India - Third five year plan (Vol. 6 of 9) : Transport and communications

RESTRICTED Annex V to Report No. AS-80a This report was prepared for use within the Bank. It may not be published nor may it be quoted as representing the Bank's views. The Bank accepts no responsibility for the accuracy or completeness of the contents of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INDIA'S THIRD FIVE-YEAR PLAN REPORT OF BANK MISSION TO INDIA Annex V TRANSPORT AND COMMUNICATIONS August 10, 1960 Department of Operations South Asia and Middle East CURRENCY EQUIVALENTS 1 Indian Rupee = U. S. $0. 21 1 U.S. Dollar = Rs. 4.762 Rs. 1 billion = $210 million 100 Naye Paise = One Rupee WEIGHTS AND MEASURES All tonnages in long tons unless otherwise stated. TABLE OF CONTENTS Page No. Outstanding Problems 1 The Railways 3 Road Transport 7 Coastal Shipping 12 Port Development 13 Other Transport and Communications 16 LIST OF TABLES 1. Road Mileage in India 8 2. Numbers of Vehicles 8 3. Access to Port of Calcutta 15 4. Investment in Shipping, Civil Aviation and PTT 16 ANNEX V. TRANSPORT AND COMMUNICATIONS Outstanding Problems 1. When the 1956 Bank mission visited India, everyone was complaining loudly about the defects of the transport system, particularly about the hold ups on the railways and in the ports. There are still widespread com- plaints, but they are less vociferous than they were and they tend to be focused on a few specific points rather than on the situation as a whole. The two outstanding weaknesses that came to the missionts attention were, first, the difficulties experienced by the Eastern and South Eastern Railways in handling movements of coal and steel-making materials and, second, the further silting up of the bars in the River Hooghly, which is impeding the movement of traffic to and from the Port of Calcutta and adding appreciably to shipping costs. Each of these problems will be examined in more detail later in this chapter. Both demand the most urgent and serious attention. 2. The railways continue to handle the bulk of long-distance freight and passenger traffic in India, and the large investments carried out during the Second Plan, to which the IBRD has made a major contribution, have made possible a considerable increase in capacity and some improvement in opera- tional efficiency. Large though the expansion of capacity has been, it has proved barely sufficient to match the rise in demand for rail transport. Further expansion is planned over the next five years, and total railway investment during the Third Plan is provisionally put at Rs. 12.2 billion ($2.56 billion), as against Rs. 11.2 billion in the Second. Heavy extra demands will be placed on internal transport during the Third Plan by (a) the continued growth of iron and steel production; (b) increasing agri- cultural production; (c) the development of iron ore for export, involving the opening up of new deposits; (d) the growth of oil consumption and changes in the pattern of supply and distribution; (e) the large projected increase in fertilizer usage; and (f) industrial growth generally, particularly in so far as it is accompanied by a major expansion in consumption of coal and cement. The railways will be hard pressed to cope with the movement of bulk commodities and long-distance goods and passenger traffic. The mission believes therefore that greater encouragement should be given to road trans- port, and that more energetic steps should be taken to divert heavy traffic to coastal shipping. 3. There appears in recent years to have been a significant shift in high-rated merchandise from rail to road, particularly in the south. This reflects among other things the natural advantages of door-to-door delivery, greater speed, the unreliability of railway service (delays, pilferage, etc.) and the more careful attention that road haulers are able to give to the - 2 - requirements of the individual customer. Bus services are also taking over more of the passenger traffic in rural areas. In the missionts view these trends are to be welcomed in that they realease railway capacity for carrying the kinds of traffic that cannot be carried economically by road. 4. The problems of road/rail coordination, which have proved so baffling in other countries, are now under study by an official committee headed by a former Minister, who has also been a member of the Planning Commission. The familiar arguments are advanced on both sides, the railways reinforcing their case by appealing to foreign exchange limitations, which they claim favor rail versus road - at any rate so long as India is a net importer of oil. The committee will no doubt have the same difficulty in arriving at definite conclusions as similar bodies in other countries. The dearth of reliable road transport statistics will not make their task any easier. The mission is certainly in no position to offer a simple solution. But it is not persuaded that development of road transport should be held back simply by the fear of adverse repercussion on railway finances. Adjustments in railway rates may well be needed to ensure a continuing profit to the railroads, and this is one of the matters under examination by the official committee. 5. There are various reasons why road transport has tended to be neglected in the past. In the first place it is primarily the responsibility of the State Governments, and they are frequently more interested in taxing road users than in encouraging the expansion of traffic. Lack of coordination between the States in such matters as vehicle taxation, licensing and weight limits constitutes a major impediment to inter-State road traffic. The Ministry of Transport has been trying for years to persuade the State Govern- ments to simplify the taxation of road transport and to cooperate with each other in removing obstacles to traffic. Various committees have been appointed to examine the problem, and an Inter-State Transport Commission has been set up. But progress is slow, and the complex issues involved have never com- manded enough attention at the highest level of the Central Government for real drive to be put behind the promotion of road transport. 6. The mission does not question the need for large further investments in the railways, although there may be room for some economies in the program at present proposed for the Third Plan. We believe, however, that road transport has an increasingly important role to play in the development of the economy and should be given more direct encouragement. In part, this is a matter of allocating more foreign exchange for the expansion of commercial vehicle production; in part, it calls for larger expenditure on road develop- ment. Both aspects are discussed later in this annex. 7. Rail/sea coordination is proving to be an equally intractable pro- blem. With a long coastline, on which many of the largest cities are located, and with a considerable number of large and small ports, India should be able to support a flourishing coastal shipping trade. Yet the volume of traffic carried, including trade with adjacent countries, is only about 2 per cent of that carried by the railways, and even this has been declining. The figure admittedly excludes the sizeable traffic carried in small country craft - 3 - (something over li million tons a year), but the contrast still stands. The minor role played by coastal shipping can be explained by a number of factors, which are discussed below, and the mission sees no immediate prospect of bringing about any rapid change in the situation, Taking a longer view, however, we believe that the economy would benefit from greater use of coastal transport and we suggest various ways in which it might be encouraged. 8. The ports, like the railways, have benefited from the investment undertaken during the Second Plan, and when the Second Plan schemes are completed, capacity should be reasonably adequate for the traffic offered, though there is plenty of room for further improvements in the efficiency of port operations. The main increases in traffic to be expected in the Third Plan are in iron ore exports and petroleum. Apart from this, the projected pattern of India's foreign trade indicates little need for further expansion during the next five years, except possibly in respect of fertilizer imports.1/ The main problem for the imediate future is that of access to the Port of Calcutta, and it may prove necessary to establish a satellite port further down river. 9. The other programs considered in this chapter are those for the development of overseas shipping, civil aviation and posts and telecommuni- cations. All three involve substantial amounts of investment, and the first two have relatively large foreign exchange components. However, the economic issues raised are less complicated than those to do with the development of internal surface transport. The Railways 10. The performance of the railways during the Second Plan has been described in the technical report presented in July 1960 in connection with the latest Bank loan (Report No. TO-254a). Ton-miles of freight carried have risen by 39 per cent during the first four years of the Plan and passen- ger miles by 16 per cent. The amount of freight carried in 1959/60 is estimated at 145 million tons, as against 114 million tons in 1955/56 and the target of 162 million tons for 1960/61. Net revenue has provided regularly for the payment of a 4 per cent dividend on capital-at-charge, and these payments have amounted to about Rs. 1.87 billion over the past four years as a whole. For the five-year period the total amount of dividend paid will probably be about Rs. 2.45 billion. A substantial surplus has remained after payment of this dividend; it has averaged rather over Rs. 140 million a year to date and is expected to amount to Rs. 760 million during the five-year period as a whole. 1/ When full capacity production of phosphatic fertilizers is reached, about 4 million tons of phosphate rock will have to be imported. The annual import requirement by 1965/66 will be 1.3 million tons. It is not clear whether account has been taken of this item in the port expansion schemes, - 4 11. The contribution of the railways to the financing of net investment in the Plan is defined by the Planning Commission as the amount of the surplus after payment of dividend plus expenditure on capital works financed out of revenue plus interest accruing on various railway funds. The target for this contribution was set in the Second Plan at Rs. 1.50 billion (see Annex VII), and the out-turn is likely to approximate closely to this figure. In addition, the railways will have set aside Rs. 2.25 billion for deprecia- tion during the Second Plan. If the amounts of the dividend on capital-at- charge, the contribution to the financing of the Plan and provision for depreciation are added together, the gross savings mobilized by the railways during the Second Plan will come to over Rs. 6 billion. 12. Gross railway investment in the first four years of the Plan is tentatively estimated at Rs. 8.72 billion, accounting for 78 per cent of the Plan allocation of Rs. 11.21 billion.i/ The remaining Rs. 2.50 billion is expected to be spent during the current year. As investment costs will have been somewhat higher than allowed for in the original calculation, there will be some shortfall in real terms. Procurement of passenger coaches and freight cars will be less than planned, and the percentage of over-age stock to total stock on line at the end of the Plan will be higher than anticipated. Construction of new lines, with one or two exceptions, has proceeded more or less according to the original plan, and track renewals are keeping fairly well up to schedule. But progress with doubling of lines, with construction and remodelling of marshalling yards and with electrification has been appreciably slower than foreshadowed. 13. Some of the changes made in the original program, including the postponement of certain projects, have been justified by the fact that traffic requirements have turned out differently from what was expected. Others have been due to difficulties in procurement caused by foreign exchange shortage or other factors. Notable progress has been made in developing manufacture of railway equipment in India, and direct foreign exchange expenditure on account of the railway program is now expected to be only Rs. 3.h2 billion, as against the Rs. 4.25 billion forecast. More than expected has been spent on imports of steel and considerably less on other items, 14. While the achievements of the railways have in many respects been impressive, the mission found considerable dissatisfaction with their performance in delivering coal and other materials to the steel plants. The management of all the five major plants reported difficulties which they attributed to inadequate allocations and irregular arrivals of coal wagons. Certainly, coal stocks at all five plants in May were well below the minimum desirable. When the mission was at Bhilai, which is the plant farthest away from the coalfields, stocks were sufficient to last only ten days. 1 The original allocation of Rs. 11.25 billion included Rs..35 million for works at the Port of Vishakhapatnam, responsibility for which has been taken over by the Ministry of Transport. TISCO also complained of irregular deliveries of iron ore and limestone, of a shortage of wagons for discharging finished products and of time-consuming shunting operations required inside their works to sort out the covered and uncovered wagons which were arriving all mixed up. Bhilai is the only one of the plants with a tippler for handling covered wagons, and here too a lot of shunting is needed to sort out the wangons before unloading. Oper- ations at the collieries, as well as at the steel plants, are alleged to have been hampered by irregular wagon allotments - too many one day, none the next - and the mission was told by the government coal corporation that production had been lost on this account. 15. The mission is in no position to say where the primary responsibility for these difficulties lies. They appear to be due to a variety of factors - shortages of open wagons and locomotives; delays in carrying out improvements to marshalling yards and line works; interference to traffic caused by work on electrification; deficiencies in the planning of the coal and steel expan- sion programs; a cumbersome system of coal and steel allocation centered in Calcutta; and so forth. Essentially they are a reflection of the major effort of organization required to handle an exceptionally heavy concentration of traffic. It is only fair to add that similar difficulties and similar complaints are encountered from time to time in other countries with large railway systems. Blaming the railways is a popular international pastime. 16. The mission was assured by the Railway Board that the troubles were of a temporary nature, and that everything would soon be all right. It is rather disturbing nevertheless that difficulties should be experienced at a time when the steel plants are still operating at only a fraction of their capacity. When the three new plants are in full operation, the steel industry will require an annual movement of over 30 million tons of materials and finished products mostly concentrated on a few lines, and a very marked improvement in railway operations will be needed if efficient operation of the steel plants is to be achieved. 17. The allocation provisionally made for railway investment in the Third Plan is Rs. 12.20 billion, of which Rs. 3.30 billion is for replacements to be financed out of depreciation funds. Net railway investment included in the Plan is thus Rs. 8.90 billion. A tentative breakdown of the program shows Rs. 4.82 billion for rolling stock, Rs. 0.70 billion for electrification, Rs. 0.25 billion for signalling and safety works, Rs. 1.20 billion for new lines, Rs. 1.70 billion for track renewals and Rs. 2.28 billion for line works, bridges and miscellaneous construction. The remaining Rs. 1.25 billion is for workshops and equipment, staff quarters, passenger amenities and various other items. Physical targets include the acquisition of 1,645 locomotives, including several hundred diesels, nearly 8,000 coaches and 110,000 wagons, the construction of 1,200 miles of new lines, 1,500 miles of double-tracking, 600-700 miles of electrification and 10,000-12,000 miles of track rehabili- tation. - 6 - 18. Thanks to the considerable progress made during the past four years with indigenous manufacture of railway equipment, the foreign exchange component of the program is estimated at only Rs. 1.30 billion or about 12 per cent of the total. A start is to be made during the Third Plan with the manufacture of diesel and electric locomotives in India. 19. The program assumes that freight traffic will rise to 235 million tons in 1965/66 and that passenger traffic will go on increasing at the rate of 3 per cent a year. The estimate of freight traffic was based on a steel production target of 8.8 million ingot tons (plus 1.5 million tons of pig iron), a coal target of 95 million tons and a cement target of 13 million tons. No adjustments have yet been made for the latest upward revision of the coal and steel targets. 20. On the face of it, the estimate would appear to be rather on the low side, but simple tonnage figures are apt to be misleading as a guide to traffic demands. The average length of haul for goods traffic (343 miles in 1958/59) could well be significantly reduced during the Third Plan, since a large proportion of the coal and ores will travel only comparatively short distances. The mission is in no position to assess in any detail whether the investment proposed will be adequate to achieve the results required. We see no reason to doubt, however, that railway capacity will continue to be tightly stretched during the Third Plan as a result of the large increase in demand for the movement of bulk commodities, which will present a real chal- lenge to the organizational ability of railway staff at all levels of manage- ment. 21. If economies are to be effected in the program, we suggest that all proposals for new lines should be subjected to the most searching scrutiny. Most of the new lines included in the program are needed for the development of coal and iron ore deposits, and construction of these must proceed. But there are some for which the arguments appear less convincing - for instance, the construction of a 10 mile broad gauge link to Kandla port, which is already served by the meter gauge, and the start of work on new rail connec- tions to Tripura and Jammu and Kashmir, for which road transport might well be more economic (see map on following page). Attention should also continue to be given to the possibilities of closing down or reducing passenger services on less remunerative branch lines and transferring the traffic to the roads. Some progress has already been made in this direction, and the mission was informed that a total saving of over 2,000 daily train miles had been achieved since the beginning of 1959. 22. On the basis of present charges, including the 5 per cent surcharge on freight introduced in the 1960/61 Budget, gross traffic receipts during the Third Plan are expected to be about Rs. 7 billion (35 per cent) higher than during the Second, the bulk of this increase coming from goods traffic. Working expenses have recently been substantially enhanced by the award of higher pay to railway staff, and they are forecast as rising by just under Rs. 5 billion (34 per cent) between the two Plans - possibly a rather conser- vative estimate. 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I идсvив оаш О� нстсм па,п�-и в � /г.. �-[� 6VйкЕ iuaQOrи ' V inqon �� ,lgatpur� r� � ВОМВдУ ч Uran Bviiodiiln � I VISHGKдP4TЧ4M � i нYDERAB40 �а �ц?� I 1ND1AN RA1lWAYS 4� EXI9TINC' вдисдшВ мдоггдs � Втоад Guage е � л' - Ме[ег ог Narrow Guage � 4 пшо��а � SECOND AND THIRD FIVE-YEAR PLANS: New 1Иев ипдег сопчtгисtlоп ог sanctloпed � � Вгоад Guage - Meter Guage Сосп;п н.=+• Lines electrlfled ог [о he еlес[г1Нед �( Major brldRes сопs[ructed, ипдег cons[гис[ion ог sanctioned о � В ои�iоп о so юо �ю то zво �оа �5о о а• оо GEYLON наеs `� v дucusr reьо iвво i2se - 7 - the gross operating surplus, just over Rs. 1 billion would be absorbed by larger -provision for depreciation and another Rs. 1 billion by the increase in the dividend payable on capital at charge. This would leave the surplus available for financing new investment at around the same level as in the Second Plan, namely Rs. 1,5 billion. However., it is hoped to bring in an additional Rs. 1.5 billion by means of increases in passenger fares and freight rates, raising the railway contributions to the financing of the Third Plan to a little over Rs. 3 billion (see Annex VII). 23. Following a detailed examination of the structure of railway freight rates a new schedule of charges was introduced in October 1958. The changes made were designed among other things to encourage the diversion J_ , and the tapering off of rates for of short-distance traffic to the roads longer distances was accentuated. The tendency for railway freight to be increasingly concentrated on low-rated bulk commodities and for higher-rated traffic to be diverted to the roads may make necessary a further reexamination of the freight structure. Much of the coal at present carried is probably being carried at less than cost, and there appears to be a case for upward revision of rates. Other freight rates are low and may require some adjust- ment. The average rate charged for freight at around 6 Naye Paise (1-3 US cents) per ton-mile is among the lowest in the world. Given the continuance of heavy demand for passenger travel, it should also be possible to derive additional revenue from higher passenger fares, but in India,, as in most other countries, this raises difficult political issues, particularly when trains are overcrowded and travelling conditions are so uncomfortable. Road Transport 24. Road transport in India has never received much official encourage- ment, and the statistics underline the extent to which it has been neglacted. Road mileage, of which less than 40 per cent is metalled, is only one third of a mile-Der square mile of India's surface (corripared with one mile in the United States) and less than one mile per thousand population (coypared with 18 miles in the United States). The number of motor vehicles on the road is believed to be in the region of L50,cco-500,000 or a little over one per thousand population (conpared with eight in Spain., nine in Ceylon., fourteen in Malaya, a hundred in the United Kingdom and four hundred in the United States). Ton-miles of freight carried by commercial motor vehicles have been estimated at around 11 billion a year or a quarter of what is carried by rail,, whereas in most other countries roads carry much more freight traffic than the railways.l/ 25. The shortage of motor vehicles is more pronounced than the shorta, ,e of roads, and the density of traffic is generally very low, except on roads leading into someof the big cities such as Calcutta and Bombay. Many of t',,-e Ton-miles nf goods carried by Indiats 10 million bullock carts may be about equal to what is carried by motor transport. - 8 - metalled roads in India are very good, particularly in the south. The main defects are weak bridges, frequent unbridged river crossings, ard obstruction caused to traffic by railway level crossings and congestion in towns and villages along the route. 26. The progress made in developing the road system during the First and Second Five-Year Plans is illustrated by the figures in Table 1. Most of the extensions shown represent improvements rather than entirely new construction. "Missing links" in the national highways, estimated at nearly 1,750 miles at the beginning of the First Plan, will have been reduced to about 400 miles by the end of the Second. About 70 major bridges on the national highways will have been completed during the First and Second Plans and 8o will remain to be built in the future, of which work on 47 will have been started by the end of the Second ?lan. Net investment in roads during the First Plan is estimated at Rs. 1.67 billion and during the Second Plan at Rs. 2.70 billion. The provisional allotment for road development in the Third Plan is only Rs. 2.50 billion. Table 1. Road Mileage in India Beginning of Beginning of Expected at end First Plan Second Plan of Second Plan Surfaced road 98,000 122,000 144,000 Unsurfaced roads 151,000 198,000 235,000 Total roads 249,o00 320,000 379,000 27. Estimates of the number of motor vehicles on the road vary consider- ably. Table 2, which used figures from a recent official report on the automobile industry, shows the number of trucks as increasing by 50 per cent during the Second Plan. Other estimates imply considerably less rapid expansion. The Indian Roads and Transport Development Association, for example, puts the number of trucks and buses in 1960/61 at only 207,000, and the Planning Commission is also using a lower figure. There can be no doubt, however, that road transport has been growing rapidly; the number of buses and trucks nowadays encountered on an ordinary road journey in India is noticeably greater than it was four years ago. Table 2. Numbers of Vehicles (end of year) 1950/51 1955/56 1960/61 (Estimate) Cars, jeeps and cabs 159,263 203,184 272,834 Buses 34,411 16,h61 65,570 Trucks 81,888 119,097 178,103 Total 275,562 368,742 516,507 -9- 28. The estiatied ccst of carrying freg:t by truck in India is 17 Naye Paise (3.6 US cents) per ton-mile, which is moderately low compared to costs in most countries. Wages are low and amount to only 10 per cent of the total cost per ton-mile. Fuel is expensive by U.S. standards; it costs about the same as in most countries in Western Europe. Vehicles are comparatively expensive to produce in India, and vehicle taxes are very high. One quarter of the price of a truck consists of taxes. One fifth of the cost of carrying general freight is for fuel tax and other miscella- neous taxes, which work out at 3.3 Naye Paise (0.7 US cents) per ton-mile. 29. Tax revenues derived by Central and State Governments from road transport during the Second Plan are tentatively estimated at around Rs. 6 billion or about Rs. 1.20 billion a year. More than half of this is attributable to taxes on motor spirit and diesel oil, about one third to taxes on motor vehicles, tires and tubes, and the remainder to taxes on passengers and goods. The cost to government of road maintenance and transport administration, including an allowance for depreciation, has been privately estimated at about Rs. 0.50 billion in 1957/58. Revenue to government from road transport is thus substantially above the current expenditures on roads and it would appear that the direct return to the Government from capital invested in the roads is substantial. The IRTDA claims that it is about equal in total to the return on the railways for a smaller investment. 30. A country that is acutely short of capital cannot afford to invest in surplus transport capacity, and wasteful duplication of road and rail facilities should clearly be avoided. The growth of the Indian economy, however, will call for a big expansion of both road and rail transport, and the mission believes that a reasonable degree of competition between the two should be encouraged in attracting additional traffic. At present there are a number of factors which prevent road transport from playing its proper role in the development of the economy: (a) Defects in the road system, notably those mentioned in paragraph 25 above. (b) Restrictions on the supply of commercial motor vehicles, for which there appears to be a large unsatisfied demand. (c) Rates of taxation which are said to be amongst the highest in the world. (d) Government restrictions on the operation of commercial vehicles, coupled with the nationalization (or the threat of nationalization) of road passenger transport in a number of States. (e) The inefficiency of many of the existing vehicle operators and the shortage of entrepreneurial talent and private capital for investment in this field. - 10 - (f) Lack of adequate vehicle re!:air and servicing facilities, which is a consequence of the low volume of traffic. Notwithstanding these difficulties, the more efficient bus and truck operators are making good profits, and their business is growing. Indeed it is apparently profitable to finance the purchase of trucks on money borrowed at 20 per cent interest. 31. The mission believes it to be in the national interest that this growth should be encouraged. The first need is that more foreign exchange should be allocated for the import of automobile components, so that domestic production of commercial vehicles can be more rapidly expanded. As pointed out in Annex III, the principal truck and bus manufacturers have idle capacity. Output could also be increased by the introduction of multiple shift working if the necessary materials and components were available. Supply of imported components and materials is the principal limiting factor on output. 32. First priority has been given in the Third Plan to raising the indigenous content of production by developing facilities for the manufacti.-re of components. The aim is that the proportion of components imported should be reduced by the end of the Plan to about 15 per cent, as against over 50 per cent at present. At the same time it is proposed that sufficient investment should be made during the Plan to enable vehicle production to rise to 100,000 a year by 1965/66 (60,000 buses and trucks, 30,000 cars and 10,000 jeeps and station wagons). It is estimated that achievement of this production target would raise the number of vehicles on the roads by the end of the Third Plan to around 800,000 about half of which would be commercial vehicles. The present capacity of the road transport industry would probably be more than doubled. The total fixed investment required during the Third Plan to achieve the targets for commercial vehicles and jeeps has been officially estimated at about Rs. 600 million, of which more than half would be in foreign exchange. In addition, requirements of imported components during the Plan are estimated at Rs. 1 billion. 33. The mission considers that the targets for production of com- mercial vehicles are reasonable, and that the manufacture of trucks and buses should be accorded high priority in the allocation of foreign exchange. Every effort should be made to economize in capital by making more intensive use of existing equipment. We are fully in agreement with the declared policy of giving commercial vehicle production priority over production of cars, but we are not sure that this policy is in fact being implemented. Proposals for the manufacture of a "peoples' car" in the public sector, which we understand to be under consideration by the Government, appear premature. There is no case for setting up a new plant to make cars when existing firms are working so far below the optimum levels. It may be added that the phrase itself strikes a somewhat discordant note in a country where the vast majority of people cannot afford to buy a bicycle. - 11 - 34. The second need in developing road transport is to invest more in the roads. The mission considers that the provisional Third Plan allocation of Rs. 2.50 billion for road development is inadequate, and that it should be raised to at least Rs. 3.50 billion, which would still be only one third of the sum requested by the Ministry of Transport. On the basis of the vehicle production targets accepted by the Planning Commission, the .Ministry assumes that revenue from road transport during the Third 1lan will average about Rs. 2 billion a year, as compared with Rs. 1.20 billion in the Seeond Plan. The increase between the two Plans would be more than sufficient to finance the whole of the larger road program we have suggeste., 35. The highest priority in road development should be given to improving the national highways and the principal State roads. Particular emphasis should be placed on the construction of missing river bridges and the reconstruction of old bridges to carry heavier loads; to the improvement of the highways leading out of the main cities, especially Calcutta, where the project for an expressway to Durgapur should be expedited; and to the construction of by-passes around towns and villages and of railway bridges to replace level crossings on busy roads. The foreign exchange needed for special steel and equipment to carry out a Rs. ,0 billion program on these lines would be comparatively small. The mission was given an estimate of Rs. 250 million as the most that could be effectively used, and we suggest that this should be allocated without delay so that an expanded program of road improvements can be properly organized. 36. In view of the fact that the expansion of commercial road transport is at present held back more by lack of vehicles than by lack of demand, the mission sees no urgent case for a reduction in taxation, but it considers that this will be desirable in the long run. At present, it is more important that restrictions on the issue of vehicle permits should be relaxed, that procedures for obtaining permits should be simpli- fied and speeded up, and that the traffic and licensing policies of State Goverrinents should be better coordinated. Licenses, moreover, should be issued for longer periods, as the Central Government has repeatedly urged. The present restrictive attitude of many State Governments to the licensing of private road carriers bears heavily on the small man and discourages the growth of business talent in a field which is particularly well-suited to develop it. 37. Road transport and the manufacture of motor vehicles are both industries in which imrortant economies are to be secured by expanding the scale of operations. This alone is a powerful argument for encouraging their development. Road transport provides extensive employment in the construction of roads and the operation and servicing of vehicles, it offer' opportunities to the smaller entrepreneur and it provides an essential service to manufacturing industry. Not the least valuable part of this service lies in the economies in inventories made possible by rapid door- to-door delivery. A number of leading industrialists in India have testifie3 to the advantages of road versus rail transport in this respect and to the substantial savings in costs achieved in recent years by transferring much of their business from rail to road. - 12 - 38. The mission, in short, believes that India's economic develop- ment has now reached the stage when the emphasis in new transport investmeit should be gradually shifted from the railways to the roads. We recognize that road transport operations are at the moment rather more expensive in foreign exchange because they depend on imported fuel, but we believe that any direct losses caused to the balance of payments on this account will be more than made good by the indirect benefits that more efficient road transport will bring to the economy, and particularly to manufacturing industry. An official committee recently observed of the road transport industry: "With similar expenditure of foreign exchange few other indus- tries could stimulate as much widespread employment with benefit both to the consumer and producer". The mission agrees with this verdict. Coa6tal Shipping 39. The coastal trade is reserved for Indian vessels, and the development of coastal shipping was one of the objectives of the Second Five-Year Plan. At the beginning of the Plan, the fleet engaged in the coastal and adjacent trades aggregated to 240,000 gross registered tons, and this was to be raised to over 400,000 tons by the end of the Plan. The volume of coastal cargoes carried in 1954 was 2.8 million tons, with an additional 500,000 tons accounted for by trade with adjacent countries. In view of the heavy strain on the railways a committee was set up by the Government to examine the problem of rail/sea coordination and to explore the possibilities of diverting traffic in bulk commodities, par- ticularly coal and salt, from rail to sea. This committee concluded that 800,000 - 9C0,000 tons of freight a year might with advantage be diverted in this way, and that the cargo carried in the coastal and adjacent trades might be raised to 5 million tons by the end of the Plan. LO. In actual fact, instead of increasing, coastal traffic has declined from 2.8 million tons in 1954 to an average of around 2.5 million tons a year from 1955 onwards. The main reasons for the decline is that salt, which used to be carried from the west coast to the south and east by sea, is now carried by rail. Present composition of coastal cargoes is approximately 1 million tons of coal, 1 million tons of general cargo and half a million tons of other cargo, including salt. An additional half million tons of cargo are carried in trade with adjacent countries. 4l. Most of the coal carried by coastal ships consists of supplies for the Southern Railway from the Bengal/Bihar coalfields. The railways propose that in future more of this coal should be obtained from collieries further south, and that the amount shipped from Calcutta by sea should be reduced by about half a million tons. The railways in any case maintain that it is cheaper to move coal from West Bengal and Bihar to the south by rail than by sea. Average rail rates for this journey are quoted at under Rs. 24 per ton. The distance would be approximately 1,100 miles, indicating a charge of about 2.2 Naye Paise per ton-mile for coal, which incidentally is one third to one half lower than the rate for a comparable service in the United States. The competing sea freight charge from - 13 - Calcutta to, say, the Madras area, including handling charges at the ports, is on the average Rs. 36 per ton. The additional cost of the rail movements at both ends brings the total cost to over Rs. 45 per ton. The extraordinary disparity between the two rates seems to indicate not only that the railways are charging uneconomically low rates, but also that coastal shipping rates are unreasonably high. That the latter is true is borne out by the fact that it costs as much to ship goods from Calcutta to Kandla on the west coast as to ports in the Black Sea. 42. Coastal shipping is entirely in private hands (apart from three government-owned tankers), and rates are fixed by a coastal conference, subject to government approval. The exclusion of foreign competition appears to have encouraged a restrictive and unenterprising approach to the business, and little interest has been displayed in trying to attract traffic from the railways. Additional deterrents to the develop- ment of coastal shipping are to be found in the high cost of port handling operations, particularly at Calcutta, and in the fact that the bulk of the trade moves from east to west, with few cargoes offered in the return direction. 43. The mission sees little prospect in these circumstances of a rapid revival of coastal shipping, and the target of 340,000 gross regis- tered tons set for the end of the Second Plan may well be on the high side. We believe nevertheless that the development of coastal shipping deserves encouragement as a long-term measure. The main need is for smaller vessels of up to about 10-foot draft, which can ply between minor ports. It should be noted that the average load of general cargo carried by vessels entering such ports as Madras, Cochin and Visakhapatnam is less than 2,000 tons per ship. Coastal vessels of the type used in the North Atlantic or the Mediterranean could be very economically used in India. 44. A modest program for dredging these minor ports could be com- bined with obtaining such vessels and would be very beneficial to Indian development. Positive incentives might also be offered by the Government to encourage this trade, and the possibilities of making greater use of sea transport should be borne in mind in determining the allocation of new industries. At the same time, the Government might institute a review of coastal shipping rates to see if charges could be reduced. Port Development 45. Port traffic in India has been growing at an annual rate of nearly 4+ per cent during the past decade. Just under 29 million tons of cargo, including petroleum, was handled by the six major ports of Calcutta, Bombay, Madras, Cochin, Visakhapatnam and Kandla during 1958/59. A peak of 31 million tons was achieved during 1957/58, having grown from 27 million tons in 1956/57, 24 million tons in 1955/56 and about 20 million tons at the start of the First Plan. Calcutta and Bombay between them account for two thirds of the total. Government forecasts envisage traffic at the major ports rising at the more rapid rate of nearly 6 per cent per year to over 4O million tons by the end of the Third Plan. The mission feels this forecast is on the high side, but recognizes the need for planning port capacity to allow for such rapid growth if it actually does develop. 46. Major expansion schemes are in hand at Calcutta, Madras and Visakhapatnam, the first two with assistance from the IBRD, and a project has been prepared for the improvement of the Port of Bombay. Total expenditure on port development during the Second Plan, including minor ports, is expected to be about Rs. 600 million, and the provision made in the Third Plan is Rs. 850 million, including the contribution to be made from the ports' own resources. The latter figure allows Rs. 3CO million for Calcutta, including Rs. 75 million for starting work on a satellite port at Haldia, and Rs. 280 million for Bombay. 47. Port capacity appears to be more or less adequate to cope with present traffic, except for the problem of access to Calcutta, and the expansion schemes now under way should take care of Third Plan require- ments. The main needs for expansion of physical capacity arise in con- nection with iron ore exports, imports of fertilizers and raw materials for fertilizer production, and trade in petroleum, which between them account for practically the whole of the increase in traffic forecast for the next five years. Capacity for handling larger ore exports is already being developed at Vishakhapatnam, Madras and various minor ports. Little growth is to be expected in the volume of general cargo imports or in coastal traffic in bulk commodities, at any rate so long as foodgrain imports are no greater in the Third Plan than in the Second. The mission accordingly has reservations about the need for some of the new investments proposed, particularly in the case of Bombay, where the construction of a new passenger berth at Ballard pier, a dredging scheme and even the combining of Victoria and Alexandria Docks do not appear to be of the first order of essentiality. 48. On the other hand, there may be a case for making an early start with developing a new major port at Mangalore on the west coast to handle iron ore exports and general cargo, so long as a market can be guaranteed for at least 2 million tons of ore exports a year (see Annex VI). Preliminary studies indicate the possibility of turning the existing lighterage port into an all-weather harbor accessible to ships drawing up to 30 feet, and perhaps even up to 34 feet or more, and capable of handling at least 2 million tons of iron ore and half a million tons of general cargo annually. Cost estimates range from Rs. 130 million to Rs. 170 million, but further investigations are necessary to determine exactly what works would be involved. The development of iron ore exports through the port would require additional investment of Rs. 150-200 million in a 125-mile railway linking Mangalore with the meter-gauge system serving the iron ore mines in Mysore State. - 15 - 49. While iron ore shipments would provide the base for the port's traffic in the early stages, the rapid growth of industry in Mysore would be an added argument in favor of a new major port on the west coast between Bombay and Cochin, which are 650 miles apart. The technical and economic aspects of the project call for further detailed study, and the mission suggests that this study should be undertaken before final decisions are reached on the oort investment program for the Third Plan. We do not advocate any increase in the total allocation for port development during the Plan, and if room is to be found for the Mangalore project, the money should come from savings on other port schemes. Also under consideration at present, though not included in the Plan, is the scheme for developing a major port at Tuticorin in the ex- treme south of Madras. The mission does not have details of this scheme, but at first sight the case for it hardly appears convincing. 50. The situation with regard to the entrance to Calcutta is highly disturbing. In late 1957, when a Bank mission appraised the port prior to making a loan for its expansion, they noted that ships with a draft above 26 feet could not usually enter the port, making it difficult for modern vessels of 10,000 tons or more, when fully loaded, to use the port at all. Provision for river training works to improve the flow conditions and additional dredging was included in the loan made for the improvement of the port. The goal of the Port Commissioners was to ensure access to the Port of Calcutta throughout the year to vessels drawing 26 feet. Since that time the river has deteriorated badly, as is shown in Table 3. As an emergency measure, the IBRD has agreed that additional dredgers should be financed out of the loan made for the port, and that certain works included in the original scheme should be deferred. Table 3. Access to Port of Calcutta (Number of days in each month during the years 1955-60 that ships have been unable to enter the Port of Calcutta with drafts of 26 feet and with speeds of 12 knots or more) Months 1955 1956 1957 1958 1959 1960 January 30 29 27 31 31 31 February 26 28 25 28 28 29 March 28 27 21 31 30 31 April 19 17 17 29 29 30 May 15 6 6 31 31 June 5 - 10 30 30 July 9 - 15 31 31 August 11 12 16 30 29 September 15 13 13 26 28 October 15 16 14 27 27 November 19 12 19 30 28 December 25 28 31 31 31 Total 217 197 214 355 353 - 16 - 5l. An urgent reassessment is required of the problem of maintaining the main channel in the River Hooghly to Calcutta. Studies of the river, including those being carried out at the hydraulic laboratories at Poona, should be expedited. More effective measures will have to be taken to deal with siltation in the river. The extra costs incurred by the Indian economy as a result of the inability of Calcutta to handle large vessels have been great. Better depths must be achieved to enable ships to carry a greater volume of cargo and to reduce delays to vessels. However, it now seems certain that it will never be possible to get more depth than 26 feet, which is quite insufficient for the type of ship necessary for the economical handling of such bulk cargo as coal, ore and foodgrains. Since trade in these commodities is likely to remain of great importance to the area, the mission has no doubt that a new port further downstream is vitally needed. Calcutta, because of its physical limitations, has more or less reached its maximum capacity. The mission feels that in any case, regardless of the depth problem, the present port of Calcutta may be unable to handle future traffic. Any eventual overflow from Calcutta would have to go to some new satellite port. Preliminary studies indicate that such a port could be developed at a site called Haldia, a short distance inside the first major sand bar in the river. The cost of building a new port at Haldia is tentatively estimated at Rs. 250 million, and Rs. 75 million has been included in the Third Plan for a start to be made on the project. It would not be completed until well into the Fourth Plan. The mission feels that this project is so important that it should be speeded up, if possible, so that the port can be in partial operation by the end of the Third Plan. The need for a new satellite port in this area calls for prompt and energetic action based on the best technical advice available. Other Transport and Communications 52. Apart from the railways, roads and ports, the principal Third Plan investment programs in transport and communications are for shipping, civil aviation and posts and telecommunications. Proposed allocations of public funds are set out in Table 4. Table h. Investment in Shipping, Civil Aviation and PTT (Rs. million) Second Estimated Third Plan Second Plan Plan Allocation Expenditure Allocation Shipping 45o 54o 550 Civil aviation 420 430 550 Posts and telecommunications 650 560 680 - 17 -- 53. The allocation for shipping includes coastal shipping, but it is mainly intended to finance the acquisition of additional ships for the overseas trade. It covers the purchase of ships by the two public shipping corporations as well as loans to private shipping companies. Allowing for contributions to be made by the companies out of their own resources, it is estimated that the allocation would permit a net addi- tion of about 200,000 gross registered tons to the Indian merchant fleet during the Third Plan, raising the total tonnage engaged in the coastal and overseas trade from about 900,000 in 1960/61 to 1,100,000 in 1965/66.1' This is a much smaller increase than that recommended by the National Shipping Board, which has suggested a target of 1,420,000 tons (1,080,000 overseas, 340,000 coastal). 54. Less than one tenth of India's overseas trade is at present carried in Indian bottoms, and the Government maintains that the acquisi- tion of additional shipping is justified because it enables foreign ex- change to be saved and because it provides cheaper and more flexible overseas transport for India's exports and imports. Secondhand ships can be picked up nowadays at bargain prices, and Indian crews to man the ships can apparently be found quite easily. The mission considers the program for the Third Plan a reasonable one, but if cuts have to be made in total investment to save foreign exchange, the shipping program could in our view bear these cuts more easily than most other parts of the Plan. The foreign exchange cost of the program, including expenditure financed out of private funds, is estimated at Rs. 550 million, and it is thought that this might be recovered over a period of ten to fifteen years out of net foreign exchange earnings and savings. 55. The civil aviation program includes Rs. 220-250 million for improvements and extensions to airports and Rs. 300-330 million for the purchase of aircraft. The international airports at Bombay, Calcutta and Delhi have to be equipped to handle the growth of jet traffic; four more jet aircraft are to be acquired by Air India International (making eight in all); and the Indian Airlines Corporation is embarking on a program for the extension of its turbo-prop services and the gradual replacement of its Dakota fleet. 56. Communications services have been expanded considerably during the first two Plans. The Planning Commission expects that the number of post offices will have increased from 36,000 to 75,000, public call offices from 338 to 2,250, telegraph offices from 3,600 to 6,300 and telephone connections from 168,000 to about 475,000. The net amount spent in this field, above and beyond what has been spent on renewals and replacements, The figure for 1960/61 is the target set in the Second Plan, but it will not be reached. At the end of March 1960, India's gross registered tonnage was about 750,000 with a further 79,000 tons under construction in Indian and foreign yards. - 18 - was Rs. 400 million during the First Plan, and will rise to Rs. 540 million during the Second Plan. The tentative proposal for the Third Plan is Rs. 680 million.. The largest part of this program is to expand the existing urban telephone exchanges by 250,000 telephones at a cost of Rs. 350 million. The foreign exchange component would be relatively low as the equipment itself is now produced in India, with imported parts and raw materials amounting to only about 25 per cent of the total cost of materials and parts. Capacity is already available in the country to produce equipment for the installation of twice as many telephones as is contemplated in this program.