Strategies to

Improve the
Financial
Performance of
Metro Rail Systems
in India
Dr. Sandip Chakrabarti
Indian Institute of Management
Ahmedabad
Metro rail networks booming globally…
• Metro rail is globally recognized to be an effective tool for:
• Encouraging public transit use and adoption
• Retaining transit patrons
• Promoting transit-oriented developments and activity patterns
• Increasing transit dependents’ accessibility to opportunities
• Reducing congestion and air pollution in cities, and
• Boosting the local economy

• By the end of 2020, more than 190 cities across the world had operational metro rail systems
• Total track length of over 17,000 km and total annual ridership of about 60 billion passengers

• The Asia-Pacific region experienced the highest growth in metro network length as well as annual
ridership, about 70% and 45% respectively, over the pre-pandemic five-year period (2014-2019).
• As of 2021, more than 450 new and proposed metro rail projects spanning over 8,500 km were being
developed globally.
…. and in India too
• India’s first metro rail service started in 1984 in Kolkata over a 3.4 km corridor
• Delhi was the second city to get a metro rail system where revenue operations started in 2002.
• India’s metro network has increased from 229 km across five cities in 2014 to 860 km across 20 cities
in April-2023, with about 5.6 km of metro lines being commissioned per month currently.
• As of September 2023, latest statistics show that more than 980 km of metro lines are being
constructed across 27 cities.
• Delhi has the largest metro network in India (nearly 400 km);
• Network length per million people of about 13 km; still significantly lower than Hong Kong (26 km) and Singapore (40 km)

• Metro rail development across large (e.g., Mumbai and Hyderabad), medium (e.g., Jaipur and
Nagpur), and relatively small (e.g., Indore and Agra) cities.
• A new system of semi high speed trains connecting metropolitan cities with regional growth nodes is
being built in India (e.g., the Delhi-Meerut RRTS).
Centre-State JV is the predominant model in India
▪ 50:50 JV (SPV) is the predominant model
▪ 20% central, 20% state and 60% multi-/bi-lateral
financing

▪ Private sector investment is limited

▪ the private sector is risk averse and hesitant in
investing

▪ Shortfall of funds to meet their financial

obligations (O&M and loan repayment),
must be met by the governments as
system owners
▪ Few lines operate in the PPP-DBFOT mode.
Most metro systems are loss making
Metro rail Total income as % of total expenses
system 2019-20 2020-21 2021-22
(City)
Delhi 92% 48% 58%
• Total income has been insufficient to
Lucknow 37% 17% 29%
cover the total annual expenses for the
Kochi 30% 33% 29%
Bangalore 44% - -
systems studied over the past three years
Mumbai 22% 34% 26% • Increasing financial losses, increasing
Hyderabad 78% 18% 21% financial stress

• Between 2014-2022, Government of India contributed about Rs. 90,000 Crore for metro rail projects
• Equity, subordinate debt, pass through assistance, grant, viability gap funding, etc.

• Over three years, the total annual budget allocation has increased from Rs. 18,998 Crore to Rs. 19,518 Crore
• In 2021-22, the fare box recovery ratios (i.e., fare box revenue as percent of operating expenses) of several
metros were under 100%;
• Most systems had not revised fares periodically
• Most systems did not have substantial non-fare revenue sources
Private investments need better risk management

Demand Risk Urban complexity and risks Revenue Risk - fare regulation

The government must prepare projects better to attract private investment:

• Appraise projects scientifically with demand/ridership projections to identify PPP’able parts of networks
• Boost ridership by implementing allied plans and policies
• For example transit use supportive development regulations, taxes on alternative modes, first/last mile connectivity
improvements, park-and-ride facilities, etc.
• Identify creative non-fare revenue streams to cover viability gaps to manage revenue risk
• Improve local and state government capacity in managing/facilitating development activities
• Offer reasonable fare setting and revision autonomy to the private players
• Consider innovative bundling of privatized projects (e.g., metro rail plus priced parallel roadway facility)
to improve financial viability and profitability of bundled projects
Metros- a huge financial burden for GOI, need
institutional reforms
• Metro rail SPVs/authorities severally constrained
• The sum total of fare, non-fare and other income streams is insufficient
• Unable to meet a significant part of non-operations costs such as finance costs, employee benefits, depreciation and
amortization expenses, and other expenses with.
• Large reported shortfalls
• Government owners forced to arrange for alternative funds
• Need to meet the total expenses/obligations and maintaining the planned level of service/operations
• These funds are not originally dedicated to metro
• Likely higher burden on taxpayers

A comprehensive institutional and policy framework is needed to ensure

• financial sustainability of metro systems
• continued political and social support for these systems, and to ensure
• that these systems can effectively meet their urban and regional sustainability goals
Why aren’t Indian metros financially healthy?
Ridership Estimation Cities Demographics Supporting policies
• There is a supply- • Some cities lack the • Lack of supporting policies such
demand mismatch. necessary geographic as
• Actual ridership and sociodemographic • subsidies towards personal
numbers are lower profiles to support vehicle ownership and use;
than forecasts their metro systems
• lack of transit-proximate activity
• Could be a result of • Policy support for locations, housing and
inaccurate demand metro rail gives opportunities;
estimations preference to metro
• inadequate metro rail network
rail over more flexible,
• Calls for more density;
useful and cost-
rigorous, scientific • lack of integration of metro rail
efficient LRT/BRT
feasibility lines with other urban/regional
systems
transit modes
Governments must take on greater responsibility!
Governments must do more to bring in private investments by ensuring reasonable,
predictable fare-box as well as non fare revenues with supportive laws/policies

1.Revamp fare setting and 2.Expand the non fare

3.Boost system patronage
regulation revenue base

• Adopt scientific approaches in
fare setting
• Implement mechanisms for
periodic fare revisions to
maximize user-fee based
revenues, and
• Carefully increase fare setting
autonomy for the private sector.
• Creatively identify, implement
and allocate significantly large
local/regional/national
“justified” non-fare revenue
streams
• Get creative in finding land use,
design, pricing, operations, and
other approaches for increasing
system patronage.
Fares must be cost reflective, revision institutionalized,
periodic and automated
• The fare setting/fixation/regulation process of Indian metro rail systems is not
streamlined or standardized
• Absence of periodic fare updates leading to gradual erosion of the real value of fares,
plummeting real revenues, increasing subsidy requirement
• Sudden large fare increases after long time periods potentially cause significant
customer dissatisfaction and ridership loss
• Fare box recovery ratios themselves are low and don’t ensure cost recovery for services
and reasonable return on capital investments
• This is a concern for government owned systems, given the GFR (2017) requirements
1. Revamp the fare setting & regulation
Institutional Issues Technical Issues General Considerations
• Adopt formula-based frequent, preferably annual, fare • The fare revision formula should • Systematic periodic fare
revisions to ensure small and regular (expected) fare address inflation effects on revision is essential to
increases O&M cost, energy, staff salaries, maintain a certain revenue
• Accept an overarching structure of a fare revision etc. level in real terms; any
formula (in line with Delhi Metro's 4th FFC • Productivity benefits, whenever significant deficit can impact
recommendations and international examples) applicable, should be passed on service quality and system
• Stipulate a maximum justified annual fare increase to customers. efficiency
rate that may be updated periodically. • Annual fare increase (%) cap and • Fare revision formula should
• Adopt a fare revision formula based on the specific floor may be necessary in the be reviewed as the system
context, and a detailed revision implementation average system wide fare or matures and productivity
process at the time of initial (first) fare notification. each fare slab. increases
• Implement automated fare revision at a certain date • Revision must be periodic • Fare increase should be
each year, subject to the ceiling (annual) and predictable. commensurate with service
quality maintenance or
• Fresh review and approval necessary only if fare improvement to ensure
revision beyond the rate ceiling is needed, or if any riders’ acceptability of such
change in the fare revision formula is proposed increases
• Establish an independent fare regulation body (similar
to the Central Electricity Regulatory Commission) to
deliver timely decisions
2. Expand non-fare revenue base – Key principles
Beneficiaries must pay Polluters must pay Collect & Spend locally

• Beneficiaries of positive • Polluters in the urban • Urban public

spillovers of metro rail transportation transit funds
(public transit in general) environment must pay should, to the
should contribute to for environmental and extent possible,
infrastructure social damages they be collected from
development and service cause and where they are
operations of metro • They must partially spent
systems mitigate their impacts
by contributing to
sustainable
transportation
investments.
Innovative funding and financing revenue
Three revenue generation mechanisms

A. B. C.
Land value capture Taxes and fees on Various carbon
mechanisms carbon-intensive taxes, and other
transportation local option taxes
modes and fees
A. Land Value Capture: Concept
• Land Value Capture (LVC) is an approach to generate/catalyze and recover part of the
additional value that infrastructure development (e.g., new projects or upgrades) generates or
can potentially generate in the private market, e.g., for private landowners.

• Strategic land use regulations, readjustments and development incentives in metro rail station
areas coupled with development-based LVC can help justifiably “capture” property value
increases due to the metro rail investments and simultaneously promote transit-orientation in
land uses and travel behaviors.

• The revenues from LVC can be leveraged to cover/finance the cost of metro infrastructure
development and operations/maintenance, and provide or improve public services, facilities
and even affordable housing for low-income groups.
A. Land Value Capture: Instruments for India
Fees and Taxes on private entities
• Betterment charge: One-time
charge for property value increase
(tested in Spain, Israel, Latin
American countries)
• Impact fees: One-time contribution
for obtaining development rights
(widely used, globally)
• Tax increment financing: Assigning
revenues from increased taxes to
the development (widely used in
the US)
• Special assessment districts:
Recurrent fee to recover
infrastructure costs from an area
• Local property tax: A mandatory
higher recurrent property tax
• Real estate transfer tax: Tax levied
during a real-estate transaction
Regulation of land use &
Government land or property
development
• Land readjustment: • Air rights development: Lease or
Regularization of private purchase of space above
land for new infrastructure such as stations
developments (tested in (tested in Canada, France,
Germany, Japan, Philippines, US)
Ethiopia, South Korea, • Leases or concessions or sale:
Philippines) Contract for using a site or
• Density bonuses: purchase of site for a payment
Payment for building in • Joint development agreements:
greater than usual Joint development on government
density or intensity site
• Conversion fee: Payment • Naming rights: Purchase naming
for developing in rights in exchange of a fee or
otherwise restricted responsibility
zones or plots
B. Tax on carbon-intensive modes
• A congestion charge (toll or tax), if calculated appropriately, can
effectively capture costs (negative environmental and social externalities)
travelers impose on each other, and optimize the use of a facility.
Congestion • Congestion charging revenues can be reinvested into public transit (metro
rail in this case), resulting in significant service quality improvements and
charging ridership gains.
• Many cities around the world including London, Durham, Stockholm,
Gothenburg, Milano, Valletta, and several US cities have either
implemented or are planning congestion charging.

• Appropriate market-based pricing of on-street parking and publicly

owned off-street parking is another powerful tool to charge motorists for
the negative externalities of vehicle use and generate large funds for
Parking pricing transit (metro rail in this case) infrastructure development.
• E.g., see San Francisco’s SF Park program and the European Union’s
Park4SUMP program.
C. Carbon taxes, and local taxes and fees
Carbon and emission related taxes
• Fuel carbon tax: An add-on fuel tax collected from motorists at fuel stations to address transport related carbon pollution. An
example is British Columbia’s carbon tax of 14.31 ¢/litre for gasoline (petrol) and 16.85 ¢/litre for diesel.
• Carbon tax: Carbon taxes are levied on industrial polluters to internalize the environmental and health costs of carbon emissions.
Sweden levies the highest carbon tax rate in the EU, of USD 130 per ton of carbon emissions.
• Cap and trade revenue: Revenues from emission permits in a cap-and-trade program can be used in sustainability projects. The
Indian Government is planning to develop the Indian Carbon Market (ICM) that can help activate this funding stream. For example,
California’s cap-and-trade program reduces pollution by imposing limits on emissions, and these limits become stricter each year.
• Tax on high emission vehicles: This is a tax on high emission passenger and goods vehicles to enter the city or a specific zone within
the city. Tax on high-emission heavy goods vehicles is standard in most European countries. Central London's Ultra Low Emission
Zone (ULEZ) program requires polluting vehicles of all categories to pay a ULEZ charge to enter the ULEZ. Commercial vehicles
entering Delhi pay an "Environmental Compensation Charge" that is used to fund sustainable transportation infrastructure.

Local taxes, fees and financing mechanisms

• Vehicle registration fee surcharge: An additional fee for registering vehicles in a city/jurisdiction. In San Francisco, Proposition AA is
a voter-approved USD 10 annual vehicle registration fee that generates USD 5 million per year.
• Employer levy: Dedicated contributions from large public and private employers in a city/region that generate traffic and benefit
from transportation improvements can be earmarked for expanding, maintaining and operating the public transport systems.
Global experience suggests that the levy could be a percentage of wages paid, or linked to number of parking spaces, etc.
• Green city bonds: These are municipal or city bonds with proceeds ring-fenced for sustainable infrastructure development projects
including transportation. Such bonds are common in Europe. Indore Municipal Corporation issued a green bond in 2023.
3. Boost System Patronage : Three key strategies
Operations: Goods transportation using metro rail

• Metro rail authorities should conduct demand assessments and explore the feasibility of running goods trains using special coaches at
certain off-peak hours of the day or during late nights. It is also possible to allow cargo bikes and porters affiliated with certain city
logistics companies in regular trains for a fee. The demand for goods transportation may be high in congested cities and where metro rail
network coverage and density are high. The demand may further grow as transit-oriented developments happen. The Delhi-Meerut
RRTS, for example, is planning to transport agricultural products and white goods according to media reports.

Planning: Improving first- and last-mile connectivity

• There is a large body of academic literature that underscores the importance of first- and last-mile connectivity to public transit stops and
stations as a key determinant of transit mode choice. Indian metro rail authorities should find creative ways including partnerships or
contracts with private sector mobility service providers or platforms to offer such connectivity using a blend of conventional vehicles
(e.g., buses and vans), app-based ride-hailing services, shared non-motorized transportation modes, etc. There are numerous global
examples where public transit operators offer or arrange/facilitate first- and last-mile connections with positive impacts on transit use.

Asset management: Park and ride facilities

• Literature suggests that park-and-ride (i.e., parking lots) near public transit stops and stations broadens the customer base for transit and
thereby increases transit ridership. Indian metro rail systems should strategically leverage their air rights to provide multilevel or
underground personal vehicle parking at select stations that suffer from inadequate local neighborhood connectivity. Parking can be
subsidized in a way that promotes transit use but does not discourage the use of other sustainable first- or last-mile modal alternatives if
they exist.
Institutional and policy reforms to improve the
financial performance
Key Recommendations
• Rethink India’s Metro Rail Policy goals and objectives

• Reset the key priorities of metro rail planning

• Develop Unified Metropolitan Transport Authorities (UMTA 2.0)

1. Rethink India’s Metro Rail Policy goals
and objectives
Activate innovative local revenue sources Streamline the metro rail fare setting,
for metro rail review and revision processes

Generate more public funds without hurting the economy

Select the most effective urban transport mix in cities
Promote transit ridership and transit-oriented built environments
Attract private sector participation to the extent feasible

Strategically enhance private sector

Increase financial powers as well as
interest in metro rail financing and
accountability of metro rail authorities
investing
2.Reset the key priorities of metro rail planning
Local decisions
Make ULBs key stakeholders in and
leverage their capabilities for metro
rail planning, operations, financing,
and local land use policymaking.
Design processes to incentivize
local-state collaboration to activate
creative local funding resources
using efficient and fair land use and
transport based charges and taxes.
Efficient pricing
Fix market inefficiencies, particularly
unjust subsidies for carbon-intensive
personal transportation modes,
using pricing tools; allocate revenue,
in part, to metro rail.
Search for ways to tax carbon across
sectors and support sustainable
transportation projects including
metro rail.
Accountability
Establish mechanisms to improve
government metro rail investment
decision-making; an arrangement of
independent project review,
appraisal and approval.
Incentivise and empower metro rail
agencies to maximize user fees and
tap into creative non-fare revenue
sources.
3.A proposal for developing UMTA 2.0
• In the proposed UMTA 2.0 model, the city-
level Unified Metropolitan Transport
Authorities (UMTAs) will serve as the
planner, owner, builder, and operator of all
transportation systems/networks within
their jurisdictions.
• The Unified Metropolitan Transport Fund
(UMTF), managed by the UMTA, be the
only city level fund that will be used for
funding multimodal transportation
systems.
• Models such as Transport for London
should guide India’s UMTA 2.0 framework.
• The UMTA 2.0 policy and implementation
strategy should be developed by a
relevant ministry such as the Ministry of
Housing and Urban Affairs.
Thank You!