India’s industrial landscape is marked by a stark regional imbalance, with western and southern states  surging ahead while northern states struggle to keep pace. Without urgent intervention to rationalise freight costs and improve logistics infrastructure, northern states risk falling further behind

India’s industrial growth narrative presents an alarming regional imbalance that cannot be ignored. While western and southern states like Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Telangana stand as formidable economic powerhouses, their northern counterparts state such as Punjab and Uttar Pradesh remain entrenched in stagnation. This disparity poses a significant threat to our ambition of achieving a ‘Viksit Bharat’ by 2047. A critical factor driving this divide is logistics. The lack of adequate access to seaports makes manufacturing in northern India prohibitively expensive, crippling competitiveness and driving away crucial investment. If we fail to rationalise freight costs, the industrial sector in landlocked states will perpetually struggle, deepening the economic chasm.

Logistics: A Key Driver of Industrial Inequality 

With a coastline stretching 4,316 km, southern and western states possess undeniable locational advantages that enable seamless exports to markets in China, Korea, Taiwan, Japan, and throughout the ASEAN region. Tamil Nadu dominates India’s automobile sector, while Maharashtra, Gujarat, Karnataka, and Telangana lead in engineering, IT, and textiles. Collectively, these five states account for a staggering 53 per cent of India’s total factories, firmly establishing their dominance in industrial growth. Maharashtra’s industrial sector has experienced explosive growth, achieving a compound annual growth rate (CAGR) of 11.77 per cent from FY 2021-22 to 2023-24-the highest in the nation. Tamil Nadu follows closely at 11.63 per cent, with Telangana at 11.47 per cent, Gujarat at 10.2 per cent, and Karnataka at 8.47 per cent. In stark contrast, northern states such as Haryana (7.1 per cent), Punjab (6.78 per cent), and Uttar Pradesh (4.7 per cent) are falling behind, as highlighted by the Economic Survey of these states.

The Annual Survey of Industries (ASI) for 2022-23 further underscores this imbalance. Maharashtra and Gujarat contribute nearly 40 per cent of India’s industrial output, while Uttar Pradesh and Punjab generate a mere 8.5 per cent and 2.8 per cent, respectively. The exorbitant cost of transporting goods from landlocked northern states to coastal export hubs severely undermines competitiveness. This issue has dampened overall industrial sentiment, making these states far less attractive for both domestic and foreign direct investment (FDI) compared to their southern and western counterparts.

FDI trends paint a stark picture of this disparity. According to the Ministry of Commerce and Industry, Maharashtra has emerged as the leading recipient of FDI from FY 2021-22 to 2023-24, attracting Rs 5,32,429 Crore-an impressive 30 per cent of total FDI equity inflows. Karnataka follows with Rs 3,89,483 Crore (22 per cent) and Gujarat with Rs 2,99,624 crore (17 per cent). Together, these three states command an astounding 69 per cent of India’s total FDI, while the remaining states are left with a mere 31 per cent. This clearly illustrates how locational advantages significantly dictate industrial investment.

Export statistics serve as further evidence of this imbalance, with Gujarat and Maharashtra accounting for over 50 per cent of India’s total exports, thanks to their robust seaport infrastructures. Without immediate and decisive intervention, this disparity will only continue to widen, threatening the future economic landscape of our nation.

Seaport-Led Industrialisation:

A Global Perspective

Seaports play a critical role in industrialisation. Some countries, like China, have successfully leveraged their coastal regions to expand manufacturing capabilities. In China, industrial hubs are strategically located near ports, minimising logistical costs. In contrast, India’s hinterland dry ports and container depots are, on average, 1,400 km away from seaports, leading to

significantly higher export and import costs. This distance compounds competition from China, which accounted for nearly 42 per cent of India’s textiles and clothing imports, 40 per cent of machinery imports, and 38.4 per cent of electronics imports in 2023-24.

Why Freight Costs Matter

The Reserve Bank of India (RBI) reported in 2022 that India’s logistics costs are already 14 per cent higher than the global average, disproportionately affecting manufacturers in landlocked northern states that rely on dry ports as critical trade gateways. Manufacturers in these areas face higher freight costs due to longer transit distances to seaports like Mumbai, Mundra, Kandla, and Chennai.

Dependence on road transport is 30-50 per cent more expensive than rail. The lack of dedicated freight corridors slows transportation efficiency and increases operational expenses. Industries in northern states not only receive raw materials from coastal regions but also send finished products to markets using the same routes.

While dry ports have been established to bridge this gap, they often function merely as booking centres rather than effective logistics solutions. As a result, northern manufacturers face a double freight burden, forcing many to relocate or shut down operations due to unsustainable costs. In contrast, industrial clusters in coastal states benefit from proximity to ports, enhancing their global trade competitiveness and generating employment.

Railway freight initiatives: The Indian Railways has successfully implemented targeted freight subsidies in select sectors. First, A 40 per cent discount is available for loading fly ash. Second, Traditional Empty Flow Directions (TEFD) rebate up to a 20 per cent reduction in costs for freight that moves along underutilised routes. Third, 157 ‘Kisan Rail’ services transport perishable goods and vegetables. A 50 per cent subsidy on railway freight, funded by the Ministry of Food Processing Industries under the "Operation Greens" scheme, has significantly boosted farm exports of agricultural commodities. Fourth, the Department for Promotion of Industry and Internal Trade (DPIIT) offers a 20 per cent Transport Incentive (TI) Scheme for finished goods transported via rail or the Inland Waterways Authority of India, from the port nearest to the location of industrial units in the North-Eastern Region (NER) to the buyers’ area.

How freight subsidy could be

re-structured

Based on previous initiatives, a targeted Northern States Freight Subsidy Program could be a game changer and might be structured as follows: Subsidised Rail Freight Rates:

1.Offering up to a 30-40 per cent subsidy on goods transported from northern dry ports to major coastal hubs.

2-Expanding Empty Flow Rebates: Extending TEFD rebates to northern states to make backhaul freight more economical.

3-Infrastructure Development: Investing in multimodal logistics parks and dedicated freight corridors in the northern states.

The Way Forward:

The central government must not overlook its landlocked northern states to achieve inclusive industrial growth. Rail freight subsidies will support micro, small, and medium enterprises (MSMEs), attract new investments, and create jobs.

While global trade regulations often scrutinise subsidies, the pricing autonomy of Indian Railways allows for strategic adjustments in freight costs without breaching World Trade Organisation (WTO) rules. By revising freight structures, northern manufacturers can enhance their global competitiveness. If we aspire for a ‘Viksit Bharat’ (Developed India), it is essential to ensure balanced industrial progress. To conclude, India’s industrial growth is marked by stark regional disparities, with southern states  while northern states  lag behind. A key driver of this imbalance is logistics, as landlocked states face high freight costs that hinder competitiveness and discourage investment.

Proximity to seaports has enabled coastal states to dominate exports, attract foreign direct investment, and develop thriving industrial sectors.  To bridge this gap, India must implement a targeted Northern States Freight Subsidy Program, including subsidised rail freight rates, expanded empty flow rebates, and enhanced logistics infrastructure. 

(The Author is Vice-Chairman of Sonalika ITL Group, Vice-Chairman of the Punjab Economic Policy and Planning Board, Chairman of ASSOCHAM Northern Region Development Council. Views expressed are personal)