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The correlation of highway traffic to industrial production is high
ROAD BLOCK

On India’s highways, you can see the economy struggling to pick up speed

By Shruti Chakraborty

The last two months have seen an increase in truck rental on pre-election spending and movement of food. However, the overall demand for freight has remained weak, affecting the growth of traffic on Indian highways. An increase in truck rentals would typically point at growing demand and therefore a likely turnaround in commercial vehicle sales. But that isn’t quite how things are turning out for now.

A study on the traffic on Indian highways by Crisil Research, based on toll revenues, showed that overall traffic growth, estimated at 7-8% between 2008 and 2011, fell to 3-4% in 2012 and 2-3% in 2013. This was due to the slowdown in commercial vehicle traffic. Passenger vehicle traffic posted a 15% average growth rate during this period.

The correlation of highway traffic to industrial production is high. As industrial production increases, the number of commercial vehicles used to transport industrial goods increases as well. But India’s growth in the Index of Industrial Production despite improving marginally recently isn’t expected to be very high for this fiscal year.

For FY15, Crisil estimates the growth in IIP to go up to 4% and road traffic to grow by 3-5%.

According to the March report, half the traffic in the north of the country comprises of passenger vehicles while the rest is commercial vehicles. In every other part of the country, the share of passenger vehicles on highways is much lower. In the south, 15% of the composition of traffic are passenger vehicles. In the east, it is the lowest at 8%.

From traffic information for over 100 national highway projects, commercial vehicle traffic accounts for about 75 percent of toll revenues. So a fall in this sector impacts the revenues of highway construction companies as well besides the operators of the commercial vehicles.