UNIT 10
INDIAN ECONOMY
The development of transportation systems is embedded within the size and context during which they take place; from the local to the worldwide and from environmental, historical, technological and economic perspectives.
1. The Economic Importance of Transportation
Development are often defined as improving the welfare of a society through appropriate social, political and economic conditions. The expected outcomes are quantitative and qualitative improvements in human capital (e.g. Income and education levels) also as physical capital like infrastructures (utilities, transport, telecommunications).
The development of transportation systems takes place during a socioeconomic context. While development policies and methods tend to specialise in physical capital, recent years has seen a far better balance by including human capital issues. Regardless of the relative importance of physical versus human capital, development cannot occur without both interacting as infrastructures cannot remain effective without proper operations and maintenance while economic activities cannot happen without an infrastructure base. The highly transactional and service-oriented functions of the many transport activities underline the complex relationship between its physical and human capital needs. As an example , effective logistics both relies on infrastructures and managerial expertise.
Because of its intensive use of infrastructures, the transport sector is a crucial component of the economy and a standard tool used for development. This is often even more so during a global economy where economic opportunities are increasingly associated with the mobility of individuals and freight, including information and communication technologies. A relation between the number and quality of transport infrastructure and therefore the level of economic development is clear . High density transport infrastructure and highly connected networks are commonly related to high levels of development. When transport systems are efficient, they supply economic and social opportunities and benefits that end in positive multipliers effects like better accessibility to markets, employment and extra investments. When transport systems are deficient in terms of capacity or reliability, they will have an economic cost like reduced or missed opportunities and lower quality of life.
At the mixture level, efficient transportation reduces costs in many economic sectors, while inefficient transportation increases these costs. Additionally , the impacts of transportation aren't always intended and may have unforeseen or unintended consequences. As an example , congestion is usually an unintended consequence within the provision of free or low-cost transport infrastructure to the users. However, congestion is additionally the indication of a growing economy where capacity and infrastructure have difficulties maintaining with the rising mobility demands. Transport carries a crucial social and environmental load, which can't be neglected. Assessing the economic importance of transportation requires a categorization of the kinds of impacts it conveys. These involve core (the physical characteristics of transportation), operational and geographical dimensions:
Core. The foremost fundamental impacts of transportation relate to the physical capacity to convey passengers and goods and therefore the associated costs to support this mobility. This involves the setting of routes enabling new or existing interactions between economic entities.
Operational. Improvement within the time performance, notably in terms of reliability, also as reduced loss or damage. This suggests a far better utilization level of existing transportation assets benefiting its users as passengers and freight are conveyed sooner and with less delays.
Geographical. Access to a wider market base where economies of scale in production, distribution and consumption are often improved. Increases in productivity from the access to a bigger and more diverse base of inputs (raw materials, parts, energy or labor) and broader markets for diverse outputs (intermediate and finished goods). Another important geographical impact concerns the influence of transport on the situation of activities and its impacts ashore values.
The economic importance of the transportation industry can thus be assessed from a macroeconomic and microeconomic perspective:
At the macroeconomic level (the importance of transportation for an entire economy), transportation and therefore the mobility it confers are linked to A level of output, employment and income within a economy . In many developed countries, transportation accounts between 6% and 12% of the GDP. Watching a more comprehensive level to incorporate logistics costs, such costs can account between 6% and 25% of the GDP. Further, the worth of all transportation assets, including infrastructures and vehicles, can easily account for half the GDP of a complicated economy.
At the microeconomic level (the importance of transportation for specific parts of the economy) transportation is linked to producer, consumer and production costs. The importance of specific transport activities and infrastructure can thus be assessed for every sector of the economy. Usually, higher income levels are related to a greater share of transportation in consumption expenses. Transportation accounts on the average between 10% and 15% of household expenditures, while it accounts around 4% of the prices of every unit of output in manufacturing, but this figure varies greatly consistent with sub sectors.
Factors behind the event of Transport Systems
Services and their Associated Infrastructures
Economic Impacts of Transportation Infrastructure
Basic Location Factors
Share of Transport Costs in Product Prices and Average Haul Length
Employment in Transportation, us , 1990-2018
Share of Consumption by Sector and Income, Developing Countries, 2010
Transport Infrastructure Investment and Maintenance Spending as Share of GDP, 2015
Socioeconomic Benefits of Transportation
The added value and employment effects of transport services usually extend beyond those generated by that activity; indirect effects are salient. As an example , transportation companies purchase a neighborhood of their inputs (fuel, supplies, maintenance) from local suppliers. The assembly of those inputs generates additional value-added and employment within the local economy. The suppliers successively purchase goods and services from other local firms. There are further rounds of local re-spending which generate additional value-added and employment.
Similarly, households that receive income from employment in transport activities spend a number of their income on local goods and services. These purchases end in additional local jobs and added value. a number of the household income from these additional jobs is successively spent on local goods and services, thereby creating further jobs and income for local households.
As a results of these successive rounds of re-spending within the framework of local purchases, the general impact on the economy exceeds the initial round of output, income and employment generated by passenger and freight transport activities. Thus, from a general standpoint the economic impacts of transportation are often direct, indirect and induced:
Direct impacts. The result of improved capacity and efficiency where transport provides employment, added value, larger markets also as time and costs improvements. The general demand of an economy is increasing.
Indirect impacts. The result of improved accessibility and economies of scale. Indirect value-added and jobs are the results of local purchases by companies directly dependent upon transport activity. Transport activities are liable for a good range of indirect value-added and employment effects, through the linkages of transport with other economic sectors (e.g. Office supply firms, equipment and parts suppliers, maintenance and repair services, insurance companies, consulting and other business services).
Induced impacts. The result of the economic multiplier effects where the worth of commodities, goods or services drops and/or their variety increases. As an example , the industry requires cost efficient import of ore and coal for the blast furnaces and export activities for finished products like steel booms and coils. Manufacturers and shops and distribution centers handling imported containerized cargo believe efficient transport and seaport operations.
Transportation links together the factors of production during a complex web of relationships between producers and consumers. The result is usually a more efficient division of production by an exploitation of geographical comparative advantages, also because the means to develop economies of scale and scope. The productivity of space, capital and labor is thus enhanced with the efficiency of distribution and private mobility. Economic process is increasingly linked with transport developments, namely infrastructures, but also with managerial expertise, which is crucial for logistics. Thus, although transportation is an infrastructure intensive activity, hard assets must be supported by an array of sentimental assets, namely labor, management and knowledge systems. Decisions must be made about the way to use and operate transportation systems during a manner that optimize benefits and minimize costs and inconvenience.
2. Transportation and Economic Opportunities
Transportation developments that have taken place since the start of the economic revolution are linked to growing economic opportunities. At each stage of societal development, a specific transport technology has been developed or adapted with an array of impacts. Transportation influences the economic opportunities of production and consumption. Historically, five major waves of economic development where a selected transport technology created new economic, market and social opportunities are often suggested:
Seaports. Technological and commercial developments have incited a greater reliance on the oceans as an economic and circulation space. Seaports were related to the first stages of European expansion from the 16th to the 18th centuries, commonly referred to as the age of exploration. They supported the first development of international trade through colonial empires but were constrained by limited inland access. Later within the technological revolution , many ports became important heavy industrial platforms. With globalization and containerization, seaports increased their importance as a support to international trade and global supply chains. Simple economies are usually related to bulk cargoes while complex economies generate more containerized flows.
Rivers and canals. River trade has prevailed through history and even canals were built where no significant altitude change existed, since lock technology was rudimentary. The primary stage of the economic revolution within the late 18th and early 19th centuries was linked with the event of canal systems with locks in Western Europe and North America, mainly to move heavy goods. This permitted the event of rudimentary and constrained inland distribution systems, many of which are still used today.
Railways. The second stage of commercial revolution within the 19th century was linked with the event and implementation of rail systems enabling more flexible and high capacity inland transportation systems. This opened substantial economic and social opportunities through the extraction of resources, the settlement of regions and therefore the growing mobility of freight and passengers.
Roads. The 20th century saw the rapid development of comprehensive road transportation systems, like national highway systems, and of automobile manufacturing as a serious economic sector. Individual transportation became widely available to mid income social classes, particularly after the Second war . This was related to significant economic opportunities to service industrial and commercial markets with reliable door-to-door deliveries. The car also permitted new sorts of social opportunities, particularly with suburbanization.
Airways and knowledge technologies. The last half of the 20th century saw the event of worldwide air and telecommunication networks in conjunction with economic globalization. New organizational and managerial forms became possible, especially within the rapidly developing realm of logistics and provide chain management. Although maritime transportation is that the physical linchpin of globalization, air transport and IT support the accelerated mobility of passengers, specialized cargoes and their associated information flows.
No single transport mode has been solely liable for economic process . Instead, modes are linked with the economic functions they support and therefore the geography during which growth was happening . The primary trade routes established a rudimentary system of distribution and transactions that might eventually be expanded by long distance maritime shipping networks and therefore the setting of the primary multinational corporations managing these flows. Major flows of international migration that occurred since the 18th century were linked with the expansion of international and continental transport systems that radically shaped emerging economies like in North America and Australia. Transport played a catalytic role in these migrations, transforming the economic and social geography of the many nations.
Transportation has been a tool of territorial control and exploitation, particularly during the colonial era where resource-based transport systems supported the extraction of commodities within the developing world and forwarded them to the industrializing nations of the time. The goal to capture resource and market opportunities was a robust impetus within the setting and structure of transport networks. More recently, port development, particularly container ports, has been of strategic interest as a tool of integration to the worldwide economy because the case of China illustrates. There's an immediate relationship, or coordination, between foreign trade and container port volumes, so container port development is usually seen as a tool to capture the opportunities brought by globalization. The expansion of container shipping has systematically been 3 to 4 times the speed of GDP growth, underlining a big multiplier effect between economic process and container trade. However, this multiplying effect has substantially receded since 2009, underlining a maturity of the diffusion of containerization and its dissociation from economic process .
Due to demographic pressures and urbanization, developing economies are characterized by a mismatch between limited supply and growing demand for transport infrastructure. While some regions enjoy the event of transport systems, others are often marginalized by a group of conditions during which inadequate transportation plays a task . Transport by itself isn't a sufficient condition for development. However, the shortage of transport infrastructures are often a constraining factor on development. The shortage of transportation infrastructures and regulatory impediments are jointly impacting economic development by conferring higher transport costs, but also delays rendering supply chain management unreliable. A poor transport service level can negatively affect the competitiveness of regions and their economic activities and thus have a negative impact on the regional added value, economic opportunities and employment. Tools and measures are being developed to assess and compare the performance of national transportation systems. As an example , the planet Bank published in 2007 its first ever report which ranked nations consistent with their logistics performance supported the Logistics Performance Index. Logistic performance is usually related to economic opportunities.
3. Economic Returns of Transport Investments
A common expectation is that transport investments will generate economic returns, which on the end of the day should justify the initial capital commitment. Like most infrastructure projects, transportation infrastructure can generate 5 to twenty annual return on the capital invested, with such figures often wont to promote and justify investments. However, transport investments tend to possess declining marginal returns (diminishing returns). While initial infrastructure investments tend to possess a high return since they supply a completely new range of mobility options, the more the system is developed, the more likely additional investment would end in lower returns. At some point, the marginal returns are often on the brink of zero or maybe negative. a standard fallacy is assuming that additional transport investments will have an identical multiplying effect than the initial investments had, which may cause capital misallocation. The foremost common reasons for the declining marginal returns of transport investments are:
High accumulation of existing infrastructure. During a context of high level of accessibility and transportation networks that are already extensive, further investments usually end in marginal improvements. This suggests that the economic impacts of transport investments tend to be significant when infrastructures were previously lacking and have a tendency to be marginal when an in depth network is already present. Additional investments can thus have limited impact outside convenience.
Economic changes. As economies develop, their function tends to shift from the first (resource extraction) and secondary (manufacturing) sectors towards advanced manufacturing, distribution and services. These sectors believe different transport systems and capabilities. While an economy counting on manufacturing will believe road, rail and port infrastructures, a service economy is more oriented towards the efficiency of logistics and concrete transportation. Altogether cases transport infrastructure are important, but their relative importance in supporting the economy may shift.
Clustering. Thanks to clustering and agglomeration, several locations develop advantages that can't be readily reversed through improvements in accessibility. Transportation are often an element of concentration and dispersion counting on the context and therefore the level of development. Less accessible regions thus don't necessarily enjoy transport investments if they're embedded during a system of unequal relations.
Therefore, each transport development project must be considered independently and contextually. Since transport infrastructures are capital intensive fixed assets, they're particularly susceptible to misallocations and mal investments. Several transportation investments are often wealth consuming if they merely provide convenience, like parking and sidewalks, or service a market size well below any possible economic return, with as an example projects labeled “bridges to nowhere”. In such a context, transport investment projects are often counterproductive by draining the resources of an economy instead creating wealth and extra opportunities.
Investment in transport infrastructures is thus seen as a tool of regional development, particularly in developing countries.
4. Sorts of Transportation Impacts
The relationship between transportation and economic development is difficult to formally establish and has been debated for several years. In some circumstances transport investments appear to be a catalyst for economic process while in others, economic process puts pressures on existing transport infrastructures and incite additional investments. Transport markets and related transport infrastructure networks are key drivers within the promotion of a more balanced and sustainable development, particularly by improving accessibility and therefore the opportunities of less developed regions or disadvantaged social groups. At start there are different impacts on transport providers (transport companies) and transport users. There are several layers of activity that transportation can valorize, from an appropriate location that experiences the event of its accessibility through infrastructure investment to a far better usage of existing transport assets through more efficient management. This is often further nuanced by the character , scale and scope of possible impacts:
Timing of the event . The impacts of transportation can precede (lead), occur during (concomitantly) or happen after (lag) economic development. The lag, concomitant and lead impacts make it difficult to separate the precise contributions of transport to development. Each case appears to be specific to a group of timing circumstances that are difficult to duplicate elsewhere.
Types of impacts. They vary considerably because the spectrum ranges from positive to negative. Usually transportation investments promote economic development while in rarer cases they'll hinder a neighborhood by draining its resources in unproductive transportation projects.
Cycles of economic development provide a revealing conceptual perspective about how transport systems evolve in time and space as they include the timing and therefore the nature of the transport impact on economic development
Transport, as a technology, typically follows a path of experimentation, introduction, adoption and diffusion and, finally, obsolescence, each of which has an impression on the speed of economic development. The foremost significant benefits and productivity gains are realized within the early to mid diffusion phases while later phases face diminishing returns. Containerization may be a relevant example of such a diffusion behavior as its productivity benefits were mostly derived within the 1990s and 2000s when economic globalization was accelerating.
5. Transportation as an Economic Factor
Contemporary trends have underlined that economic development has subsided hooked in to relations with the environment (resources) and more hooked in to relations across space. While resources remain the inspiration of economic activities, the commodification of the economy has been linked with higher levels of fabric flows of all types . Concomitantly, resources, capital and even labor have shown increasing levels of mobility. This is often particularly the case for multinational firms which will enjoy transport improvements in two significant markets:
Commodity market. Improvement within the efficiency with which firms have access to raw materials and parts also on their respective customers. Thus, transportation expands opportunities to accumulate and sell a spread of commodities necessary for industrial and manufacturing systems.
Labor market. Improvement within the access to labor and a discount in access costs, mainly by improved commuting (local scale) or the utilization of lower cost labor (global scale).
Transportation provides market accessibility by linking producers and consumers in order that transactions can happen . a standard fallacy in assessing the importance and impact of transportation on the economy is to focus only on transportation costs, which tend to be relatively low; within the range of 5 to 10% of the worth of an honest . Transportation is an economic factor of production of products and services, implying that it's fundamental in their generation, albeit it accounts for alittle share of input costs. This suggests that regardless of the value , an activity cannot happen without the transportation factor and therefore the mobility it provides. Thus, relatively small changes in transport cost, capacity and performance can have substantial impacts on dependent economic activities.
An efficient transport system with modern infrastructures favors many economic changes, most of them positive. The main impacts of transport on economic factors are often categorized as follows:
Geographic specialization. Improvements in transportation and communication favor a process of geographical specialization that increases productivity and spatial interactions. An economic entity tends to supply goods and services with the foremost appropriate combination of capital, labor, and raw materials. a neighborhood will thus tend to concentrate on the assembly of products and services that it's the best advantages (or the smallest amount disadvantages) compared to other regions as long as appropriate transport is out there for trade. Through geographic specialization supported by efficient transportation, economic productivity is promoted. This process is understood in theory as comparative advantages which have enabled the economic specialization of regions.
Scale and scope of production. An efficient transport system offering cost, time and reliability advantages enables goods to be transported over longer distances. This facilitates production through economies of scale because larger markets are often accessed. The concept of “just-in-time” in supply chain management has further expanded the productivity of production and distribution with benefits like lower inventory levels and better responses to shifting market conditions. Thus, the more efficient transportation becomes, the larger the markets which will be serviced and therefore the larger the size of production. This leads to lower unit costs.
Increased competition. When transport is efficient, the potential marketplace for a given product (or service) increases, then does competition. A wider array of products and services becomes available to consumers through competition which tends to scale back costs and promote quality and innovation. Globalization has clearly been related to a competitive environment that spans the planet and enables consumers to possess access to a wider range of products and services.
Increased land value. Land which is adjacent or serviced by good transport services generally has greater value thanks to the utility it confers. Consumers can have access to a wider range of services and retail goods while residents can have better accessibility to employment, services, and social networks, all of which transcribes in higher land value. Regardless of if used or not, the accessibility conveyed by transportation is impacting the worth of land. In some cases, thanks to the externalities there generate transportation activities can lower land value, particularly for residential activities. Land located near airports and highways, near noise and pollution sources, will thus be impacted by corresponding diminishing land value.
Transport Impacts on Economic Opportunities
Trade, Transportation and Geographic Specialization
“Just-in-time” and its Logistic
Percentage of Households by Number of Vehicles, 1960-2014
Transport also contributes to economic development through job creation and its derived economic activities. Accordingly, many direct (freighters, managers, shippers) and indirect (insurance, finance, packaging, handling, travel agencies, transit operators) employment are related to transport. Producers and consumers take economic decisions on products, markets, costs, location, prices which are themselves supported transport services, their availability, costs, capacity, and reliability.
View Original In India, Railways is facing increasing competition from road transports. As for instance , the share of road transport in respect of freight has increased from 11 per cent in 1950-51 to 58 per cent in 1985-86 then declined to 40 per cent in 1992. But the share of railways in respect of freight has come down from 89 per cent in 1950-51 to 42 per cent in 1985-86 then again increased to 60 per cent in 1992.
Same is additionally the case in respect of passenger traffic. Thus through evil competition road transport in India is expanding its network over railway transport. Although such competition has enhanced the extent of efficiency and productivity but it's also generated various problems within the transportation .
Causes of Rail-Road Competition::
Factors which are mostly liable for growing rail-road competition include:
(a) Flexibility of your time table of road transport as compared to railways;
(b) Facilitating door to door service by road transport which the railways couldn't provide;
(c) Time consuming system of booking and other formalities in railway which the road transport system aren't adopting;:
(d) Higher operational cost of railways thanks to increasing expenditure on overheads as compared to lower operational cost of road transport;
(e) Increasing involvement of railways in welfare programmes resulting in higher overhead cost as compared to lower overhead cost of road transportation; and
(f) Increasing facility of route changing both for passenger and freight traffic under road transport as compared to railways.
Need for Rail-Road Co-ordination:
In order to get rid of such a wasteful competition, there should be proper rail-road co-ordination within the country in order that one can supplement the opposite services accordingly. Thus there should be a balanced growth of both these two modes of transport.
Thus proper rail-road co-ordination is suggested on the subsequent grounds:
(a) Huge investment within the fixed assets of railways should be utilised optimally for gaining maximum return;
(b) Lack of proper co-ordination between road and rail transport results in the establishment of dual system of competitive transportation resulting in huge wastage;
(c) Rail-road co-ordination is a crucial prerequisite for all-round development of the country; and
(d) Rail-road co-ordination is extremely important for the event of latest projects like construction of river bridges, new railway lines etc.
Measures Adopted for correct Rail-Road Co-ordination:
In order to achieve proper rail-road co-ordination the govt has instituted various committees like:
(a) Mitchel Kirkness Committee, 1932,
(b) Rail-road conference, 1933,
(c) Central Transport Advisory Conference,1935,:
(d) Wedgewood Committee, 1939,
(e) Road Transport Enquiry Committee, 1959 for avoiding rail-road, evil competition and to possess a far better understanding between these two modes of transport.
References
1. Indian Economy - Rudra Dutt & Sundarram
2. Bhartiya Arthashastra – L. M. Roy
3. Indian Economy – Uma & Kapila