Logistics in India and China:
A Comparative Study
B.S. Sahay1, Martha Cooper2 and Arif Khan3
Abstract
Complex market chemistry and high volatility are forcing, nations, to look beyond their geographical boundaries to sustained and excel. India and China have undergone tremendous changes in the past decades to achieve good economic performance. Good economic performance depends on an effective and efficient logistics infrastructure. An efficient logistics infrastructure increases a nation’s competitiveness and its ability to attract foreign direct investment, which can help in economic growth of nation. India and China spend close to 14.5% of their gross domestic product (GDP) in logistics infrastructure. If a nation lacks a reliable network of dependable transportation, telecommunication, warehousing and other related infrastructure firm will be restricted from designing an efficient logistics strategy for proper distribution of goods and services. This paper compares the logistics infrastructure in India and China and suggests way to improve Indian economy by improving logistics infrastructure.
Economic Over-view of India and China
Integration of the economies of the world poses before nations, opportunities to be exploited and threats to be countered. Today, there are opportunities in terms of access to large markets for export and import, access to high level of technology, access to foreign capital both to fuel growth and to finance the infrastructure projects. The threats are of managing the finances of the nation as the international capital is highly volatile and overnight outflow may cause havoc for the economy.
India and China faced similar opportunities and threats when they started integrating their economies with the world economy. While China opened up its economy way back in late 1970s, India did so only in the early 1990s. The Chinese economy grew by an average growth rate of around 10%. The Indian economy increased its growth rate but not to that significant a level and average growth rate languished between 5 % to 6 %. This boosted China’s share in world trade to 3%, whereas India has its share languishing at 0.5%.
Table 1 shows some indicators through which economic comparison can be done between India and China[1].
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- Institute of Management Technology, Raj Nagar, Ghaziabad 210 001 India. E-mail:
- Fishers Business School, Ohio State University, Columbus, USA. E-mail:
- Management Development Institute, Mehrauli Road, Gurgaon 120 001, India, E-mail:
Table 1: Economic indicators of India and China
Economic Indicators / India / ChinaGross Domestic Product ($ bn US) / 430 / 1090
Share in GDP (%)
Agriculture % / 27 / 16
Industry % / 27 / 49
Services % / 46 / 34
Gross National Product ($ bn US) / 429 / 1076
Per capita GNP ($ US) / 458 / 849
Fiscal Deficit / 5.3% / 3.0%
Forex Reserves ($ billion) / 54.0 / 170.5
Foreign Direct Investment ($ bn US) / 2.12 / 41.23
Exports ($ bn US) / 45.5 / 251.7
As a % of World Exports / 0.6 / 4.0
Imports ($ bn US) / 52.0 / 227.4
Commercial lending rate / 11% / 6.4%
Inflation / 5.4% / 2.0 %
Source: Statistical Outline of India (2001-02)
A comparison of economic indicators of China and India reveals the superiority of the dragon over the elephant. Table highlights that the GDP of China is more than twice of India- 1090 Vs 430, while 15 years ago the GDP per head was essentially the same. This is why the people from India are very interested and intrigued and challenged by what is happening in China. Between 1986 and 1999 the GDP growth rate of China was maintained at a pace that made for a wide gap with India’s. During 1996 to 98China’s average growth rate was 74% higher than India’s rate, but this gap narrowed to 8% during 1996-1999. If we compare per capita income, it was about the same in 1980 for both countries, had diverged in the two decades that followed. India’s per capita income measured in PPP was 54% higher than China’s in 1952, but in 1980 the gap was 86% in favor of China. Besides this, Foreign Direct Investment in India is not even one tenth of that of China. China has had an impressive growth in exports since 1980. At the present level China’s percentage in World export is around 6.5 times of India. China is ahead in the export of service, which is expected to be a lead factor in the new millenium. At $24.52 billion Chinese export of services is 2.82 times the level of Indian exports of services. So, at present there is without doubt an unambiguous and large gap in the lead of China over India in overall globalization. And surprisingly, therefore, an open democratic market economy- India- has to make special efforts to catch-up with a controlled communist “social market” economy- China- and that too ironically the area of globalization. When we analyze all these economic facts about India and China the obvious question is “what did China do to exploit the opportunities that India could not, although both the countries share similarities in demography and natural resources?” As discussed earlier, one of the important challenges seems to be providing sound logistics infrastructure in terms of Transportation, Communication, Warehousing etc. for efficient and assured movement of material and services, which has direct bearing particularly on FDI and exports. For better understanding of this paper, it is presented in various sections, in the coming sections of this paper, we will describe the role of logistics on growth of economy and in later sections there will be a comparison of India’s and China’s logistics infrastructure. At the last various solutions are suggested to improve the logistics infrastructure of India.
Role of Logistics on Economic Growth
Logistics decisions affect the other sub-functions and there is a close linkage among these functions, so logistics decisions can not be made in vacuum. The importance of logistics decisions can also be seen by looking its impact on the nation’s economy. Currently the average Indian Company spends between 12 to 15 percent of its revenues on logistics. The better companies spend around 6 to 7 percent . This however, compares, poorly with the international companies that spend about 2.5 percent of revenues. Thus, the kind of saving possible in Indian firms, which ultimately will help in economic growth. India spends nearly 13 percent of its GDP on logistics. Transportation and inventory cost constitute over 50 percent of the value added in India. Worldwide logistics costs have decreased from 12.2 percent in year 1992 to 11.7 percent as a result of better supply chain management. There is definitely scope for improvement in India for reducing logistics cost through better supply chain design, inventory management and other operations. Logistics cost is a key element of the total product/service cost offered by an organization.[2]. Table 2 highlights the Industry wise logistics cost in India:
Table 2: Industry Wise Logistics Costs in India
Industry / Sales($ million) / Value Added
($ million) / Logistics Cost ($ million) / LC/VA
% / LC/Sales
%
Food and Beverage
Textile
Chemicals
Non Metals
Metals
Machinery
Transport
Misc. Manufacturing / 7662.8
7744.7
42314.4
3524.5
13332.5
13263.0
8930.4
1882.4 / 3703.0
3240.7
17519.5
2495.8
6732.0
6201.8
3958.1
975.0 / 518.1
281.3
1812.6
456.8
759.1
303.2
176.0
88.5 / 13.99
8.66
10.35
18.30
11.29
4.89
4.45
9.08 / 6.81
3.63
4.28
12.96
5.69
2.29
1.97
4.70
Non Diversified
Diversified / 98634.0
1158.0 / 44827.0
5587.8 / 4396.4
664.3 / 9.81
11.89 / 4.45
5.74
Total / 110217.6 / 50414.9 / 5060.8 / 10.04 / 4.59
Table 2 show industry wise estimates of logistics costs using CMIE database. The aggregate industrial Logistics cost is 4.59 percent of the industrial sales and 10.04 percent of the industrial value added. These estimates do not include logistics related costs in non-industrial sector and opportunity cost due to lost customers. Structurally, the chemical sector accounts for highest (35.8%) fraction of the total industrial logistics cost and miscellaneous manufacturing accounts for the lowest (1.75%) fraction of the total logistics cost. Similarly table 4 show the important components of logistics cost in India
Table 3: Logistics cost estimates in India
Serial No. / Description / Cost as % total1
2
3
4
5
6 / Transportation
Inventories
Losses
Packaging
Handling and Warehousing
Customer’s Shopping / 35
25
14
11
9
6
From the table it can be seen that, the major portion of logistics cost is associated with transportation and inventory management. Indian industries spend Rs 8325 crore on transportation only and Rs 5946 crore on inventory management, Rs 2616.44 on packaging and Rs 2140.72 crore on warehousing. Investment in transportation and distribution facilities not including public sources, is estimated to be in the hundreds of crore. Considering its assumption of land, labor, capital and its impact on the standard of living, logistics is clearly big business.
In the context, of China fast developing infrastructure construction and the great demand for mass socialized production give a huge space for the development of logistics in China. China’s logistics industries have developed rapidly since the start of the reform program. Now a days China has established integrated transportation system, including railway transportation, truck transportation, water carriage, aviation transportation and pipeline transportation. But from the aspect of the general level of development of logistics, china’s logistics industry is still in its beginning of development stage. Each element of logistics process is still separate and divided. Circulation cost accounts for a proportion of the total costs. Logistics industry has wide development space and large market potential. Modern logistics will be an important industry in economic development and a new sector of Chinese economic growth [3]. Experts attending the recent “Third China Logistics Economic Operation and Development Summit Forum” disclosed that, in China Logistics contribute about 20 percent of the gross domestic product (GDP) [4].
As a significant component of GDP, logistics affect the rate of inflation, interest rates, productivity, energy costs and availability and other aspects of the economy. Logistics also support the movement and flow of many economic transactions; it is an important activity in facilitating the sale of virtually all goods and services. To understand this role from a system perspective, consider if goods do not drive on time, customer can not buy them. If goods do not arrive in the proper place, or in the proper condition, no sale can be made and thus all economic activity throughout the supply chain will suffer. Globalization and integration of the economies of the world are forcing companies to look for minimum cost locations as a source for satisfying the demand world over. The transportation of the goods through the minimum cost distribution channel so as to maintain the cost advantage over the competitors is an important consideration when setting up plant in such a location. Logistics holds even more importance for the development of a country when the country is as big as China or diverse as India coupled with that the countries are in the developing phase. The requirement for the developing countries is not only efficient flow of material resources but also channeling of human resources to the required locations. A study by World Economic Forum and HarvardUniversity reveals that Indian logistics infrastructure is considered very poor as compared to other developed or developing nations. Study also reveals that Chinese infrastructure is better (ranked 46th among 59 nations) than India (ranked 54th), in spite of India’s better rail network and good road length. In the coming section of this paper we will compare the logistics infrastructure of India and China on the basis of Transportation, Communication and Warehousing.
Table 5: Global Competitiveness Ranks 2000
Parameters
/ India / ChinaGrowth Competitiveness Ranking / 49 / 41
Overall Infrastructure / 54 / 46
Roads / 56 / 43
Rail Roads / 25 / 32
Air Transport / 40 / 52
Port / 51 / 46
Telephone Services / 52 / 49
Cellular Telephone / 54 / 53
International Telephone Service / 53 / 54
Internet Access / 50 / 56
Rail Road Per Km Per Land Area / 15 / 30
Road Per Km Per Land Area / 2 / 26
Infrastructure Spending / 43 / 7
Availability of Information / 37 / 54
Comparison on the Basis of Transportation
India’s transport system- especially surface transport- has serious deficiencies; its services are, by international standards, highly inefficient. With the sector being so central to the effective operation of economy, poor transport has become a major drag on economic growth. Within India, infrastructure capacity constraints are widely claimed to be the main reason for the poor services of much of the main transport system. In table 6 comparison of transportation infrastructure is given between India and China[5].
Table 6: Transportation Infrastructure of India and China
Transportation Infrastructure / India / ChinaRailway- Total / 63693 Km (13771 electrified) / 67524 Km (including 5,400 Km of provincial “local” rail
Broad Gauge / 45103 Km / 63924 Km (13362 Km electrified; 20,250 Km double-track)
Narrow Gauge / 18590 Km (2001) / 3600 Km (1998 est.)
Highway- Total / 3,319,644 Km / 1,400,000 Km
Paved / 1,517,077 Km / 2,71,300 Km (with at least 16,000 Km of expressways)
Unpaved / 1,802,576 Km / 1,128,700 Km
Waterways / 16,180 Km (3,631 navigable by large vessels) / 110,000 Km
Pipe Line- Crude Oil / 3,005 km / 9,070 Km
Petroleum Products / 2687 Km / 560 Km
Natural Gas / 1,700 Km / 9,383 Km
Ports and Harbors / 7 / 18
Merchant Marine / 315 ships (1,000 GRT or over), totaling 6,433,831 GRT/10,691,973 DWT / 1,745 ships (1000 GRT or over),totaling 16,533,521 GRT/24,746,859 DWT
Air Ports- Total / 337 (2000 est.) / 489 (2000 est.)
With Paved Runway / 235 (2000 est.) / 324 (2000 est.)
With Unpaved Runway / 102 (2000 est.) / 165 (2000 est.)
Road Transportation
India has an extensive road network of 3.2 million Km. It comprises national highways (57,700 Km), state highways (124,300 Km), district roads, rural roads, urban roads and special purpose roads. In India road both private and public operators provide transport services. The private sector provides all trucking services and about 70 percent of intercity bus services. The remaining 30 percent of the intercity bus services are mainly provided by the state State Road Transport Corporations (SRTCs). The Geographic Coverage of India’s highway network, at 0.66 Km of highway per square Km of land area, is almost identical to the level of the UnitedState (0.65) and much higher than that of China (0.16), but India compares very poorly with these countries in terms of lane capacity and surface quality. China’s road network is smaller than India’s but it comprises over 15,000 Km four or six lane, access-controlled expressways linking the major cities, all built during the last ten years. In India, the major economic centers are not linked by expressways. Most national highways are two lane, single lane or intermediate lane; only 3000 Km are four lanes. Of State highways, one percent is four lane, 22 percent two lane and the rest single lane or intermediate lane. About a quarter of the highways are surfaced with blacktop or concrete, and a fifth are surface with water bound macadam. Besides it more than 25% of the national highways are in poor surface conditions.
In China, there has been a great leap forward in the construction of highway infrastructure, marked with the following five characteristics. The first one is the enormous increase of mileage. The total mileage of highway has surpassed 1.4 million km, among which 240,000 km were newly built in the five years. The second one is the rapid development of expressway construction. The total mileage of express way open to traffic has reached 16,000 km including 13,000 km built in the five years. The entire Beijing-Shenyang and Beijing-Shanghai Expressways have been put into operation, forming a grand highway transport corridor linking North China, Northeast China and South China. The third one is the accomplishment of a great number of highway bridges and long tunnels with the world's leading standards. The fourth one is the gradual optimization of the structure of highway network. 18,000 km of national trunk way were constructed in the past five years, which is more than half of the total mileage of the planned 'five north-south and seven east-west' national trunk way system, laying a solid foundation for the earlier realization of the plan. The mileage of Class II and above highways has been increased to 188,000 km, which almost doubles that in 1995 and its proportion to the total mileage has been increased from 8.3 percent to 13.4 percent. The proportion of highway with high class and sub-high class surface has reached 43.6 percent. The fifth one is the expansion of highway linked areas. In the past five years, 500 more counties and towns and 5,000 more administrative villages were connected with the other areas by highway. By the end of 2000, 98.34 percent of the total counties and towns and 90.6 percent of the administrative villages had highway connections.
Poor transport services impact the, Indian economy-and Indian society in general. An enormous amount of time, and therefore money is wasted because of the inefficient moving of people, goods and services. Economic losses in India from congestion and poor roads added up to 120 to 300 billion Rs a year[*]. Indian Infrastructure as a hindrance to business. Inefficient, unreliable logistics systems have also made India’s exports less competitive.
Railway Transportation
A rail based transportation system has both advantages and disadvantages. Freight transportation by rail is cheap and reliable. Though the construction of rail infrastructure is highly capital intensive, the operating expenses are much lower than road based transportation. Rail transportation doesn’t have door-to-door delivery system.
Railways have been a vital component of the social, political and economic life of the country. Railway’s transportation network has played a key role in weaving in to nation. This network has not only integrated markets but also people across the length and breadth of a nation. Indian Railway holds a prominent position in the public sector. Its revenues account for about one percent of GDP, and Indian Railway is also the Indian organization with the maximum number of employees, numbering 1.6 million. Indian Railways is managed by the railway Board and is divided in to nine zonal railways. From table 1 it can be seen that the India’s total operating railway mileage is 63,000 Km, about 44,000 Km are broad gauge and the rest are meter gauge. Only 15,000 Km are double or multi track. China’s mileage in railways network is 66,000 Km, among them, double tracking railways are 18,000 Km. Electrified route in India is around 13,770 Km, but in China it is 13,362 Km. In comparison of rail infrastructure Indian Railways is rated 25th as compared to China’s 32nd among 59 nations. The Indian Railroad network enjoys a superior quality rating (3.9) as compared with China (3.6). However, the better infrastructure for India seems to be a waste as far as logistics is concerned.
Indian railways not only facing capacity constraints on its high-density corridors, but its operations also suffer from maintenance backlog. Insufficient maintenance of rail track and rolling stock is leading to more accidents and train derailing, higher operating costs and lost revenue from suspended operations on the affected lines. For the past 20 years, freight trains have run at an average of 23 Km an hour; with electrification and modern locomotives the average speed should have increased to 40 to 50 Km an hour.InChina, to strengthen market competitiveness of railway network and raise its transport capacity, the speed of trains was twice increased on trunk railways, including the Beijing-Guangzhou Railway, Beijing-Shanghai Railway and Beijing-Harbin Railway. Now, the top speed of passenger trains has increased from 100 km an hour to 120-160 km, and the freight train top speed was raised from 60 km an hour to 80 km.