Time for a ministry of logistics
Source: By Michael Pinto: The Financial Express
So the first, hesitant steps to combine subjects that should not have been separated in the first case have been taken. In the new government’s Cabinet, corporate affairs has been brought under the finance ministry; culture and tourism are under one minister; overseas Indian affairs moves into the foreign ministry; power, coal and renewable energy will all come under one massive umbrella and the roads and shipping ministries get back together as they were in the past.
The importance of clubbing ministries that have organic links with each other and that should never have been separated at all can hardly be over-emphasised. Somehow, the impression has gathered ground that it is only coalition governments that increase the number of jobs needed to keep the boys happy. But ironically enough, it was T Anjaiah who—as the head of a single-party, Congress government in Andhra Pradesh many years ago—formed the country’s earliest jumbo cabinet with more than 60 ministers. The joke at the time went: In his desperation to find jobs for his ministers, he was all for splitting animal husbandry into two portfolios—one for animals, the other for husbandry—so that it could accommodate two ministers.
To be fair, the tendency to expand cabinet size to the maximum permitted under law was seen in both the UPA governments that ruled for the last 10 years as well as in the first NDA government. It was also the first NDA government that decided that the ministry of surface transport be bifurcated with roads and highways becoming a separate ministry.
The move to bring these departments and the shipping department back into one ministry must be applauded. Indeed, they should never have been separated in the first case. It was the mistaken belief that only a separate ministry could successfully handle the huge investment of more than R60,000 crores in the Golden Quadrilateral Project that led to the split. But a country’s road network is intimately linked with the development of its airports and seaports and its ability to move cargo in and out of such ports with speed and precision. Roads act as the vital link for the efficient movement of raw material at the lowest cost from the point of import to factories where they are used. They are equally crucial in the movement of finished products from the place of manufacture to the place where they will ultimately be consumed.
If this has now been recognised, it is a pity that the new government did not go a step further and bring other related service providers under the same ministry. More and more, it is being accepted that one important key to the revival of growth in the country is the need to reform our appalling record in the field of logistics. That India has still a great distance to go in this respect is beyond doubt. Reliable statistics show that logistics costs in the country stand at roughly 13.5% of GDP. The corresponding figure for advanced countries is 8%. And this when the secondary sector accounts for barely 15% of GDP. When that figure rises substantially—which it must if growth is to rise to 9-10%—the cost of logistics will only be higher and its effects on efficiency even more pronounced.
How can we control the spiraling costs of logistics in the country? Several things will have to be done but the first and most important is to bring some coherency in policy-making in this field. Today, logistics, as a subject, is dealt within several ministries, each with its own ideas of how to deliver transport solutions. Thus, decisions on roads were, till recently, taken in one ministry while decisions in respect of seaports were taken elsewhere. While that will now change, construction of vital rail links will be still be decided without reference to either roads or ports. Policy decisions on the movement of cargo by air, an essential aspect of logistics, will remain with the ministry of civil aviation.
This is not all. Containerised exim cargo must be handled in container freight stations (CFS) or inland container depots (ICD) located at different parts of the country. Since more and more cargo is being containerised, the role of CFSs and ICDs has gained in importance. Transactional costs rise or fall depending on how efficiently these agencies perform. But to get permission to set up a CFS you have to approach the ministry of commerce. They, in turn, will place your request before an empowered committee with members drawn from different ministries for decision. There is no fixed periodicity for meetings of this committee. Why a purely investment decision taken by a private company should require the approval of government is not clear; but what is even less clear is why this committee should be located in yet another ministry.
In every exercise to improve the policy framework, within which exim trade is conducted, Customs is the elephant in the room. While it is true that Customs must be closely involved in the business of import and export, the skill and innovativeness it brings to the handling of the entire operation is vital to the efficient movement of cargo. But Customs comes under the finance ministry and so another player comes into the reckoning.
How will we integrate decision-making in the complex task of moving exim cargo within the country if decisions regarding such movement are taken at several different places by separate independent authorities? There seems little doubt that the best solution would be to have a ministry for logistics, charged uniquely with this responsibility.
The problem with this solution is that it involves closing down a significant number of ministries and this is neither practical nor doable. But is it really necessary to wield the scalpel with such rigour? The nucleus of the logistics ministry will, of course, be the ministry of roads and shipping, but the railway ministry for instance, would continue to exist, looking after passenger transport, rolling stock, catering, safety, etc. It will be the limited area related to handling of cargo and the infrastructure thereof that will shift to the new ministry. Similarly, the ministry of civil aviation will look after passengers, airports, safety and the civil aviation administration in the form of the DGCA. Only matters relating to movement of cargo by air will go to the new ministry. The logistics ministry will frame policies for CFSs but everything else will remain with the commerce ministry.
The problem will arise with Customs which must remain with the ministry of finance. Here, also a formula could be worked out to lay down procedures at airports and sea-ports for cargo transport. Customs officers posted at such ports could be considered to be on deputation to the civil aviation or shipping ministry for the period of their stay there.
Implementing a radically new scheme could throw up other problems as well and perhaps the greatest of them will be resistance to such a major change. But all reform involves some re-vamp of the existing order and this must necessarily result in some pain. Brave rulers who are convinced of the merit of a proposal will bite the bullet.
So the first, hesitant steps to combine subjects that should not have been separated in the first case have been taken. In the new government’s Cabinet, corporate affairs has been brought under the finance ministry; culture and tourism are under one minister; overseas Indian affairs moves into the foreign ministry; power, coal and renewable energy will all come under one massive umbrella and the roads and shipping ministries get back together as they were in the past.
The importance of clubbing ministries that have organic links with each other and that should never have been separated at all can hardly be over-emphasised. Somehow, the impression has gathered ground that it is only coalition governments that increase the number of jobs needed to keep the boys happy. But ironically enough, it was T Anjaiah who—as the head of a single-party, Congress government in Andhra Pradesh many years ago—formed the country’s earliest jumbo cabinet with more than 60 ministers. The joke at the time went: In his desperation to find jobs for his ministers, he was all for splitting animal husbandry into two portfolios—one for animals, the other for husbandry—so that it could accommodate two ministers.
To be fair, the tendency to expand cabinet size to the maximum permitted under law was seen in both the UPA governments that ruled for the last 10 years as well as in the first NDA government. It was also the first NDA government that decided that the ministry of surface transport be bifurcated with roads and highways becoming a separate ministry.
The move to bring these departments and the shipping department back into one ministry must be applauded. Indeed, they should never have been separated in the first case. It was the mistaken belief that only a separate ministry could successfully handle the huge investment of more than R60,000 crores in the Golden Quadrilateral Project that led to the split. But a country’s road network is intimately linked with the development of its airports and seaports and its ability to move cargo in and out of such ports with speed and precision. Roads act as the vital link for the efficient movement of raw material at the lowest cost from the point of import to factories where they are used. They are equally crucial in the movement of finished products from the place of manufacture to the place where they will ultimately be consumed.
If this has now been recognised, it is a pity that the new government did not go a step further and bring other related service providers under the same ministry. More and more, it is being accepted that one important key to the revival of growth in the country is the need to reform our appalling record in the field of logistics. That India has still a great distance to go in this respect is beyond doubt. Reliable statistics show that logistics costs in the country stand at roughly 13.5% of GDP. The corresponding figure for advanced countries is 8%. And this when the secondary sector accounts for barely 15% of GDP. When that figure rises substantially—which it must if growth is to rise to 9-10%—the cost of logistics will only be higher and its effects on efficiency even more pronounced.
How can we control the spiraling costs of logistics in the country? Several things will have to be done but the first and most important is to bring some coherency in policy-making in this field. Today, logistics, as a subject, is dealt within several ministries, each with its own ideas of how to deliver transport solutions. Thus, decisions on roads were, till recently, taken in one ministry while decisions in respect of seaports were taken elsewhere. While that will now change, construction of vital rail links will be still be decided without reference to either roads or ports. Policy decisions on the movement of cargo by air, an essential aspect of logistics, will remain with the ministry of civil aviation.
This is not all. Containerised exim cargo must be handled in container freight stations (CFS) or inland container depots (ICD) located at different parts of the country. Since more and more cargo is being containerised, the role of CFSs and ICDs has gained in importance. Transactional costs rise or fall depending on how efficiently these agencies perform. But to get permission to set up a CFS you have to approach the ministry of commerce. They, in turn, will place your request before an empowered committee with members drawn from different ministries for decision. There is no fixed periodicity for meetings of this committee. Why a purely investment decision taken by a private company should require the approval of government is not clear; but what is even less clear is why this committee should be located in yet another ministry.
In every exercise to improve the policy framework, within which exim trade is conducted, Customs is the elephant in the room. While it is true that Customs must be closely involved in the business of import and export, the skill and innovativeness it brings to the handling of the entire operation is vital to the efficient movement of cargo. But Customs comes under the finance ministry and so another player comes into the reckoning.
How will we integrate decision-making in the complex task of moving exim cargo within the country if decisions regarding such movement are taken at several different places by separate independent authorities? There seems little doubt that the best solution would be to have a ministry for logistics, charged uniquely with this responsibility.
The problem with this solution is that it involves closing down a significant number of ministries and this is neither practical nor doable. But is it really necessary to wield the scalpel with such rigour? The nucleus of the logistics ministry will, of course, be the ministry of roads and shipping, but the railway ministry for instance, would continue to exist, looking after passenger transport, rolling stock, catering, safety, etc. It will be the limited area related to handling of cargo and the infrastructure thereof that will shift to the new ministry. Similarly, the ministry of civil aviation will look after passengers, airports, safety and the civil aviation administration in the form of the DGCA. Only matters relating to movement of cargo by air will go to the new ministry. The logistics ministry will frame policies for CFSs but everything else will remain with the commerce ministry.
The problem will arise with Customs which must remain with the ministry of finance. Here, also a formula could be worked out to lay down procedures at airports and sea-ports for cargo transport. Customs officers posted at such ports could be considered to be on deputation to the civil aviation or shipping ministry for the period of their stay there.
Implementing a radically new scheme could throw up other problems as well and perhaps the greatest of them will be resistance to such a major change. But all reform involves some re-vamp of the existing order and this must necessarily result in some pain. Brave rulers who are convinced of the merit of a proposal will bite the bullet.
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