Hard infrastructure has to be backed by soft infrastructure

Vivek Kele, President, Association of Multimodal Transport Operators of India, speaks on the initiatives that his entity is focusing upon, various taxation issues and the bottlenecks being faced by logistics players.

When do you expect GST to get implemented?
We should have had it 20 years ago, but we still don´t have it. It was thought of when the Congress was in power and it was the BJP which was the principal opponent to it. Now when the BJP is in power it is the Congress which is the principal opponent. Our national parties need to come to terms over what is good for our nation and leave their individual stands aside.

There have been numerous discussions about GST implementation. However, we specifically don´t have the infrastructure to take care of this. In terms of the physical movement of goods, the paperwork is going to come down, but when it comes to the reconciliations and the calculation of input credits and actual payment of taxation, I think it will take a good two-three years after the introduction of GST for it to settle down. The systems are not yet in place. GST also talks about one per cent extra levy for collection of the states and if this happens, it is going to be an additional burden. The third challenge is what is going to be the percentage of taxation? If you have to make the economy cost-effective, the incidence of taxation has to be appropriate in terms of the percentage of tax. These are the challenges we see in the GST.

Is there a comparison with Europe to understand how to implement this properly?
They don´t have a federal structure like we have in India. They addressed these issues long ago. After the foundation of the European Union, they went far ahead. The documentation, Customs formalities or taxation issues have been resolved under the European Union regime. So, it´s a process and we have to begin somewhere. The challenge in India is that we talk too much and we don´t act fast. Even then, actions are not well-thought out. Take the example of service tax. The logistics industry is facing the huge brunt in the way service tax is implemented. Compounded with this, from June 1 onwards, there is going to be a service tax on imports. Nowhere else in the world is there taxation on freight. We are talking about promoting Make in India, competition of Indian goods and ease of doing business, but with these anomalies in taxation, it is very difficult for anybody, especially the business community, to conduct business in a comfortable environment. If the government is looking at revenue, they can probably increase the overall taxation by half a per cent. The impact is not, from what we understand, going to be more than Rs.50 to Rs.100 crore with this taxation on merchant trade. However, the amount of paperwork it is going to create is going to give negative marks to the government on their ease of business parameter.

Tell us the impact of the congestion at ports on logistics.
The congestion at ports is because the port is controlled by the port authority and the area outside the port is controlled by some other authority. About 30-40 km away from the port, in the periphery, if there is no economic activity, then the port can function effectively. That´s because the evacuation as well as the inflow don´t face any problems or influencing factors that disturb the traffic movement to and from the port. However, what has happened over time is that the economic activity around the port has increased. Due to this, as well as the fact that there are two different authorities who control these areas – the port is controlled by the port trust or private terminals by their own private terminal managements – and the area outside is controlled by the municipal corporation, there is no unity of command. Everybody is trying to protect their own turf and there is a challenge between priorities that both authorities face.

Are there any infrastructure shortcomings at the ports?
Well, infrastructure inside the port is sometimes good but when the cargo comes out, are there roads available to carry it? Who is in charge of the traffic? Who is in charge of encroachments? Even if there are roads, are they encroachment-free? The port does not have control over all these factors. The second challenge is that the government has, over time, given a lot of concessions to operators for the development of private terminals. These concession arrangements are of varying types, depending at what point of time you worked and in which year you got into the concession agreement. Typically, earlier, the government used to operate on the landlord model. Subsequently, it got into the railway-sharing model. Different terminal operators are governed by different managements. These arrangements do not have provisions in terms of control of efficiency, equipment availability, control of traffic, implementation of systems and other factors. The arrangements are only limited to the extent of availability of land, revenue sharing and some other aspects. Performance aspects are not enshrined into these arrangements. This is the reason the government does not have any control over these private terminals and because of that, private terminals function in their own style….

Surely, they would function in the interests of efficiency and performance?
Not necessarily. It depends on what kind of concession arrangement they have with the government. From what we hear – and of course, this needs to be validated – the more certain port terminals perform, there is less incentive for them because they end up paying more to the government. They may not be interested in achieving the most efficiency. Moreover, there are challenges of investments. A lot of port terminals are working with age-old equipment that are not functioning properly.

Where are we placed today as far as intermodal transport is concerned?
First, one needs to understand that any infrastructure project takes time. The challenge is in land acquisition. If you see the Dedicated Freight Corridor, for the last leg at JNPT, they acquired the land only two months ago while the DFC was envisaged some years ago! So, it will take time but of course, it is in the right direction. Now, with regard to how to bring the costs down, large movement can only be done using the rail network. What we have seen is that the rail network is not available for movement of freight. You cannot have scheduled trains running or freight trains running because there is always a priority for passenger trains, not only in terms of availability of the tracks, but also in terms of the pricing.

What has happened is we have artificially made rail transportation more expensive than road transportation. Globally, the benchmark of movement by rail is 600 km. Anything above 600 km is cheaper to move by rail. However, in India, we have seen, especially for lighter cargo up to 1,000 km, it is cheaper to move the cargo by road. That is the anomaly in the pricing. This is the reason the government thought of setting up a DFC so that there is a separate corridor available.

The question is, how do you make it competitive? What we understand is if the DFC is used to its best potential, the cost can come down as low as 40 per cent to the existing cost. Whether the government or the DFC authorities are going to pass on the benefits is still up in the air because the pricing is with the Indian Railways. What we have seen traditionally is freight has always been used to subsidise passenger traffic. Will the government still continue with this particular policy? Another challenge of intermodal transportation is that the hard infrastructure has to be backed by a soft infrastructure. In India, we love paper! Of course, with GST coming in, a lot of paper will go away but still, many companies or government organisations require printed forms.

What we, as the multimodal transport body are advocating is implementation of a cargo community system by which all the logistics players will be on a common platform. Over time, we have seen in banking and specifically the financial sector, most transactions are paperless and now online. Can we do that in the logistics sector also? Can we get all the players on a common platform? The answer is yes. Can we do it today? Yes, but it will take between five to 10 years for it to get implemented and achieve an overall paperless environment. We need to make a beginning and this has to be made somewhere. As I began this interview by saying, just like with GST, unless you make a beginning, you won´t know what are the challenges that you have. Subsequently, you can keep on fine-tuning and over time reach a state of a paperless environment.

– Rouhan Sharma