In a developing country like India, transport demand normally increases faster than the growth in the gross domestic product. During the past decade, the Indian economy grew by seven to eight per cent and its transport demand grew by about 10%. The rate of growth, however, has varied by mode reflecting the structural changes in the economy and thereby the demand for different modes as well as the effect of changes in some supply side variables, which include better provisioning of facilities, quicker and reliable delivery of services, etc.

With the slowdown in the global economy and the resultant effects on the domestic front, an emerging feeling is that very soon there would be signs of a slowdown on the transport front also though it is recognized that such an effect need not necessarily be uniform across modes. Given this background, let us examine the prospects for the transport sector in India in the years to come.

Though the transport infrastructure (including services) has been significantly expanded during the past decades to meet the increasing requirements, it is felt that the sector has not responded to the requirements in an efficient way. For a long time, supply procedures prevented fuller utilization of capacity on the system. As a result, the substantial surpluses required for expansion of facilities and services could not be generated. Only in recent years that an organization such as the Indian Railways has been able to achieve a large surplus by utilizing existing facilities better.

Some non-conventional thinking and a strong commitment to follow the road less travelled has made it possible to exploit the inherent economies of scale that were waiting to be tapped all these years. And this has happened both in freight and passenger movement. To sustain this performance, elaborate plans have been drawn up for investment that focuses on high density routes like the dedicated freight corridors exclusively for freight movement which provide the bread and butter for railways.

The formation of a strategic business unit within the organization that would deal with the crucial bulk movement business is expected to place the railways soon in a position to be able to prevent more diversion to the roads if not as an aid to a reversal of some movements to the railways. Though some shortfalls (in particular movements) are expected, the overall situation is likely to be better with greater surpluses being generated. With certain additional facilities in place in the next few years, the long term growth path of the railways appears to have been well charted out.

The past few decades have seen a major shift in modal split in favour of the highways with the road transport system emerging as dominant part of India's transport system. However, the industry has been finding it increasingly difficult to meet emerging requirements in an efficient way.

A major problem has been the sheer inadequacies (both in terms of quantity and quality) of the road network. With the proposed upgradation of the major arteries in the country, it was expected that the sector would handle requirements adequately. The different phases of the National Highway Development Programme (NHDP) and various schemes for expansion and upgradation of other categories of roads have witnessed short falls in terms of achieving targets.

A basic problem has been the finalisation of contracts for implementation due to some changes in the policy framework. However, one important index for measuring the efficiency of a transport system is its adequacy of use of a facility. Adequacy is not merely influenced by the size of the fleet in operation and the size of the network but much more importantly by whether a given fleet moves frees without restraints so that its effective capacity is utilized and hence productivity enhanced during a given period of time.

In the Indian context, the smooth flow of road goods traffic is hampered by frequent detentions of vehicles for one reason or the other at various check points and mid way. Vehicles are detained for checking essential documents such as registration book, driving license, permits, etc. (RTO checking). They are also detained for checking payment of commercial taxes such as sales tax, octroi, other local levies. In addition, detentions take place for booking traffic rule violations (police checking) and also at state borders (border post checking). The consequences of detention of vehicles are loss of time leading to under utilisation of truck capacity, avoidable consumption of fuel (due to deceleration and acceleration, stopping and restart of engines) and lastly, corruption and graft.

Moreover, the emergence of excess freight capacity in the past decade have resulted not only in reduced demand for commercial vehicles at all levels but also reduced freight realization for the operator. This has happened despite the boom in the economy. But it is an emerging feeling that the organization of the structure of the road goods transport industry as well as some unimaginative policy measures and tardy implementation of even the limited but fairly well-designed regulatory measures have resulted in inefficient provision of services which when viewed in the context of a liberalized and globalized framework of economic activities affects competitiveness.

With some restructuring of the industry in terms of consolidation of activities and plans for seamless movement across state borders, it is expected that costs of operation would go down (increase in efficiency) thereby bringing down freight rates still further. This could provide the impetus to demand for services as well as for vehicles.

On the maritime front, no doubt, the global slowdown would be felt in terms of the effects on ports and shipping. This is unavoidable. But given the lack of capacity at some of the major ports has impeded exports, it is recognized that this would be the right time to implement the various investment plans for ports so that when the upturn comes, the ports are in a position to handle the increased requirements far more efficiently than is being done at present.

However, questions have been raised about the effective implementation of procedures at the ground level in the ports and those related to shipping. Given the tardy implementation, it is feared that India's trade position would not improve despite the fact that we are otherwise competitive.

Further, the lack of efficient intermediaries in aiding effective movement contributes to the high freight costs. Freight intermediaries link the international supply chain by facilitating market access for exporters. Presently, nearly 80% of the world's cargo passes through the hands of freight intermediaries. The market for freight intermediaries determines the number and type of agents as well as their efficiency.

Movement of goods between ports and remote regions requires freight intermediaries that are intermodal savvy and capable of integrating domestic and international forwarding services. Given recent attempts to overcome these problems, it is likely that the maritime transport scenario would be far more favourable from the point of view of the international trade regime.

The demand for air travel has seen an upsurge in the past decade or so with a number of players entering the services market. The first phase began in the early 90s but slowed down considerably with quite a number exiting the industry in the face of resistance to high fares which have been charged on the basis of the traditional framework which assume a low utilization of the capacity. The continuation of some players who survived resulted in a cartel like situation where the dominant player provided the leadership.

However, over a period of time, collusive arrangements broke down and many forms of price and cost cutting methods have emerged. With increases in costs especially of fuel, strategies of low fares to attract the lower income groups have reduced margins (or even resulted in losses). Airlines are beginning to realize that their clientele is limited, though, expanding slowly and that there is a need to meet this group's requirements in a far more satisfactory manner.

In the case of airports, it is presently observed that there is in an adequate supply of services especially in the major airports which have seen a tremendous expansion of services. With some of the investment plans being implemented, the gap is expected to be reduced though not eliminated. This is an area of concern since the implications of inadequate airport capacity can be manifold and expensive to bear.

When the reform process began in many countries, in the context of the transport sector, it was felt that a lot could be achieved by simply focusing on improving the efficiency and productivity of individual transport modes. However, given rapid increases in international trade movements, it was felt that only an integrated strategy involving all modes could be effective. In the absence of such an approach, there were major impediments including lack of competitive neutrality across transport modes, low quality and capacity of inter-modal connections etc.

It has been further pointed out that current institutional arrangements do not appear to have provided the level of co-ordination and co-operation between modal jurisdictions needed to address certain issues. The traditional compartmentalized approach has, it is held, left a legacy of distortions that have created modal biases. The most commonly cited example is overuse of and excessive investment in road transport had the expense of rail. What needs to be emphasized is a required focus on development of a multi-modal freight transport system which can lead to improved productivity through eliminations of the bottlenecks.

In other words, we must move away from development and investment decision-making based on segmented modes and many tiers of management to an integrated nationally consistent multi-modal approach. This is an important measure which would help ensure that the mix of transport modes reflects the intrinsic efficiency of the different modes compared to current government policies and regulations that favored one mode to other.

The current compartmentalized approach to decision making that has characterized much of India's transport and related policies has left a legacy of distortions with the most striking one being the overuse and excessive investment in road transport at the expense of rail though the extent and significance of such distortions can be debated. This trend needs to be reversed.

Coming to the urban transport scenario, there is a mixed feeling. Attempts to put in place mass transit systems in the metropolitan cities (though belated) are useful and are to be encouraged. At the same time, it must be recognized that no attempts have been made to operate existing services more efficiently. New schemes to provide finances to urban bodies while attempting to promote transit systems  have not focused on reforms aimed at better utilization of existing capacity, more effective pricing strategies, etc which could  provide the basis for higher capacities on the existing network. While supply based responses are required, it is more important to look at demand considerations from a long-run point of view as well as short run measures in terms of demand management measures.

The focus ought to be on movement of people rather than movement of vehicles. Such a strategy is to be tried out on a trial basis in Mumbai and other major cities. As far as the lesser order cities are concerned, it is important to promote the bus system in a significant way so as to prevent people from using their own vehicles. This may be the trend in many of our cities since such a strategy seems to be working well in cities like Vadodara, Indore, Surat which have taken the lead in such initiatives. This is, no doubt, a supply based response but it is also a demand constraining solution.

Dr Sriraman is a Walchand Hirachand Professor of Transport Economics at Department of Economics, University of Mumbai