Economic and Environmental Challenges of India’s Transport Sector

This blog post is written by Shekhar Chandra, a brainstormer at Outline India. Shekhar has been associated with the Twelfth Plan Working Groups on Energy, Transport and Infrastructure Sectors while working as a Consultant to Dr. B.K. Chaturvedi, Member ( Energy) at the Planning Commission of India.

Blog_GraphThe pace of development after economic reforms has imposed heavy burden on the transport sector. The transport sector in India is marked by low transport efficiency, shortage of capacity, and congestion. As India marches towards becoming a middle income economy in coming decades accompanied by increased urbanisation, transport sector requirements are going to increase sharply.  The Planning Commission estimates that capacity needs are expected to double every decade in the medium term, which will require large step up in investment in capacity creation. It is estimated that the infrastructure sector will need investment of one trillion dollars in the Twelfth Plan, of which the major share will be of transport sector. India meets 57% of its freight transport requirements by roads and only 36% by rail, which in emission terms makes transport sector the fourth largest after electricity, industry and agriculture. The successive Assessment Reports of Intergovernmental Panel on Climate Change (IPCC) mention India vulnerable to climate change despite not contributing to historic global GHG emissions. This article argues that to promote faster and sustainable development of the transport sector, inter alia, requires investment in technologies, developing and implementing policies to increase share of freight transport using rail, coastal shipping and inland waterways and promote environment-friendly public transport.

1. Introduction

The transport system in India includes different modes like railways, roads, ports, inland water transport, shipping, including coastal shipping, airports, and airlines. Railways and roads are the dominant means of transport carrying more than 95% of total traffic generated in the country[1]. Although other modes such as coastal shipping and inland water transport are expected to play a prominent role in future, the railways and roads would still continue to dominate the transport landscape of the country.

To realize faster, sustainable, and more inclusive economic growth as enunciated by the Approach Paper to the Twelfth Plan, an efficient, safe, and regionally balanced transportation system is necessary. In this, each mode of transport operates in its field of economy and usefulness, with competitive and nondiscriminatory tariff structure that meets costs and generates enough surpluses to meet the expansion and modernization requirement. It is essential to develop various transport modes in an integrated manner. A high level National Transport Development Policy Committee was set up to develop a transport policy in the long-term perspective of two decades (2030) to facilitate efficient expansion of the transportation network in a manner that would help to minimize energy use. It would also place special attention to competitive pricing and coordination between alternative modes of transport. The resultant integrated policy framework is expected to provide the backdrop for the development of transportation in the Twelfth Plan.

 

2. Future Capacity Needs

The international experience shows that the requirements of transportation are likely to grow significantly faster than overall GDP growth. The per capita demand of transport capacity will grew at 10% – 11% in the next two decades. The per capita incomes will also go up. The Indian economy on the eve of the Twelfth Plan was characterized by strong macro fundamentals and good performance over the Eleventh Plan period. It, however, slowed down in 2011-12 with the last several quarters indicating a gradual slowing down of the economy. The average economic growth during Eleventh Plan, however, stood at 7.9%. The growth expectation for Twelfth Plan originally was planned at 9% in the Twelfth Plan Approach Paper. Owing to continued economic slowdown in world’s major economies, including Europe, and slowdown of our own economy, the growth target is now likely to be below 8.0%.

Expected income levels commensurate with different GDP growth rates are shown in Table 2. India’s GDP per capita (in current USD) at different growth rates will be between 6,426 and 7,656 respectively, while in PPP terms (at constant 2005 USD), it is projected at 13,823 and 16,469 respectively in the year 2030. Increasing per capita incomes and sustained high growth of GDP will lead to large requirement of both freight and passenger traffics. Higher incomes will lead to demand for improved quality, modern and efficient transport system.

Table 1: India’s Projected Income Levels and Economy Size

 

  Growth 2011* 2015 2020 2025 2030
GDP Per Capita (Current $) 8% 1,489 2026 2,977 4,373 6,426
9% 2102 3,234 4,976 7,656
GDP Per Capita, PPP (Constant 2005 International $) 8% 3,203 4,358 6,403 9,408 13,823
9% 4,521 6,957 10,704 16,469

*   World Bank Development Indicators, 2012.

 

2.1.    Passenger and Freight Traffic Requirements During Twelfth Plan

Good physical connectivity in the urban and rural areas is essential for economic growth. Since the early 1990s, India’s growing economy has witnessed a rise in demand for transport infrastructure and services. However, the sector has not been able to keep pace with rising demand. Major improvements in the sector are required to support the country’s continued economic growth and help faster economic growth essential for reduced poverty.

Railway freight traffic elasticity is computed to be around 1.3 during the Eleventh Plan. Civil aviation has grown by nearly 20 per cent per annum in the Eleventh Plan. Road traffic volumes, as measured by the consumption of automotive fuel, have grown by about the same rate as overall GDP. The expansion of urban centers has triggered an enormous demand for dependable urban mass transit and several cities are seeking to emulate the experience of Delhi by building a city Metro. International trade volumes have been growing faster than GDP in the first four years of the Eleventh Plan. While there is a slowdown in 2011-12, growth will pick up again as global economy revives. Sectoral capacities need to meet target growth rate of Twelfth Plan as estimated by the Planning Commission are shown in Table 2.

Table 2: Passenger and Freight Traffic Projections During Twelfth Five Year Plan
Traffic 2012-13 2016-17 CAGR (2012-17)
Rail Freight (million tonne) 1038 1405 7.86%
Passenger (million) 8868 11710 7.66%
Road Freight (billion tonne km) 1315 1835 8.69%
Passenger (million) 8150 11421 8.80%
Civil Aviation Passenger (million) 144 269 16.91%
Freight (MMTPA) 2.4 4.4 16.36%
Shipping Freight Traffic (million tonne) 970.60 1758.26 16.01%

Source: Planning Commission

 2.2  Urban Transport Requirements

Presently cities and towns contribute to more than 60% of the total ‘gross domestic product’ of India which is likely to grow to about 70% by the year 2030[2]. The urbanization is growing rapidly. From 28% population in urban areas in the year 2001, it is projected that by the year 2030 about 40% population i.e. about 600 million people would be living in urban areas (Table 3). For the cities to remain livable and be engines of economic growth, urban mobility issues need to be effectively addressed and the present gridlock in most of the big urban agglomerations needs to be immediately taken care to meet needs of proper mobility for all.

Recent studies, one each by McKinsey Global Institute and the ‘High Powered Expert Committee’ commissioned by Ministry of Urban Development of the Government of India have projected that mass rapid transit services and roads together require nearly more than 50% of the projected investment for urban services including housing in cities in India (More than Rs. one lakh crore per year for the next 20 years for urban transport).

To meet burgeoning needs of urban transport, the Twelfth Five Year Plan suggests (1) introduction of organized city bus service as per Urban Bus Specifications issued by Ministry of Urban Development of the Government of India in all cities with population above 2 lakh and state capitals (2) BRTS to be added at the rate of 20 km per one million population in 51 cities with population more than one million (3) adding rail transit at the rate of 10 km per million population starting with cities having population more than 2 million (4) expanding rail transit in existing mega cities (cities with population more than 4 million) at the rate of 10 km per year during next five years, and (5) providing suburban rail services in urban agglomerations with population more than 4 million.

 

Table 3: Urbanization in India
2011* 2015 2020 2025 2030
Urban Population in %** 31.16% 32.8% 34.8% 37.2% 39.8%
Urban Population in millions** 377.00 428.51 483.04 542.19 605.81

**Source: Population Division of the United Nations Secretariat, World Population Prospects: The 2010 Revision and World Urbanization Prospects

 3. Environmental Implications

In India majority (57%) of freight traffic is transported through road as compared to US (37%) and China (22%). While share of railways in freight transport is only 36% as against 48% in the US and 47% in China. The share of waterways in freight transport is also lower in India (6%) as compared to US (14%) and China (30%). Emissions in road transport (64 gCO2eq) are 2.28 times higher than railways and 4.27 times higher than waterways for each per ton km (Table 4).

 Table 4: Modal Share in Freight Transport
Mode share (percent of ton-km)1
Mode share 100% =5,275 billion ton km 100%=5,930 billion ton km 100%=1,325 billion ton km Emission per ton km gCO2eq
Air <1 <1 <1 >1000
Water 30 ~14 6 15
Rail 47 48 36 28
Road 22 37 57 64
China United States India

 

1.Share estimated for the year 2007; 2.Two-thirds of this is from coastal shipping and one-third of this is on inland waterways mainly the Yangtze river; Source: World Economic Forum: China Statistic Year Book; Planning Commission of India; NHAI; Indian Railways; DG, Shipping; Bureau of Transportation Statistics, US; Mckinsey

Transport sector in India is the fourth largest in terms of GHG emissions. International comparison shows that the transport sector CO2 emissions and energy consumption in India are substantially lower than other major world’s economies (Table 5). However, with massive expansion in transport infrastructure to meet development needs of the economy, energy consumption and emissions are likely to grow significantly in near future.

Table 5: Transport Sector Energy Consumption and CO2 Emissions
Country CO2 Emissions from Transport Sector Energy Consumption by the Transport Sector (quadrillion Btu)
2007 2008 2008 2035 CAGR (%)
India 118 132 2.0 8.7 5.6%
China 407 453 6.7 22.0 4.5%
US 1789 1692 28.0 32.0 0.50%

Source: World Bank Development Indicators, 2011

With growing awareness in international community about potentially adverse impact of climate change, countries have started rethinking about current model of economic development. It needs to be redeveloped consistent with sustained use of natural resources. The Intergovernmental Panel on Climate Change (IPCC) in its successive Assessment Reports (ARs) has asserted that some of the countries, including India, even though not responsible for historical GHG emissions are likely to be affected severely because of climate change. It notes that global average surface is likely to increase between 1.1-6.4 degree centigrade, depending on the development path world follows, by the end of the century. Consistent with its national policy and priorities, India is working along with other BRICS nations.

During COP-15 in Copenhagen, India voluntarily pledged 20-25% reduction in emission intensity by 2020. The Planning Commission of India constituted an Expert Group to suggest a roadmap to meet these targets. It has suggested sectoral reduction targets–categorized as determined efforts and aggressive efforts–to meet pledged reduction in overall emission intensity. The potential for reduction in transport sector is between 42-63 million tonnes for 8% economic growth and between 51-78 million tonnes for 9% economic growth (Table 6).

Table 6: Summary of Emissions Reduction from Transport Sector by 2020
Growth Rate Emissions at 8% GDP Growth (million tonnes of CO2) Emissions at 9% GDP Growth (million tonnes of CO2)
Scenarios Determined Efforts Aggressive Efforts Determined Efforts Aggressive Efforts
CO2 Emissions at 2007 norms 476 476 555 555
Reductions
Increase Freight Share of Railways 14 22 15 25
Non-Motorized & Public Transport 17 24 20 29
Fuel Efficiency of Vehicles 11 17 16 24
Total Reduction 42 63 51 78
Net Emissions by 2020 434 413 504 477

Source: Low Carbon Growth Strategy Committee, Planning Commission

 4. Investment Needs in Transport Sector

To meet expanding demands large investments will be needed in roads, railways, ports and civil aviation sectors for augmentation of capacities and modernization. The public sector is expected to continue to play an important role in building transport infrastructure. However, the resources needed are much larger than the public sector can provide and public investment will therefore, have to be supplemented by private sector investments, in Public-Private Partnership (PPP) mode. This strategy was followed in the Eleventh Plan and has begun to show results in both the Centre and the State sectors. This needs to be accelerated in the Twelfth Plan. Total investment in transport sector during Twelfth Five Year Plan is likely to be around 17.1 lakh crore (Table 7). It can have an upside.

Table 7: Infrastructure Investment requirements during Twelfth Five Year Plan (Rs. lakh crore at 2011-12 prices)
Sector Public Investment Private Investment Total Investment
Roads & Bridges 6.26 2.94 9.20
Railways (incl. MRTS) 4.37 1.21 5.58
Ports 0.22 1.39 1.61
Airports 0.15 0.56 0.71
Grand Total 11 6.1 17.1

 Source: Planning Commission

5. Conclusion

Investment in mitigating emissions from Transport Sector is required to promote sustainable development of the sector. Public transport needs to be promoted to avoid power congestion and overall costs increase transport efficiency and reduce emissions. With increasing development levels and higher growth levels will become costly as not only our energy import dependence is likely to go up but environmental cost will be included in it as well. Technology development, use and reduced costs of its application can help getting lower emissions. Solar energy cost reduction is one example of this possibility.

 

[1] Eleventh Plan, Planning Commission

[2] Working Group on Urbanization for the Twelfth Plan, Planning Commission

 

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