A fair increase

While some parts of government are hell-bent on reducing the prices that consumers pay for services, others are taking the more rational view that people have to pay a fair price for the services they consume.

The case in point is the apparently substantial fare increase implemented by the Delhi Metro Rail Corporation (DMRC) on the commissioning of a fresh 8.9 km stretch, which more or less fully commissions its first above-ground east-west corridor.

The fare increase has two components. The first is a hike in the minimum fare from Rs 4 to Rs 6. The second is an increase in the maximum fare to Rs 14, following the increase in the length of the corridor.

The increase in the minimum fare simply takes it up to the initially recommended level. The Rs 4 fare had been offered as a special discount when the service was initiated.

As more people have found value in commuting by the metro, this enticement is perhaps no longer necessary. As for the maximum fare, the increase in length is proportionately greater than the increase in the fare, which means that commuters travelling the entire distance end up paying a proportionately lower per-km charge.

The true value of the higher incentive to travel longer distances will be realised once the second corridor "" underground, north-south, running from the Central Secretariat to the Delhi University north campus "" is operational.

Commuters coming into the increasingly congested parts of the city will pay about as much as they do today on chartered buses. They will make the trip in far less time. As a result, the roads will be free of the large numbers of buses that currently occupy so much space.

The economic justification for subsidising urban transport systems is simple. They ease traffic congestion in the inner parts of the city, which benefits all visitors to these parts.

And, by reducing the use of fuel-burning vehicles, they reduce pollution levels, which again benefits the entire city.

The question is: what is the best way to deliver the subsidy? In the case of DMRC, it is being done entirely through the capital route; the state and central governments have jointly provided equity funding, on which there is no expectation of return, which amounts to a capital subsidy.

The governments are using taxpayer resources to build the system because its benefits flow to the city as a whole, a far larger constituency than the users of the metro.

There is really no need to provide any additional subsidy to the users themselves; they should be charged what it costs to keep the system running.

This is the basic principle on which the fares have been set. It is an eminently sensible one, highly recommended to all branches of government who want to pass out subsidies.