‘Only superior infrastructure can attract FDI into India’

IN this era of relentless globalization, dynamic, pulsating business environment, falling quantitative restrictions, appearance of freer international trading environment, diminishing distances, a proper logistics management with competitive edge that can ensure timely and reliable delivery of materials and a proper information technology system that can ensure faster and perfect coordination and planning of the project, can increase the efficiency, yield higher productivity many folds at a reduced cost, says Mr. Hemant Kanoria, Chairman, Infrastructure, Confederation of Indian Industry (Eastern Region). One of the greater challenges India is facing today perhaps is that of developing and deploying country’s infrastructure to keep pace with constant change that is revolving around the country, says Mr. Kanoria who is also the Managing Director of SREI, India’s leading infrastructure construction equipment and infrastructure project finance company.

AS:  In the backdrop of changing global economic scenario and India’s fitting into such an environment, where logistics is placed?

HK:  Logistics is of fundamental importance to any economy. Our fortune and our destiny is closely intervened with global trade and commerce. Trade and commerce is very much elixir of any country’s economy. Poised delicately at cross roads we face new challenges as the business environment acquires new dimensions and in such a changing scenario logistics and various aspects of logistics related functionalities assume great significance. Logistics embodies the effort to deliver the well known seven R’s- the right product in the right quantity and the right condition, at the right place, at the right time, for the right customer at the right cost. It requires excellent state of the art country infrastructure such as airports, seaports, roads, Internet and other IT related facilities like connectivity between different parties involved, automation of logistics and other finance related facilities.

AS:  To what extent do you think logistics is responsible for attracting foreign investment into various sectors?

HK:  Superior logistics infrastructure is a prerequisite for attracting multinationals into the country. The congestion at the ports, insufficiently developed air services, deficiencies in the road network are causing huge economic losses. They affect foreign investment decisions, which place a great premium on the infrastructure. A good logistics and supply chain management network will encourage more international partners to do business in the country. Relative competitive positions will also improve and organizations will be better equipped to cope with the challenging business environment. It can also be used to a bi-lateral advantage – good logistics and networking systems attracting international business to India and Indian supply chain management services expanding to major markets in Asia-Pacific, Africa and Latin America.

AS:  To what extent logistics influence the bottom line of a corporate entity?

HK:  If the logistics link in an interdependent series of operations is weak and cost-ineffective, the repercussions will be felt right down the chain. This simple process of delivering goods and services on time to the customer is critical to competitiveness. In the eternally churning world of global economy, Indian firms are increasingly out priced in the market as they find themselves unable to access competitively priced quality goods from global sources. When they sell or buy they have to sacrifice the margins available to other countries. Take for instance, import of coal from Australia to Japan costs US$ 5 per tonne, the cost of import of coal to Haldia from Australia comes to US$ 11 per tonne.

AS:  In India transportation accounts for the largest share in logistics cost which again largely depend on the state of related infrastructure like rail, roads, ports etc. How do you look at the present Indian government policy on Infrastructure?

HK:  Studies reveal that in India the total logistics costs constitute nearly 10 percent of the national GNP out of which nearly 40 percent is due to transportation alone. In the US, the estimates show that the cost is around 6 percent of the GNP. The major infrastructure required for moving goods from one place to another in India involve the active roles of Roads, Road Freight Industry, Railways, Ports & Shipping and Pipelines all of which are either managed or regulated by the government.

Availability of adequate infrastructure facilities is vital for the acceleration of the economic development of a country. One of the greater challenges India is facing today perhaps is that of developing and deploying country’s infrastructure to keep pace with constant change that is revolving around us.

India has one of the largest road networks in the world, Indian railways network is the second largest in the world. But all these are far from being the best. It is not just the quantity but also the quality and the comparative cost incurred which should be looked at. The Indian Government has accorded a high priority to investment in sectors such as the roads, railways, power, ports and airports. The Government has taken appreciable initiatives like building the golden quadrilateral but it is like a drop in the ocean. The industry is still coping with an inadequate and poor quality of infrastructure network and suffers from a near absence of technological improvements. All these act as economic bottleneck impending growth across industries.

In most of the cases, the infrastructure projects run into costly time and budget overruns which can be easily reined in through proper logistics management and co-ordination and automation of various activities comprising the project, since the principles of infrastructure project management are very similar to logistics management.

AS:  The development and maintenance of infrastructure calls for substantial and continuous deployment of funds. How to cope with this problem?

HK:  Achievement of high network connectivity is usually the first step in logistics development. The government of India should plough back the entire revenue generated from roads into road development like in advanced economies of US, Switzerland, Japan etc instead of the 30-40% which it currently does. It should strive not only to release adequate funds for road maintenance but also to ensure that proper maintenance is carried out. The call of the day is to deal with all the three segments of logistics – International Trade Logistics, Inter State Logistics, Retails Logistics with full thrust.

AS:  What is the scope of integrating Information Technology (IT) with logistics planning?

HK:  Information exchange mechanisms have brought about a significant change in the present logistic system globally. India is a globally acknowledged IT powerhouse and its super strengths in Telecom. This strength must be exploited by the Indian companies to develop specific capabilities in IT-enabled logistics such as the development and management of logistic planning and coordination systems to achieve Connectivity for Competitiveness. Interface between logistics and IT has potential for realization in India and will go a long way in boosting our economy. The logistics of production, distribution if driven by IT will definitely result in lower cost of production and reduced channel cost. Business needs to stay ahead of global logistics trends by having the solution that will help them increase their competitiveness. Development in logistics would lead to the development and competitiveness of our industrial sector.

Streamlining of logistics, to cut cost and bring greater productivity, is possible today by automating the entire value chain, use of internet, B2B e-commerce modules, ERP etc. We need to formulate an integrated strategy towards developing logistics and IT infrastructure to be at par with the international standards for logistics and its allied activities. For this, what we need is a planned phased approach. The government should consider spearheading the development of such systems which would make India competitive globally.

January 17, 2004

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