Indian air cargo, hamstrung for a number of years by cost, cargo structure and infrastructure constraints, is set to take off within the next three to four years according to a new report by consultancy firm, Frost & Sullivan.

An Indian economy on a solid growth trajectory and ongoing liberalisation of the aviation sector, will be the key drivers which will also see the country emerge as a cargo hub due to its geographic location between SE Asia and EU nations, according to the report.

Frost & Sullivan’s analysis of the Indian air cargo market, finds that the total air cargo (domestic and international) was about 1.77 million tonnes in 2007-08 and is expected to grow at a compound annual growth rate of about 8.3 per cent by 2013.

“Increasing globalisation, integration of the world economy, and the strengthening of India in the IT service provider space has resulted in a booming Indian economy, supporting a thriving global economy,” say Frost & Sullivan analysts Arun Narayanan and Chethan Kambi. “This has increased the aggregate demand and is an important driver for air cargo services.”

The market will get a further boost with the recent raise of the FDI limits allowing up to 74 per cent stake in Indian cargo airlines, as this will bring in the much-needed capital and global best practices to the Indian air cargo industry. Proactive and favorable government policies will encourage investments in the air cargo industry and facilitate the setting up of the required amenities and infrastructure. It will also help establish multi-modal cargo hubs for quick and efficient transportation of cargo, the two analysts say in their report.

But it will not all be smooth sailing as market participants will need to focus on establishing integrated air cargo complex, including warehouse, and storage facilities across the country.

They also need to work towards ensuring improved aviation facilities for cargo handling and increasing the fleet of freighter aircraft in India. And infrastructure problems need to be addressed to improve road and rail connectivity to and from the cargo hubs to ensure a well developed and efficient feeder network.

Although international cargo traffic is currently concentrated at the three key international gateway airports – Mumbai, Delhi, and Chennai, the development of supporting infrastructure in the new Greenfield airports, Bangalore and Hyderabad, and with the proposed air cargo hub at Nagpur, higher cargo traffic is expected from these airports as well, according to the report.

“Although international air cargo traffic is much higher than the domestic traffic, the latter offers greater potential for Indian investors, since regulations prevent foreign airlines from competing in the domestic air cargo market. This is the segment to watch for growth, given the current robust growth in Tier 2 towns and the need for increased connectivity for cargo movement between the Tier 2 cities and cargo hubs” says Ratan Shrivastava, director Aerospace and Defence Practice.

“On an average, the air freight traffic growth has been significantly higher than the gross domestic product (GDP) growth rate and this trend has been rising over the years,” observes Narayanan in the study. “This is the result of an increasing use of the aerial mode to transport freight, particularly perishables and time-sensitive products. The policy framework of the government in this sector, notably the liberal bilateral agreements, open-sky policy for air cargo, relaxation of foreign direct investment (FDI) limits etc. has also helped in generating higher traffic growth.”