India's freight corridors to boost logistics sector

Question: My firm in the Gulf is importing heavy machinery manufactured in Uttar Pradesh. However the time involved is considerably high as it has first to be transported by rail to the JNPT Port in Mumbai before the consignment is shipped to the Gulf. Is there likely to be any improvement in the logistics in future?

ANSWER: The logistical landscape in India is changing dramatically with the commencement of the eastern Dedicated Freight Corridor (DFC) which has become operational. The western DFC connecting North Indian states with Mumbai should be commissioned next year. This would ensure that 480 heavy-haul freight trains will operate every day connecting the industrial centres of North India to the container terminal of JNPT in Mumbai. The World Bank has taken cognisance of this development and in its recent report has stated that the DFCs will help India to reduce the high logistics costs which is currently around 15 per cent of the GDP to 8 per cent of GDP, which will be in line with global standards. The time taken for exporting goods will reduce substantially. This will also have an impact on road transport because each freight train on the DFC, which is one kilometre in length, will carry cargo equivalent to 72 trucks. Hence, the number of transport vehicles on the highways of India will decrease once the DFCs are fully operational. It will help India to reduce fossil fuel consumption and reduce the carbon footprint as trains are electrified.

Question: My son who got married recently has taken personal loans for setting up his home. While he has got a job recently, I am worried that the cost of repaying the loans will go up substantially and he may not be able to repay on time. Are my fears misplaced?

ANSWER: The Reserve Bank of India has increased the risk weightage for unsecured personal loans. The reason is that the central bank is worried about the unbridled growth in unsecured loans as almost 80 per cent of consumer durable purchases during the current festive season was through consumer finance schemes which were spiced up with attractive EMI offers. Most of these loans are bereft of adequate security cover. Therefore, last month the RBI increased the risk weight on personal loans and credit card outstandings in order to slow down the growth in these segments. This has been done by directing banks and non-banking finance companies to hold 45 per cent of their capital in respect of consumer loans. This capital adequacy requirement may result in the cost of loans going up, though it will not happen immediately. In order to keep the Indian banking system safe and secure, the growth in personal loans is being slowed down with an increased emphasis on risk management to support asset quality. However, the new regulations of the RBI will not apply to home loans, loans to medium, small and micro enterprises for carrying on business, and loans given against the security of gold.

H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.