Domestic road transportation sector to grow by 10-12% in FY 2022: ICRA

With the encouraging trends visible so far, ICRA expects that the logistics sector would continue to pare back some of the volumes and revenues lost during the first quarter. (Bloomberg)

Domestic road transportation sector is likely to grow by up to 12 per cent in the next financial year supported by continued economic recovery, rating agency ICRA said on Wednesday.

The Indian logistics sector has witnessed a significant sequential recovery after experiencing severe disruption in the first quarter of fiscal year 2020-21, on account of the coronavirus-induced nationwide lockdown, it said.

With the encouraging trends visible so far, ICRA expects that the logistics sector would continue to pare back some of the volumes and revenues lost during the first quarter.

"Accordingly, it has revised the revenue contraction estimate for the sector to 4-7 per cent for FY 2021, from 12-14 per cent expected earlier. With continued economic recovery, the FY2022 growth is likely to be healthy at 10-12 per cent," ICRA said in a statement.

The recovery would continue to be led by rural positivity and pick-up in sectors like e-commerce, automotive and pharmaceutical, which have been faster than expected, it said.

Nevertheless, the recent spike in COVID-19 cases, and possibilities of further lockdowns being imposed to combat it, poses potential downside risks to these estimates, it added.

Rohan Kanwar Gupta, Assistant Vice President & Sector Head, ICRA Ratings said: "As the economy opened up and industrial, manufacturing, construction and consumption activities picked up pace, freight availability also improved, aiding recovery in the sector.

"Freight rates also held up in this period. As such, the pace of revenue contraction mellowed down significantly in Q2 FY2021, and reverted to growth trajectory in Q3 FY2021."

He further noted that this trend was also visible in E-way bill volumes, which reached pre-pandemic levels in September 2020 and posted year-on-year growth in all subsequent months.

"While freight volumes in Q3 FY2021 were supported by the historically strong festive period, the sector sustained its volume growth even after the season ended, giving comfort regarding the sustainability of the recovery," he said.

ICRA said the recovery has also been visible across other modes of transportation like rail.

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