India is set to increase its metro network from an existing operational 697.43 km to a planned 1,985 km (increase by 1,315 km at an estimated investment of Rs 5,354 bn). This will take India’s investment in metros from Rs 1,484 bn to Rs 6,838 bn. The average cost of building metro has increased from an average of Rs 230 crore per km to Rs 407 crore per km. The cost increases or decreases largely, on whether the metro is built underground (higher) or at ground level.
This total projected increase in metro network of 1,315 km can be estimated to be completed upto 579 km (an investment of Rs 2,175 crore) in the medium term in the next 2-3 years and balance 735 km (an investment Rs 3,178 crore) planned in the longer term in the next 5-7 years.
India currently has operational metro network of 697.43 km in various cities – namely, Kolkata Metro in West Bengal (oldest metro in India), Delhi Metro (longest metro in India) and Noida Metro NCR, Hyderabad Metro in Telangana, Bangalore/ Namma Metro in Karnataka, Chennai Metro in Tamil Nadu, Kochi Metro in Kerala, Mumbai Metro and Nagpur Metro in Maharashtra, Ahmedabad Metro in Gujarat, Jaipur Metro in Rajasthan and Lucknow Metro in Uttar Pradesh.
Similar metros have been planned and/or are under construction in new cities totalling to 363 km (an outlay of Rs 1,331 bn)– namely, Pune Metro, Navi Mumbai Metro and Thane Metro in Maharashtra, Surat Metro in Gujarat, Kanpur Metro and Agra Metro In Uttar Pradesh, Indore and Bhopal Metro in Madhya Pradesh, Patna Metro in Bihar and Dehradun- Haridwar- Rishikesh metro in Uttarakhand.
Expansion projects in existing metro cities have also been planned and/or are under construction totalling to 951 km (estimated at Rs 4,024 bn) - namely, Delhi Metro and Noida Metro in NCR, Kolkata Metro in West Bengal, Mumbai Metro and Nagpur Metro in Maharashtra, Ahmedabad Metro in Gujarat, Jaipur Metro in Rajasthan, Lucknow Metro in Uttar Pradesh, Hyderabad Metro in Telangana, Chennai Metro in Tamil Nadu and Bangalore Metro in Karnataka.
Metro systems are natural monopoly and hence are regulated. The central government now requires a higher than before commitment from states and public-private partnership (PPP), in terms of land clearances and funding obligations. They offer viability gap funding of upto 40% in such PPP projects to attract the private players. The Metro Rail policy stipulates a shift from the ‘Financial IRR of 8%’ to ‘Economic IRR of 14%’ "in line with global best practices". The policy aims to encourage private investments across a range of metro operations through a PPP route for availing of central assistance for new projects. Private investment and other innovative forms of financing have been made compulsory to meet the huge resource demand for these capital-intensive metro schemes. Nowhere in the world has the construction and maintenance model of PPP in Metro rail completely succeeded. The track record of Reliance Infra with Delhi’s airport line or Mumbai Metro does not inspire confidence.
There is a general consensus that international experience offers less optimism in use of private finance as a dominant source of fund for these projects. As has been observed, the failure of many franchises suggested the prevalence of the “winners curse” syndrome, as bidders overreach themselves in order to win contracts. Unrealistic bids may occur because of excessive optimism of bidders.
Japan International Co-operation Agency (JICA) is the key funding agency. It has given debt of than Rs 1,000 billion across the metro projects in India.
The interest rate charged by JICA is the lowest compared to other Foreign institutions. For instance, for the Nagpur metro, JICA can provide a loan for 30 years at as low as 0.3% pa with a moratorium on loan repayment for 10 years. Comparatively the German Kfw’s rate of interest is 1.6% plus 6 monthly Euribor while then French AFD is ready to provide loan at 0.6% plus 6 monthly Euribor. Both have a moratorium period of 5 years. However, while JICA loan appears to be most attractive on paper, it wants the lender to buy only Japanese equipment. While they are of good quality the cost is higher.
The reason for selecting JICA as funding agency is due to the fact that they have a clause that allows government to appoint contractors, who will manufacture rakes in India, under its ‘Make in India’ initiative.
Asian Infrastructure Investment Bank (AIIB), Asian Development Bank (ADB), Agence Francaise Development (AFD), European Investment Bank (EIB), New Development Bank (NDB), Kfw- German government development Bank have also given debts for Indian metro projects.
Mumbai metro line 1 is the first metro to be financed by Indian banks. The Project has been financed by a consortium of banks led by Syndicate Bank. Syndicate Bank had undercut other lenders to edge itself into the consortium for Reliance Infrastructure’s Mumbai Metro project and head it. The other banks in the consortium are Indian Bank, State Bank of Hyderabad, Bank of Maharashtra, IDBI Bank and India Infrastructure Finance Company (UK).
Notably Syndicate bank’s Rs 1,928 crore exposure is understood to have been classified as a non-performing asset (NPA) in 2018 and it is currently assessing a restructuring proposal.
Some metro projects are formed in partnership with the private sector like Hyderabad metro (L&T), Mumbai metro (Reliance Infrastructure) etc. Notable Gurgaon rapid metro is entirely 100% owned by IL&FS.
Actual ridership of the Delhi Metro is, at most, one-fourth of the projected ridership, leading to an overestimation of the benefits (and unfair justification) of the metro system in the DPRs, during the planning phase. This has found to be true of most metro projections worldwide.
Future planning of metros in other cities should address this issue, and the travel demand models should be improved in order to provide a realistic projection of the demands, and, hence, the benefits of metro systems.
A comparison of ridership across cities shows that Kolkata with the cheapest fares has a higher ridership per km per day compared to Delhi. Also Delhi is faring much better than Chennai and Lucknow where the fares are higher. Notably even with comparatively higher per km per day ridership, Kolkata has recorded huge losses. This goes to show that non-farebox revenue is critical for the survival of the metros.