Can Indian Railways Unlock the MSME Freight Opportunity? The FICCI–KPMG Report Says Yes

Earlier discussions around Indian Railways’ freight ambitions have centred on expanding tracks, increasing carrying capacity, electrifying routes and building Dedicated Freight Corridors (DFCs). These investments have undoubtedly strengthened the country’s logistics backbone. Yet the latest FICCI-KPMG report, Unlocking Rail Freight Growth: Making Rail Accessible for India’s MSMEs, argues that India’s next freight revolution will depend less on creating additional rail infrastructure and more on making that infrastructure commercially accessible to millions of small businesses.

This distinction is significant. Rail freight has traditionally been designed around large industrial customers moving bulk commodities such as coal, iron ore and cement in predictable volumes. India’s economic landscape, however, is increasingly driven by manufacturing clusters, engineering goods, agricultural value chains, consumer products, auto components and MSMEs that move fragmented consignments requiring flexibility rather than scale. The report therefore shifts the conversation from “How much infrastructure does Indian Railways need?” to “How easily can businesses actually use it?”

That change in perspective could unlock one of India’s largest untapped logistics opportunities.

India’s Logistics Challenge Is No Longer About Cost Alone

Indian Railways continues to enjoy a structural cost advantage over road transport for long-distance freight movement. Yet the report highlights a paradox: despite this advantage, India’s logistics expenditure still stands at ₹24.01 lakh crore, equivalent to 7.97% of GDP, with smaller enterprises bearing a disproportionately higher logistics burden than larger businesses.

The reason extends beyond freight tariffs. MSMEs often incur substantial indirect costs before cargo even reaches a railway terminal. First-mile transport, fragmented shipments, multiple handling points, storage delays, limited warehousing, uncertainty in wagon availability and inefficient last-mile connectivity together increase what the report describes as the Total Logistics Cost and Impact (TLCI). The framework demonstrates that businesses ultimately optimise for total logistics outcomes not merely the lowest freight rate.

For many MSMEs, therefore, road transport remains commercially attractive despite higher transport costs because it offers predictability, flexibility and door-to-door connectivity. The report argues that unless these hidden logistics frictions are addressed, rail’s inherent cost advantage alone will not significantly increase its modal share.

The Untapped MSME Freight Opportunity Is Larger Than It Appears

Perhaps the report’s most compelling contribution is its attempt to quantify the scale of the MSME opportunity for Indian Railways.

India currently generates an estimated 6,300 million tonnes (MMT) of originating freight annually. After excluding bulk commodities that account for nearly 70% of total freight movement, the remaining non-bulk freight pool is estimated at roughly 2,000 MMT. Assuming MSMEs account for around 50% of this segment, the report estimates a Total Addressable Market (TAM) of nearly 1,000 MMT for MSME freight.

Applying operational filters such as suitable lead distances of 500-600 kilometres, infrastructure readiness, shipment consistency and commercial viability reduces this to a Serviceable Addressable Market (SAM) of approximately 300 MMT. After accounting for behavioural barriers and realistic modal shift potential, the report estimates a Serviceable Obtainable Market (SOM) of around 100 MMT annually.

While 100 million tonnes may appear conservative, the report notes that Indian Railways currently handles roughly 110 MMT within the relevant basket of non-bulk freight. Capturing this obtainable market could therefore nearly double rail’s loading in this segment, illustrating that future freight growth may depend as much on attracting new customers as on expanding existing traffic.

Accessibility Has Become the Missing Link in Rail Freight

The report’s central proposition is that rail accessibility should be viewed as a multidimensional concept rather than merely physical connectivity.

To explain this, FICCI and KPMG introduce the Market Aligned Terminal Accessibility (MATA) framework, which evaluates freight terminals across four dimensions technical fit, commercial fit, access fit and institutional fit. Instead of treating every freight terminal as functionally identical, the framework recognises that manufacturing clusters, urban logistics hubs, agricultural aggregation centres and multi-commodity markets each require distinct infrastructure, service models and commercial arrangements.

The report illustrates this using representative business ecosystems. Delhi NCR and Bhiwandi require shared logistics hubs capable of consolidating parcel and e-commerce shipments. Manufacturing clusters such as Manesar require anchor-led terminals that simultaneously accommodate MSMEs. Agricultural regions like Nashik need storage, aggregation and rail-loading infrastructure capable of handling seasonal freight. The message is clear: terminal performance should be measured by freight capture and logistics outcomes rather than infrastructure provision alone.

International Experience Points Towards Integrated Logistics Ecosystems

The report draws lessons from Japan and China, both of which transformed rail freight competitiveness by integrating logistics services rather than relying solely on railway infrastructure.

Japan Rail Freight operates around 140 common-user container terminals, supported by scheduled freight services, standardised 12-foot containers carrying approximately five tonnes, coordinated trucking operations and highly efficient terminal systems that minimise handling time.

China followed a different path by building extensive logistics centres, inland ports and multimodal freight platforms capable of aggregating freight from manufacturing clusters before connecting them to domestic and international markets. Despite differing institutional structures, both countries demonstrate four common principles: integrated logistics platforms, cargo aggregation, seamless first- and last-mile connectivity, and digital coordination systems.

The implication for India is that future rail competitiveness may depend less on expanding rail corridors and more on creating logistics ecosystems around them.

Rolling Stock Could Become the Next Strategic Bottleneck

Infrastructure alone cannot generate freight if suitable wagons remain unavailable.

Indian Railways transported 1,588 million tonnes of freight in FY2023-24 through 11,724 freight trains every day. Freight volumes increased further to 1,615 million tonnes in FY2024-25 and 1,670 million tonnes in FY2025-26, representing steady growth. Meanwhile, the National Rail Plan envisages freight demand growing at roughly 4% CAGR while increasing rail’s modal share from below 30% today to 45% by 2050.

Meeting this ambition requires substantially faster wagon expansion. The active wagon fleet increased from 302,663 wagons in FY2021 to 346,366 wagons in FY2025, a CAGR of around 3%, which the report considers insufficient to meet future demand. Under business-as-usual growth, projected fleet requirements under the National Rail Plan increasingly outpace expected fleet availability through 2051.

Equally important is fleet composition. Around 57% of active wagons continue to comprise open high-sided wagons primarily serving coal and bulk minerals, while container wagons and specialised rolling stock critical for manufactured goods, consumer products and MSME cargo have remained broadly stagnant. The report therefore recommends shifting from traffic-led procurement to demand-led procurement aligned with future freight diversification.

A Blueprint for Rail Freight’s Next Growth Phase

Rather than presenting rail freight as an infrastructure challenge, the FICCI-KPMG report reframes it as an accessibility challenge.

Its recommendations range from GIS-based freight cluster mapping and integrated freight intelligence platforms using FOIS and GST e-way bill data to three-tier terminal modernisation, digital freight aggregation platforms, shared warehousing, multimodal connectivity and new business models involving third-party logistics providers, terminal operators and Farmer Producer Organisations (FPOs).

SMECommunities Perspective

The report ultimately suggests that India’s logistics transformation will not be determined solely by the kilometres of track laid or the number of freight corridors commissioned. Those investments have already strengthened supply-side capacity. The next frontier lies in reducing the commercial, operational and transactional barriers that prevent MSMEs from accessing that capacity.

If Indian Railways succeeds in making freight movement as accessible as it is efficient, it could unlock an estimated 100 MMT of additional MSME freight, strengthen manufacturing competitiveness, reduce logistics costs and move closer to its 45% national rail modal share aspiration. More importantly, it would reposition railways from being a transport provider for large industries to becoming an integrated logistics partner for India’s rapidly expanding MSME economy a shift that could prove as transformational as any infrastructure investment made over the past decade.