Metro rail policy to shape urban destiny

Clear stands taken on PPP, technology, urban mobility and economics make it a practical and welcome framework

There is 390 km of metro rail operational in nine Indian cities. A further 517 km is under construction. And another 595 km is being planned. As metro rail networks seek to transform more and more cities, issues connected with their orderly and sustainable growth have surfaced.

That is why the government of India’s announcement of a new Metro Rail Policy in August 2017 is indeed welcome. It follows an earlier (April 2017) stipulation from the ministry of urban development on procurement, which sought to provide a thrust to “Make in India” by specifying that 75 per cent of metro cars and 25 per cent of critical equipment and sub-systems had to be produced in India.

Metro rail is expensive—as expensive as the bullet train! The bullet train costs Rs 217 crore per km. Phase 3 of Delhi Metro cost around Rs 221 crore/km for the overground stretch and Rs 552 crore/km for the underground stretch. Lucknow’s priority corridor, which has just opened, has cost Rs 2,000 crore for 8.5 km, or Rs 235 crore/km. Hyderabad Metro (the only notable PPP project) has a cost of Rs 18,829 crore for 67 km (all three phases) which comes to Rs 281 crore/km.

So far, with the exception of Hyderabad Metro, parts of Mumbai Metro, and the Rapid Metro in Gurugram, most metro development has been sponsored by the Union government and state governments often backed by supportive bilateral or multilateral development finance. Going forward, with the increased pace of metro construction, continued public funding will be difficult to sustain. And running them departmentally, like PSUs, may not be desirable.

Thus, to start with, the policy explicitly recognises the need to have the private sector involved so as to tap private resources, expertise and entrepreneurship. This is a recognition of reality. A metro system is a complex system where many types of services mesh and integrate with each other. So areas like fare collection, station management, maintenance, security and maximisation of non-operational revenues like real estate and advertising clearly suggest themselves for handing over to private operators.

The policy recognises that the term “metro rail” is a catch-all, which in spirit seeks to capture the full spectrum of modern urban transport systems. The policy thus encompasses all forms stretching from BRTS (Bus Rapid Transit System) to tramways, light rail, metro rail and regional rail. In fact, nothing excludes this policy from embracing options like hyperloop, Metrino, pod taxi et al. Therefore, allowing for the private sector in a proactive manner brings in vision, energy, technology and funding. It does take a contrarian position to Dr. E Sreedharan, the doyen of India's metro movement, who is rabidly anti-private sector. Dr. E Sreedharan indeed has a point of view on very capital-intensive metro projects, but surely he would have no objection to the many other light-touch project options for smaller cities. Nor could he have a serious point of view against outsourcing non-core activities to the private sector, even in the larger projects.

In fact, the policy comes out best where it mandates an “alternative analysis” requiring a professional evaluation of the most suitable type of solution, as required by the interplay of population, density, income distribution and work-life transit patterns. Hopefully, this will see the over-emphasis on “metros” replaced with spiffier options like electric trolley buses and tramways.

The need for a comprehensive mobility solution is enshrined in the policy by its requirement of a Unified Metropolitan Transport Authority before a fresh scheme is cleared.

The bug-bear of urban mobility has been “last-mile connectivity”.

The new policy seeks to ensure projects focus on a catchment area of 5 km on either side of metro stations. This requires states to commit to provide necessary last mile connectivity through feeder services, non-motorised infrastructure like walking and cycling pathways and introduction of para-transport facilities.

And then on to economics.

The policy postulates an economic rate of return as distinct from a financial internal rate of return. For policy makers, this is a bold step and recognises the critical contribution of planned mass transportation and its externalities in a rapidly urbanising scenario.

Road ahead: If there is one area where the new metro policy could be faulted for inadequate attention, it is in the area of fixing institutional responsibility

Economics is but a step away from political economy. The recent spat between the Delhi government and the Centre (both 50 per cent shareholders of Delhi Metro) on the latest round of fare increases at Delhi Metro underscores the ex-ante need to keep fare fixation as a professional and technical subject. Thus, the policy clearly recognises the need to keep populism at bay and insists on the setting up of a Permanent Fare Fixation Authority.

The policy pushes the sponsor to look at creative ways of project financing through adoption of innovative mechanisms like value capture financing. It asks state governments to issue low-cost bonds to finance their share and pay for it by “betterment levies” that capture the increase in property prices whenever a metro appears.

The Central government has extended a participatory handshake to states. States can take up metro projects by exercising any of the three options for availing central assistance. These include PPP with central assistance under the Viability Gap Funding scheme of the ministry of finance, grant by the government of India under which 10 per cent of the project cost will be given as lump sum central assistance, and 50:50 equity sharing model between central and state governments. However, under all these options, private participation in operations and maintenance is mandatory.

The Rakesh Mohan chaired National Transport Development Policy Committee, in its report submitted to the Prime Minister in January 2014, had the following to say about the institutional structure surrounding metro rail: “Authority continues to be divided within and across levels of government. The Ministry of Urban Development is the nodal ministry for policy and planning at the national level for rail-based urban transport whereas all the responsibilities for the technical planning for rail-based UT systems are with the Ministry of Railways. State governments contribute to UT planning as part of their involvement in urban development authorities and departments of transport. Local governments have a limited role in transport planning but are generally responsible for maintenance. Multiple agency control, and diffused attention is not conducive to the provision and growth of urban transport along a sustainable path. Rectification of this weakness has become all the more urgent in view of the huge investments projected to be made in this sector.”

If there is one area where this new metro policy could be faulted for inadequate attention, it is in this area of fixing institutional responsibility. It continues to remain fuzzy.

In spite of this fuzziness, the massive migration expected from the rural hinterland to India’s towns and cities can only be sustained by relevant urban mass transport, quickly rolled out. India adds 25 km of metro rail every year against China’s 300 km. The pace has to pick up. To that extent, the new policy helps admirably.

The author is chairman of Feedback Infra. vinayak.chatterjee@feedbackinfra.com; Twitter: @Infra_VinayakCh