India has built a metro rail network in 20 cities, stretching 774 km, but we are still grappling with a fundamental question: how to make this capital-intensive, mass rapid transit system financially viable? This has assumed increased significance with Covid-19. For, economic pundits had argued all along that the viability of a metro rail project would depend on the robust income it could garner from non-ticketing sources.
The pandemic, however, has razed that theory to the ground. First, there were waves of lockdown with zero or negligible ridership. Then even unlocked periods saw a steep fall in riders, which meant revenues from other businesses — property rentals, parking lots, advertisements et al— nosedived.
Big metros such as Delhi and Bengaluru (called the Namma Metro) had to reduce the licence fees of private parties in proportion to the percentage of ridership. The result— revenues from non-ticketing sources for the Delhi Metro declined by 48%, from Rs 506 crore in 2019-20 to Rs 245 crore in 2020-21.
For the Namma Metro, other incomes fell from Rs 43 crore to Rs 24 crore during the same period. The figures for 2021-22 have not yet been audited, hence the metros are not making them public. The financial viability of this mass transit is gaining significance as metro building is picking up pace across the country, with cities such as Patna, Surat and Agra beginning construction work. In Pune, work on a 23-km-long elevated line began in January, amid the Omicron wave.
This is a public-private partnership (PPP) project with Tata-Siemens as the private party. Another worrying aspect is that in several new projects, the interest component of the loan is much higher than what the Delhi Metro Rail Corporation (DMRC) managed to secure from JICA (Japan International Cooperation Agency) in the early days of building metro, which was about 2% interest rate with a 30-year repayment schedule plus 10 years of moratorium. In contrast, the interest on the loan for Hyderabad Metro, a PPP project, is 11%.
The cities that have operational metros today are Delhi, the seven NCR (national capital region) hubs, Bengaluru, Hyderabad, Kolkata, Chennai, Jaipur, Kochi, Lucknow, Kanpur, Mumbai, Ahmedabad, Nagpur and Pune. “It’s a fact that metros are not meant to be financially viable. It is for public good. But thanks to the reckless manner in which it is being expanded, many are heading towards a huge financial disaster,” says OP Agarwal, CEO of Delhi-based WRI-India. Most Indian metro projects have an identical financial formula — 40% government grant (20% each from the Centre and from the state where it is built) and the rest 60% mainly debt. To understand how a metro project is financed, let’s take a real example.
The Rs 11,400 crore Pune metro project (33.2 km) was inaugurated in March. The combined loan from two entities — EIB, Luxembourg (Rs 4,140 crore) and AFD, France (Rs 1,690 crore)—is much higher than the total equity and subordinate debts of GoI and the Government of Maharashtra (Rs 1,954 crore each). Then there are other smaller segments such as grants on land and taxes as well as grants from other state government entities.
To put it simply, metros in India are mostly built on borrowed money (55-60% of the project cost) and the loan repayment with a hefty interest haunts the transporter for many years, taking a toll on its financial health. Before the pandemic, the Delhi Metro posted operational profits (Rs 758 crore in 2019-20), but once its loan amount is factored in, it is in the red. As on March 31, 2022, the Delhi Metro repaid Rs 8,199 crore of its loan, of which Rs 4,002 crore was interest alone. Being a large metro in a city of an estimated 30 million population (17 million in 2011 Census), it can still absorb financial shocks.
But what about a small metro network in a city of, say, 5 million people? “It has become fashionable in India to build metros even in small cities,” says NVS Reddy, managing director of Hyderabad Metro. “Once loan repayment starts, the problem begins. Unless a city has at least 1 crore (10 million) population, it is difficult to sustain a metro system,” he says, adding that MetroLite (light urban rail transit system) and MetroNeo (rubbertyre electric coaches powered by overhead traction) are budget options for tier-2 cities.
THE BENEFITS
Several experts and policymakers argue that economic and environmental benefits of a metro outweigh their usual financial hiccups, which means, the nation must not go merely by profit and loss. Vikas Kumar, newly appointed managing director of DMRC, says the economic landscape of Delhi and its neighbourhood changed once the metro rolled out. “Areas such as Dwarka, parts of Noida, Gurgaon, Faridabad and Ghaziabad became residential as well as commercial hubs because of easy metro connectivity. The markets of Old Delhi also got a new lease of life,” he says.
Being a nonpolluting mode of transport, the metro has an environmental spinoff too. According to Kumar, in 2021 alone, an estimated 516,000 vehicles were taken off the streets of Delhi because of the metro. Though there is no denying the metro’s massive benefits, should India create more and more of this transport behemoth, which will bleed the exchequer? Twenty-seven cities are already on the metro map of India (20 operational, 7 under process). So, is the nation creating 27 loss-making gover nment bodies? Instead, shouldn’t India embrace a superior financing model to build metros without making any loss?
BUDGET METROS
GoI has recently realised its folly and is now on a path of course-correction by promoting budget metros — MetroLite and MetroNeo. MetroLite, for which specifications were issued in June 2019, can be developed with 40% cost of a conventional metro. MetroNeo, which is more like a trolleybus system and can be built at 25% cost of a metro, is a recent concept in India.
Its specifications were issued in November 2020, i.e., after the outbreak of the pandemic. MetroNeo has been proposed for the city of Nashik, which has a population of 1.5 million (2011 census) only. GoI has adopted these new modes as the metro rail is often demanded for pure political purposes — the metro as an ornament adorning the city’s landscape. A 12-km-long Jaipur metro, constructed seven years ago, is a classic example of building a non-viable, highly loss-making metro system. The city has a population of just 3 million, according to the 2011 census.
ET’s questionnaire to the Jaipur Metro Rail Corporation did not elicit any response. Another question that has cropped up recently is why should a taxpayer from Guwahati or Chandigarh finance a metro in Jaipur or Agra even if we accept metros need to be built for public good, and not for profit? Shouldn’t the immediate beneficiaries pay for it? Agarwal of WRI India explains: “All metros are losing money every month.
It is running on a government subsidy which is paid from general tax collection. Ideally, those who benefit more out of a metro network should pay more. This is a model adopted in Paris.” A handful of cities in India have moved towards that direction. In Bengaluru, newly built Hebbagodi station, part of phase II of the metro project, is funded by Biocon Foundation (Rs 65 crore). Maharashtra has recently reintroduced metro cess, charging 1% on sale of properties in four select cities — Mumbai, Thane, Nagpur and Pune. So a metro system might have to look at a sound financing model to stem losses, or raise cess from immediate beneficiaries to keep itself afloat.