One of the biggest challenges in any emerging or fast growing economy is infrastructure. The Chinese have been superb at this. For example, the Pearl River Delta story starts with building up the clusters that delivered the roads, the railways and port connectivity. Manufacturing and textiles followed as market access (in/out) was sorted out. Exports exploded. Imports of vital resources were speeded up. The rest is history. The idea was to build capacity, supply would follow and demand would be triggered. Sustainable growth was the prize. Elsewhere, it is as if they build the house starting with the smoke coming out of the chimney.
This video illustrates just why logistics has to be enabled for any economy to be transformed at the grassroots and not just at the macro level. It takes place in Chennai, India. Let’s be clear – it could be elsewhere. It is a wake up call.
India will spend between $350 to $550 billion on infrastruture in the coming years. How much on the last mile? And how quickly? 95% of Indian exportsand nearly 70% in value terms are carried by sea and pass through the ports. The export-import (exim) trade has grown at an impressive compounded annual growth rate of 13.4% during the last ten years. Containerised traffic stands at 25% of exim trade and this will grow to 18m TEUs by 2013-14 in major ports. This is up from an estimated 8 m TEUS for 2008. And trucks move most of this through areas such as the ones highlighted on this video. Food for thought.
These infrastructure and port capacities will be challenged by India‘s explosive growth. The back story starts with how India has reformed its economy and opened up to the outside world in the past decade, its trade performance has risen dramatically. Two-way merchandise trade in the fiscal year to March 31, 2008 reached $414 billion, up more than 30 percent from the previous year. Trade in services added another $125 billion.
While imports occupy the biggest part of the trade picture, India’s export push is gathering serious momentum, tripling in value over the past five years, from $53 billion in 2002-03FY to $163 billion of merchandise in 2007-08FY.
But India is still working off a very low base, accounting for just 1.5 percent of global trade. For an economy that is now one of the largest in the world, it shows just how dominant India’s domestic focus has been, apart from a few high-profile export-oriented sectors such as information technology, IT-enabled services, pharmaceuticals, textiles and automotive components.
India’s goal is to lift its share of world trade to around 5 percent by 2020. To do that, it will need, for example, to dramatically improve its agricultural logistics and food processing capabilities to make the most of its potential as the world’s food basket. And when we consider the agricultural challenge we enter the area of the informal / formal market interface. Here we will focus the Ports. In other entries, we will turn to other aspects.
This is the point – Transformational Logistics could be developed to ensure that both the informal and formal elements of the economy are dealt with in a holistic manner. It is not enough to build connectivity and marginalise the people from these areas – who may well be the workforce you need and, whose homes may be the place where goods are actually made. This is where Transformational Logistics can become the toolbox to deal with the informal and formal agenda as one.
The informal economy is not an abstract concept. This video takes us on a journey along the roads that move through it, the lives that are led in it and the chaos that, if not resolved, can choke even the greatest of growth strategies in the formal economy. Policy needs to deal with reality – now; think far enough ahead to address likely scale – next; and deal with the constraints that get in the way of real needs – fast. Get it wrong and exports will be trapped; foreign investors will go elsewhere and career opportunities for the majority and not just for a few will fade.