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Business News/ Politics / Policy/  Financial constraints may slow down India’s Metro rail story

Financial constraints may slow down India’s Metro rail story

Private companies are reluctant to invest in Metro rail projects as studies show these yield minuscule returns

Photo: Burhaan Kunu/HTPremium
Photo: Burhaan Kunu/HT

New Delhi: One-and-a-half-years ago, when the Metro Rail Policy 2017 stated that the central government will approve and aid Metro rail projects only if they have private participation, India’s Metro man E. Sreedharan’s first reaction was “it will never work".

India had earlier tried three public-private partnership (PPP) experiments—Delhi’s Airport Metro Line, Hyderabad Metro and Mumbai Metro section—but either they were a failure or a bitter experience. Even sweet deals such as land parcels at prime locations had failed to invoke an encouraging response. The reason—it was not a profitable business deal for the private sector.

Metro rail projects are capital-intensive and are generally financed by central and state governments with equity and grants because it is their responsibility. World over, studies have shown that Metro rail projects never yield an investment return of more than 2-3%. Moreover, it’s the government’s responsibility and not a private business exercise.

In such a scenario why would private companies make huge investments in such loss-making transportation projects?

But despite that the policy made its mandatory to have private participation for approval and central aid. “Private participation either for complete provision of Metro rail or for some unbundled components (such as automatic fare collection, operation and maintenance of services) will form an essential requirement for all Metro rail projects seeking central financial assistance," says the policy.

It also states that the projects will be approved on the basis of “economic internal rate of return of 14%", a change from the existing “financial internal rate of return of 8%". The policy directs states to adopt innovative mechanisms such as value capture financing tools to mobilize resources for financing Metro projects by capturing a share of increase in the asset values through a “betterment levy". States will also be required to enable low-cost debt capital by issuing corporate bonds for Metro projects.

A senior urban development ministry official, requesting anonymity, said: “Metros are becoming a status symbol and all states want it without understanding its importance, feasibility and operations." Metro planning is a complex and challenging task which has become a political plank. The policy tries to address this.

However, an official from the Bengaluru Metro Rail Corp. Ltd (BMRCL), on condition of anonymity, said the policy has put the entire burden on state governments. “Our proposals were ready, but we were asked to comply with the 2017 policy. It requires comprehensive mobility plan for last-mile connectivity and setting up of united metropolitan transport authority. These things take time and such parameters are leading to increase in project costs," he said, adding it’s very difficult to get private investors for projects with negligible profit margins.

A data analysis of Metro traffic in seven major cities, including Delhi, Kolkata, Bengaluru, Hyderabad, Jaipur, Chennai and Mumbai, by Mint shows that barring Delhi, no other Metro service has a daily footfall of over 1 million. Delhi has a footfall of around 2.5 million. Besides, the average Metro fares per kilometre in India ranges between 1 and 3.5 per km. Mumbai Metro is the most expensive, while Kolkata Metro is the cheapest with an average fare of 0.9 per km .

So, is it that Metro rails were developed without proper planning? If yes, why will the private sector take on such projects?

India’s Metro dream started building up in 2006, when the National Urban Transport Policy was proposed and Metro rail systems for every Indian city with a population of 2 million or more was suggested. In 2014, the Union government under Narendra Modi announced that it would provide financial assistance for the implementation to all Indian cities having a population of more than 1 million. This was followed by the Union Cabinet approving Metro rail systems for 50 cities in May 2015.

With constant policy flip-flops, it seems the centre wants to reduce its share in the development of urban transportation infrastructure and get the states, which are financially “handicapped", to fund the projects.

Interestingly, India’s Metro rail story, which has been witnessing growth since 2002 due to centre-state cooperation, saw a dip between 2014 and 2016. Under construction Metro rail networks in India came down from 203km to 165km, according to the figures available with the ministry of urban development. From 2014 to 2017, the Union urban development ministry sanctioned 30,653.78 crore for Metro rail projects, but released only 12,345.33 crore.

Several infrastructure experts believe this slowdown is due to centre’s reluctance to fund projects and the financial constraints of state governments. Besides, the Metro Rail Policy 2017 has dampened spirits further.

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Published: 02 Jan 2019, 01:03 AM IST
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