thereby would
help reduce congestion at the airport premises. AFS, although notified by the
Ministry of Finance, have yet to become operational. The barriers preventing the
establishment of AFS should be removed, and Customs should be directed to
issue concerned regulatory clearances.
 Establishment of an Air Cargo Promotion Board (ACPB): The establishment of a
ACPB ( comprising of members from the finance, commerce, industry and civil
aviation industries) can facilitate organized growth in this sector by driving
policies and the planned development of air cargo hubs in the country. Some of
the initiatives it can lead are the introduction of a air cargo village concept at all
hub airports, the development of an air-cargo vision 2020 and a time-bound
roadmap, the development of air cargo hub airports in India, and the formulation
of quality of services (QoS) parameters for all stakeholders.
 Expansion of freighter fleets: There is an urgent need for policy support and
robust infrastructure to drive efficiency in freighter operations in the country. In
this context, a consistent policy for the allotment of dedicated facilities at any of
the airports for dedicated freighter crafts should be developed. Further, dedicated

terminal space and facilities for express airlines should be provided to streamline
operations. Restrictions on night operations and high lease rentals also need to be
relaxed from a profitability standpoint.
 Execution of 24x7 customs operations in phases: Customs authorities should
consider the immediate introduction of round-the-clock operations that will
expedite clearances, which include the processing of documents, assessments, and
the examination and release of cargo. This model can be implemented initially at
metro airports and gradually introduced in tier-II cities.
 Professional training programs for air cargo: The GOI may consider setting up
a top-notch cargo training institute in collaboration with the industry. The institute
could offer courses encompassing policy, regulations, finance, operations,
technology and human resource development, to name a few.
 Circular flow of information between airports, airlines and operators: Inter-
linkages and circular flow between airlines, airport operations and air freight
stations, customs, banks, customs house agents (CHAs) and other allied agencies
should be established to reduce unproductive delays.
8.1.5 WAREHOUSES
 Implementation of GST: The Existing landscape of fragmented, unorganized small
godowns will likely undego significant reorganization with the rollout of the much
overdue uniform GST. The development of large hubs I key locations, coupled with
smaller spoke warehouses closer to production and consumption centers, are expected
to emerge following the rollout. This change in legacy tax structure is expected to be
the largest driver of modern warehousing infrastructure in the nation. While several
companies have initiated the consolidation and rationalization of existing warehouse
networks, confirmed rollout dates have yet to be declared.
 Skill development: The availability of skilled manpower-both management and
operational-will likely be a constraint as the sector continues to evolve rapidly amid
changing regulation and the entry of global retailers and service providers. By 2015,
it is estimated that India will need approximately 30,000-35,000 warehouse managers
alone. Government, policy makers and private sectors players must take cognizance
of this and develop a collaborative approach to set up training infrastructure and
incentives in the form of job opportunities for qualified personnel.
 Development of new storage models and networks: The emergence of next
generation storage models such as multi-modal logistics parks (MMLPs), mega food
parks (MFPs) and FTWZs must be aligned with the development of key infrastructure
projects related to port, highway and rail projects – such as the GQ project, the
NSEW project and the DFC project – to facilitate cohesive network development.

 IT adoption: The rapid transformation of physical infrastructure for storage would be
incomplete without the adoption of supporting IT. Technology is expected to
constitute the backbone of a strong and efficient modern warehouse that encourages
accuracy, inventory tracking and lowered operational costs. Today, the market offers
multiple forms of warehouse management systems, and service providers can select
off the shelf solutions that best suit their level of complexity.
8.2 Recommendations for developing PPP models:
Policy recommendations Project development
recommendations
Financing recommendations
Setting up independent
institutional structure for
handling PPP program
Capacity building measures
for the government
Developing corporate bond
market
Development of sector
specific regulatory mechanism
Role of consultants Encouraging participation by
pension funds and insurance
companies
Dissemination of information
on PPP
Project development activities Stimulating PE investments I
infrastructure sector
Optimum allocation of risks,
authority and accountability
Hedging mechanism for
external borrowings and
investments
Selection of private sector
partner
8.3 Recommendations for FTA, FTZ, FTP:
 The new trade policy should have strong linkages with other major macroeconomic
policies such as monetary, fiscal, manufacturing policies.
 There should be specific emphasis on simultaneous reforms in the markets of factors of
production for improving trade competitiveness, and existing free trade agreements
should be utilized to its fullest.
 Specific trade policy measures (including their compatibility with India‘s commitments
to the WTO regime and its negotiating strategy with respect to free trade agreements
should be taken to safeguard Indian exports and enhance its trade competitiveness against
far-reaching expected changes in the global trade scenario over the next five years or so.

CHAPTER 9: CONCLUSION
__________________________________________________________________
World trade has expanded rapidly over the past decades. This has been driven in large part,
by the changing nature of both production and increased competition in international commerce.
The most important criteria in international trade are price, quality and timely delivery. And it is
not possible to meet these criteria without having proper logistics system. Every day new and
innovative methods are found and improvisations are made in the quality of logistics, while
simultaneously attempts are made to reduce cost. India has realized the potential of a fully
developed logistics system, but there still lay 2 major constraints:
 Inability to develop the necessary infrastructure due to lack of financial resources
 Inadequate and legal environment which doesn‘t encourage growth
India needs to develop a suitable logistics system for economical and efficient transportation
from manufacturing centers to destination points. It has been estimated that the logistics costs of
the product and any documentation aggregates to 20% of the final costs of the product and
inadequacy and inefficiency have negative impact on trade competitiveness.
Although the enhancement of trade competitiveness is a gradual and long-term process,
negotiations and implementation of other free trade agreements can be effectively utilized to
reduce trade costs and thus, partially improve trade competitiveness. Unfortunately, Indian
industry has remained skeptical about many of these FTAs, particularly in respect to their
effectiveness in the long-run, and has under-utilized these channels to get integrated into the
global value chains. Integrating into and moving up the global value chains is essential condition
for greater competitiveness and higher growth. Effective participation in global value chains is
intrinsically linked with foreign direct investment, which can result in more trade through export
obligations of FDI.
India should effectively negotiate with key trading partners in order to gradually remove
and/or harmonize on-tariff measures affecting trade among these countries and improve its
domestic regulatory regimes for process and product standards, intellectual property rights and
other behind-the-border trade facilitation measures. Simultaneously, there should be gradual
reforms in the markets of factors of production – land, capital and other means of production-not
only to make reforms in goods and services markets sequentially compatible with those in the
factor markets but also more importantly to enhance India‘s trade competitiveness through
stronger linkages between inputs and outputs for enhancing the incremental capital-output ratio
of the Indian economy.

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