ECONOMY

India’s Race To Expand Metro Rail Projects Comes With A Viability Risk

Unviable

Metro rails are mostly joint ventures between states and the central governments. While some are built in partnership with private companies, with central government support through one-time grants, others are financed entirely by states.

According to Finance Minister Nirmala Sitharaman’s budget 2021 speech, the central government’s share in funding for metro rail projects are:

  • Rs 1,957.05 crore for Kochi Phase-II of 11.5 km.
  • Rs 63,246 crore for Chennai Phase-II of 118.9 km.
  • Rs 14,788 crore for Bengaluru Phase 2A and 2B of 58.19 km.
  • Rs 5,976 crore and Rs 2,092 crore for Nagpur Phase-II & Nashik Metro, respectively

Most operational networks, however, reported losses even prior to the pandemic.

Metro projects in Delhi, Bengaluru, Hyderabad, and Mumbai had a positive operating margin during FY18-19, while the rest were not able to cover their operating expenses during the period, according to Mihir Shah, partner-government and public sector, strategy and transactions, EY India. “The Covid-19 pandemic has further deteriorated the financial position of all transit authorities.”

Yet, Shah told BloombergQuint, there are very few cities in the world where conventional metro projects are operationally self-sustainable. “Majority of them are financially supported by the government.”

Elias George, former head of Kochi Metro Rail Ltd and currently partner and head-infrastructure, government and healthcare at KPMG, puts the financial success rate world over at some 5%. Of the 200 odd metros in the world maybe 10 make a profit, like the Hong Kong or Tokyo metros because of the sheer size of the passenger traffic and monetisation of commercial real estate, he told BloombergQuint in an interview.

One option to boost revenue is to allow more land development close to the metro network.

According to V Sivakumaran, former financial commissioner (railways), just fare revenue will not be able to sustain the system. “Normally what the world does is, along the metro route whatever vacant land is available, you give it a higher FSI (saleable area) and whatever money you get from that is ploughed into the metro.”

“So, the government has to spend on metro initially and they recuperate it by giving more FSI, etc. Or it’s an outright subsidy in the budget.”

But, policy motivation for a metro administration to look at other revenue streams is still inadequate in this country, said George. “A lot more pressure needs to be put on state governments, city administrations and the metro companies to leverage things like land value capture or transit-oriented development where new areas automatically develop when a metro goes there… Sometimes there is a disconnect between the metro company and the municipal corporation where the metro is planned. They need to work and plan seamlessly. If that part works well a lot of non-fare revenue challenges can be settled in a much better way.”

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