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Indian roads: Claustrophobic! - Views on News from Equitymaster
 
 
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  • Jun 1, 2007

    Indian roads: Claustrophobic!

    Mr. Munjal's efforts in developing a Hero Honda motor bike that can be sold at less than half of today's lowest priced model (at about Rs 12,000- Rs 14,000) have seemingly more to do with trying to salvage his two-wheeler market in anticipation of Mr. Tata's Rs 100,000 car than anything else. Their efforts to make four and now two wheelers affordable to the hoi polloi will open up a whole new segment of vehicle-owners and probably will be a good route towards social equality.

    But what everyone seems to have taken for granted in this scenario is the availability of good roads for these inexpensive vehicles to cruise on. Most of us in big or small cities would agree that it now takes twice as long to commute from one place to another, as it did a decade, or in some cities, a mere five years ago. This is borne out by micro-level studies. In the five years since 1997, traffic slowed to 15 kms per hour from 20-27 kmph in our wide-avenued capital city.

    But yet Delhi roads would seem like an expressway when compared to Chennai, where the average speed was as low as 13 kmph, and the Kolkata city centre with its glacial 7 kmph. While the latest data is not with us, Mumbai was a few years ahead of Delhi in this slower march towards 'development', as its average traffic speed in 1993 was 15-20 kmph. Though everyone is cribbing about power constraints today, we have learnt to live with the transport hellhole that India has become. At least India's power supply has not halved in the last one decade!

    (Source: Economic Survey, 2007)

    Private transport zooms ahead of Public
    Already with increased disposable incomes and a wide array of different models to choose from, sales of cars that had clocked 409,000 in 1997, crossed the one-million mark in FY07. According to the Draft on Urban Transport Policy, while the population of India's six major metropolises increased by about 1.8 times between 1981 and 2001, the number of motor vehicles went up by over 6 times. And this phenomenon is not limited to urban areas - in the same time period, throughout the country, two-wheeler ownership multiplied by 20 times, and that of cars by 8 times. Even the number of goods vehicles rose seven-fold.

    However the bus population that increased less than 5 times was the laggard (and this number is inclusive of Maruti Omnis plying on the roads). Buses now probably account for less than 1% of all vehicles on urban roads, leading to crowded mass transport systems. This propels people who can afford to buy personal vehicles, to do so. Coupled with the fact that it costs less than Re.1 a km to run a two-wheeler while the most subsidised fare that the Mumbai public transport charges its city commuters is Rs 4 per km, the odds on using private transport tend to seem better.

    Public costs higher
    In this upwardly-'mobile' scenario, the poor have borne the brunt of higher costs of travel as cycling and walking has become extremely risky, with people having to share the same right of way with motorized modes. According to WHO statistics in terms of mortality per 10,000 vehicles, the rate in India is as high as 14 as compared to less than two in developed countries. Further, with population growth, cities have tended to sprawl and increased travel distances have made these healthier and inexpensive alternatives impossible to use, making access to livelihoods far more difficult.The cost of road crashes has been assessed at 1% to 2 % of GDP in developed countries. A study by the Planning Commission in 2002 estimated the social cost of road accidents in India at Rs.550 bn annually, constituting about 3% of its GDP.

    Government: No logic in spending
    Causes
    of death
    No.of
    deaths
    Xth Plan
    outlay Rs bn
    Malaria 638 14
    AIDS 1094 13
    Tuberculosis 37,639 7
    Road crashes 92,618 2

    Longer commutes, higher inventories
    Besides these accidents-related costs, the economy loses out because of increased expenses in time and money spent in commuting. Some IT companies in Mumbai have allowed their executives work from home it makes better financial sense. On an average, two hours spent commuting daily would add up to a mind-boggling 10 weeks of working hours!!

    Industry's cost structure gets vitiated because of India's lousy transport network. Compared to the US where logistics account for 6% of its GNP, in India they go up to 10% of its GNP and of this, 40% is on transportation alone. One of the reasons for higher costs can be that commercial vehicles in India are able to run only 250 km on average per day as compared to 600 km in developed countries. Any one of us who has driven on the old, single-laned Mumbai-Pune highway and then the super-wide, two-laned expressway can understand why.

    Though the Ministry claims we have the world's second largest road network with 3.3 m kms, we gloss over the fact that only 47% of it is paved, and of this only 20% is estimated to be in good condition and connects urban conglomerates. In our run towards equitable growth, we have forgotten to pave the paths themselves towards the less fortunate of the nearly 600,000 villages, only about three-fifths are known to be connected by all-weather roads at the end of the Eighth Plan.

    Wasted man hours, higher inventory costs for companies, and of course the huge fillip to pollution that the clutch-brake type of driving gives are only some of the intangible but extremely prohibitive costs of a bad and inconsistent transport system that Indians have put up with. The Rakesh Mohan Committee (1996) estimated that the economic cost of bad roads ranges from Rs.200 bn to Rs.300 bn annually over and above the Rs550 bn of social costs of the accidents caused by them.

    It all adds up to money, honey
    Roads occupy a crucial position in the transportation matrix of India as they carry nearly 65% of freight and 85% of passenger traffic. However, the government has been spending revenues raised from road transport in other spheres just 30% to 40% is re-invested as compared to a full 100% ploughed back by USA and Japan. It is estimated that the transport paid Rs.55 bn as taxes and the government spent Rs51 bn on the various schemes in FY05. The public sector outlay for road development in the First Plan was 6.7%. It dropped down to a mere 3% in the Eighth Plan. Investments in NHs went down from 1.4% of the total outlay to 0.6% in the same period.

    Even money allotted is not spent!
    Shortfall Road widening No. of Bridge
    (% of target) 2 lanes 4 lanes by-passes Construction
    9th Plan '97-'02 9 -16 -49 -30
    FY03 -14 -28 -43 -18
    FY04 -4 -64 -70 -32
    FY05 -14 -19 -58 -55
    FY06 -12 -3 -78 -39
    Source: Planning Commission

    Expenditure on roads is an investment leading to accelerated growth in every other sector. IDFC believes that for a sustainable 8% annual growth in GDP, Indian roads need to keep pace with a 9% growth not the sub-2% growth seen for most of the tenth plan period. Lack of building the arteries of growth will strangulate the profitability as well as the growth of the Indian economy if not tackled decisively, effectively and immediately.

     

     

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