Indian Railways could unlock an estimated Rs 8,700 crore in additional annual freight revenue by making rail freight more accessible to India's micro, small and medium enterprises (MSMEs), according to a joint knowledge report by FICCI and KPMG in India.
The report, Unlocking Rail Freight Growth: Making Rail Accessible for India's MSMEs, estimates that MSMEs represent an untapped opportunity of around 100 million tonnes (MMT) of freight annually for Indian Railways. However, it argues that the key barrier is no longer freight pricing but access to rail logistics infrastructure.
According to the study, India's logistics costs stand at Rs 24.01 lakh crore, equivalent to 7.97 per cent of GDP, with smaller businesses facing a disproportionately higher logistics burden than larger enterprises. While rail transport costs are estimated at Rs 1.96 per tonne-km, compared with Rs 3.78 per tonne-km for road transport, many MSMEs continue to rely on roads because of hidden logistics costs such as cargo aggregation, terminal handling, inventory carrying costs and service uncertainty.
Hidden Logistics Costs Offset Rail's Cost Advantage
The report introduces a new Total Logistics Cost and Impact (TLCI) framework, which evaluates logistics decisions beyond freight rates by considering time-related costs, uncertainty, inventory carrying costs and broader business impacts.
Its analysis shows that although rail appears cheaper on paper, additional expenses linked to first- and last-mile connectivity, cargo handling, delays and service reliability often negate the cost advantage, prompting MSMEs to continue using road transport.
MSMEs Represent A Major Freight Growth Opportunity
MSMEs contribute more than 31 per cent of India's GDP, 35 per cent of manufacturing output and nearly half of the country's exports, making them one of the largest potential sources of future freight demand.
The report estimates that India's total addressable MSME freight market is between 1,000 and 1,200 MMT, with a serviceable market of around 300 MMT. It believes Indian Railways can realistically capture around 100 MMT, effectively doubling freight loading in the non-bulk goods segment.
Terminal Modernisation Has Left Smaller Businesses Behind
The report argues that rail freight infrastructure has evolved into a two-tier ecosystem.
Modern private sidings, Inland Container Depots (ICDs), Private Freight Terminals (PFTs) and Gati Shakti Cargo Terminals increasingly operate as integrated logistics hubs serving large industrial customers. In contrast, many common-user railway goods sheds continue to suffer from poor road connectivity, inadequate warehousing, limited mechanisation, weak digital systems and fragmented logistics services.
Although private terminals account for only around 37 per cent of identified rail terminals, they handle nearly 70 per cent of inward and 72 per cent of outward freight traffic, highlighting the growing access gap between large industries and MSMEs.
Report Calls For New Terminal And Wagon Models
To address these structural barriers, the report proposes two new frameworks.
The Market Aligned Terminal Accessibility (MATA) model focuses on improving terminal infrastructure, commercial viability, first- and last-mile connectivity and institutional coordination. Recommendations include developing freight aggregation platforms, modernising common-user terminals, digitising customer services and strengthening partnerships between Indian Railways and state governments.
The report also introduces the Wagon Access and Availability (WAA) model, recommending demand-led wagon planning, commercially viable aggregation-oriented freight products, greater private sector participation in wagon maintenance and long-term wagon procurement planning.
Potential Economic And Environmental Gains
According to the report, capturing the estimated 100 MMT freight opportunity could generate approximately 50 billion net tonne-kilometres (NTKM) annually for Indian Railways, translating into Rs 8,700 crore in additional freight earnings.
The modal shift from road to rail could also reduce freight transport emissions by an estimated 4.5 million tonnes of CO₂ equivalent every year, strengthening India's decarbonisation efforts.
International Models Offer Lessons For India
Drawing lessons from Japan and China, the report recommends developing integrated logistics hubs, expanding cargo aggregation services, strengthening first- and last-mile connectivity and improving digital freight booking and tracking systems to make rail more accessible for smaller businesses.
The report concludes that the future competitiveness of Indian Railways will depend not only on moving freight efficiently across its network but also on making that network easier for businesses of all sizes to access through better terminals, customer-oriented logistics services and improved wagon availability. |
