Transity Insights

The Tiger on the Move – India’s Increasing Transportation Spend
11

Dec

The Tiger on the Move – India’s Increasing Transportation Spend
 

Mobility has been on the rise in India. The context here is not of mobile technologies, which are being embraced at a much more rapid pace, but that of physical movement – of people and goods. Though I do not have specific data points to present, I think each one of us is travelling atleast twice as much distance as we used to a few years back. Now this travel could be for personal or business needs. Take a look at what you (individually or as a family) were spending on transportation 5 years back and today (of course after adjusting for inflation and gas prices). Or do a quick math to calculate the percentage of your annual income you spend on personal transportation. What’s your percentage? How does it look for you – OK or high?

Let’s take a quick look at some statistics that corroborate the premise that we are indeed traveling more than earlier –

A McKinsey report (Bird of Gold) published in 2007 mentions that transportation will be the second largest spend category at ~ 20% for Indian households in 2015, next only to Food category.

A BCG-CII report published in 2012, mentioned that transport is the third largest spend category in the country accounting for 18% of total consumption expenditure.

And on the goods transportation front, a CII – KPMG report estimates that Transportation & Logistics sector contributes to about ~`13% of the GDP, which is next only to healthcare, and the sector is expected to grow at about 14% (there being a ~2x relationship between GDP growth rates and transportation & logistics sector) through 2020.

Another way to get an idea of the amount of goods and people movement that happens in the country can be by taking a look at the fuel consumption in the country (non-energy sector). As per statistics released by PPAC (Petroleum Planning & Analysis Cell), petrol consumption in Sep 2015 grew by 25% and diesel consumption by 20% y-o-y. Since monthly data can be skewed, we can take a look at the five year average for the duration 2007-12 that PPAC has published – 10% for petrol and 9% for diesel. But then, how does this compare with global consumption?

As per BP report, global oil consumption increased by 840,000 barrels/day in 2014, with emerging economies accounting for all of the growth. China saw a below-average increase but still accounted for the largest increment to consumption (by 390,000 b/d). The other largest increases were Saudi Arabia (190,000 b/d), Brazil (180,000 b/d) and India (120,000 b/d, 7.1% increase). So India’s oil consumption increase is high when benchmarked with other countries globally.

What are the reasons for this increasing spend on transportation? We are commuting longer distances for work, we are taking more leisure trips than earlier, kids are traveling longer distances to reach school, businesses have become globalized and as a result out of town business trips have increased, we consume more goods than earlier, more developmental activities happening etc.

So, it looks like we as a nation are in fact on the move and spending a lot on transportation. But then the question arises – is the increasing spend on transportation an issue? Isn’t it an indication of progress of the nation? However, is all the spend translating into economic growth? I.e., are there any inefficiencies in the system that are preventing us from reaping desired benefits from this increasing spend? I will explore some of these questions in the next article. In the meantime, if you have any comments on this article or views on the questions posed, please feel free to post.




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