Inflation is a sum total of many effects. Beginning with the producer prices, the value is additive of costs all along the value line, till the product reaches the end customer. Unlike the DBT or Direct Benefit Transfer, retail trade is a chain of many ‘handlers’. Although the effect of the ‘handlers’ has been reduced to an extent by eCommerce and online interventions, yet, for many products, the retail chain of producer – transport – warehouse – transport – wholesaler – transport – distributor – transport – retailer – transport – end user (storages at various points not mentioned, for brevity) is still very much the norm. The number of times a product is stored and transported is a determinant of the final cost to the consumer. Therefore, transportation plays an important role in determining the cost at the end user, and, consequently, inflation. Minimising transportation costs and ease of travel, as well as the extensiveness of coverage, are key drivers for control over inflation. 

In India, as the Figure indicates, inflation can be seen to have been contained between 4 to 6% since 2017, whereas, in the prior periods, 8 to 14% was the range, barring a brief period between 1999 and 2005. This includes the dot com bubble years. What can be the reasons for the containment of the inflation? Economists with both hands will give plenty of reasons, beginning with, ‘on the one hand, the supply side was much affected…’, ‘on the other hand, the demand suddenly shot up….’. 

Be that as it may, from the engineer’s view point, the reason lies in producing adequate quantity of required goods and reaching them to the end user. The point to be noted is that there two main issues – production and ‘reaching’. While production is an area where government and the private sectors play significant roles, in the transportation sector, it is the government which is the key player. The 6 to 8 % growth in GDP in the last few years, is indicative that the production of goods has been adequate to serve the needs of the population of the times. Given the fact that exports have grown from about $ 400 billion to $ 800 billion in the last year is also a positive. Hence, to control inflation, one needs to ensure that the goods produced are ‘reached’ to the consumers. 

In India, transportation of goods is by road and railway. Both of these are largely under the control of the GoI. While the Indian Railways is controlled by the Ministry of Railways, road laying and maintaining fall under the purview of the Ministry currently headed by Nitin Gadkari. These two ministries are the prime movers. There is one more – the Ministry of Energy, which controls electric and solar power. However, these industries are dominated more by the private sector and the Public Sector Undertakings. For example, the electric power industry is dominated by NTPC and a few other PSUs like DVC, along with suppliers like BHEL, the non-fossil fuel industry is dominated by private sector entities, like Tata, Adani, Suzlon, etc. Roads and railways, which are often clubbed together under the umbrella of ‘infrastructure’, hold one of the two keys to control inflation.

 

The GoI allocates budgetary capital expenditure to both these ministries based on their annual plans and forecasts. Of late, the PMO has been taking a lot of interest in this area. The PM Gati Shakti is an over-arching initiative which has revolutionised infrastructure planning in India in the last few years. It is an initiative which has led to a ‘holistic’ planning practice, never before seen in India or any other country. Using the latest technologies, the PMO controls the design and implementation of the PMGS initiative, the results of which can be seen in the budget allocations and actual expenditures of these ministries in the last few years. Huge amounts of capital expenditure have been incurred to lay the roads, the railway lines and all other supporting infra to bring Indian transport up to international standards. Figure 3 shows the amounts of capital expenditure actually used up in these sectors.

In the Figure 3, the capex spent on the railways and roads and bridges are shown, along with the total capital expenditure incurred by the GoI under the Consolidated Fund of India – Capital Account – Disbursements. While the total expenditure has increased from about Rs 25,000 crores in 2002 to Rs 8,25,000 crores, the same for the railways has gone up from Rs 5,300 crores to Rs 2,45,000 crores, an increase of 50 times during the period, and, for roads and bridges, it has gone up from Rs 2,300 crore to Rs 2,50,000 crores, an increase of over 100 times. Both of these are magnitudes of increases, and indicate the seriousness of the GoI to improve the ground situation. The CAGR’s are in the region of 22 to 25%. In terms of percentages to the total disbursements, the data is shown in Figure 4. 

As a percentage to total, the variation is between 7 to 30% for the railways, while the same is between 4 to 30% for roads and bridges. The averages and standard deviations are shown in the Table 1.