10% cut in trade cost can spark extra $5.5 bn: Study

10% cut in trade cost can spark extra $5.5 bn: Study

Reducing the cost of trade by 10% has the potential to generate additional exports of 5-8%. The indirect and hidden costs of trade accrued from delays and unreliable transportation services amount to as much as 38-47% of total transport and logistics costs in India.

A study of pharma, textiles and garments, electronics, and auto components industry by Maersk-Confederation of Indian Industry across these four high-growth trade sectors can be reduced through prioritising digitisation, inland infrastructure development, an efficient regulatory environment and developmental training.

A 10% reduction can boost India's competitiveness and contribute additional revenues of up to $5.5 billion annually. 

"Expansion of trade is a key driver of economic growth. While we need timely and cost-effective transportation to support this expansion along with a robust policy, it is also critical to address challenges like inadequate inland infrastructure and indirect and hidden costs", said Mr Rajeeva Sinha, Co- Chair, CII National Committee on Ports & Shipping. 

"Our study analyses just how much socio-economic value could potentially be generated if India improves trade efficiency. Going a step further, we have identified segments where companies experience the most delays and also collaborated with business leaders to identify specific solutions to address these challenges most effectively," he said. 

Franck Dedenis, MD- India, Bangladesh & Sri Lanka Cluster, Maersk Line, said the outlook for global trade in 2017 remains weak. 

Real growth is expected between 1% and 2%. "In India, the growth in containerised cargo was 10% last year which was five times higher than the global growth," Dedenis told Business Standard. 

According to him, India has the opportunity to improve its share of global trade, especially in exports, through increased competitiveness and be probably the only country to deliver nearly double-digit growth in container trade this year. 

"Reducing costs by a fourth can substantially boost exports in just these sectors. But the solutions identified have the potential to benefit all export sectors and create a multiplier effect," he said.

The study also identified specific challenges, problem areas and proposed relevant solutions on the basis of inputs received through the survey conducted across the four sectors.

Though India jumped 16 places and now ranks 35 on the World Bank Logistics Performance Index, the cost trade is among the highest in the world.

Julian Bevis, senior director South Asia, Maersk, said, "Indian ports and terminals are well placed to deliver efficiencies and higher productivity. We believe terminals can collectively contribute better to lowering costs of trade with certain interventions such as market driven tariff regime, better rail connectivity from ports and reducing middlemen or increasing transparency in inland movement of cargo among others."

These solutions include regulatory documentation through development of digital tools for reducing time and red tape around documentation, faster clearance of goods, training to upgrade technical skills in compliance handling functions.