India’s Race To Broaden Metro Rail Initiatives Comes With A Viability Danger

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Metro Rails are mostly joint ventures between states and central governments. While some are built in partnership with private companies and backed by central government through one-off grants, others are wholly state-funded.

According to Finance Minister Nirmala Sitharaman’s speech on the 2021 budget, the central government’s share of the funding of underground projects is:

  • Rs 1,957.05 crore for Kochi Phase II of 11.5 km.
  • Rs 63,246 crore for Chennai Phase-II of 118.9 km.
  • Rs 14,788 crore for Bengaluru Phase 2A and 2B of 58.19 km.
  • Rs 5,976 crore and Rs 2,092 crore for Nagpur Phase-II and Nashik Metro, respectively

However, most operational networks reported losses before the pandemic.

Metro projects in Delhi, Bengaluru, Hyderabad and Mumbai had positive operating margins in FY 18-19 while the remainder failed to cover their operating costs over the period, according to Mihir Shah, Partner Government and Public Sector, Strategy and Transactions, EY India. “The Covid-19 pandemic has further worsened the financial position of all transit authorities.”

However, according to ShahbergQuint, there are very few cities in the world where conventional subway projects are operationally self-supporting. “The majority of them are funded by the government.”

Elias George, former head of Kochi Metro Rail Ltd and currently partner and head of infrastructure, government and healthcare at KPMG, estimates the financial success rate at around 5% worldwide. Of the roughly 200 subways in the world, maybe 10, like the Hong Kong or Tokyo subways, are making a profit due to the sheer size of passenger traffic and the monetization of commercial real estate, he told BloombergQuint in an interview.

One way to increase revenue is to develop more land near the subway network.

Former Finance Commissioner (Railways) V Sivakumaran says that only fare revenue cannot sustain the system. “Usually the world gives a higher FSI (salable area) along the subway route no matter what free land is available and the money you get from it is plowed into the subway.”

“So the government has to spend on the subway first and they recover by giving more FSI, etc. Or it’s a direct subsidy in the budget.”

However, the political motivation of a subway administration to look into other sources of income is still insufficient in this country, said George. “There needs to be a lot more pressure on state governments, city councils, and subway companies to take advantage of things like land valuation or transitory development, which automatically creates new areas when a subway Train goes there … Sometimes there is a division between them the subway company and the municipal body in which the subway is planned. You need to work and plan seamlessly. When this part works well, many non-tariff revenue problems can be resolved much better. “