Source – https://www.livemint.com/opinion/online-views/indias-metro-rail-systems-should-become-financially-sustainable-11696429843913.html
Publisher – Mint
The potential of metro rail networks to ease urban traffic congestion and improve air quality, mobility, accessibility and the local economy is globally recognized. India’s metro network has increased significantly, from 229km across five cities in 2014 to 860km across 20 cities in April 2023. In the 2014-2022 period, about ₹90,000 crore has been released by the government for these projects. While metro rail systems have raised the bar for public transport quality, they are expensive and their financial performance and patronage are not impressive. The existing revenue streams of most, including large and mature ones, are unable to meet their total expenses. The large financial losses incurred by metro systems may soon start to outweigh their environmental and social benefits.
A research paper by The Infravision Foundation (TIF) and IIM-Ahmedabad recommends a comprehensive institutional and policy framework to ensure financial sustainability that can guarantee continued political and social support, and help make sure these systems can effectively deliver on their goals.
While the selection of an appropriate transport system for a city is a separate issue, and metro projects must stand up to far more scrutiny, as TIF’s earlier research has highlighted, ensuring the satisfactory financial performance of existing systems is essential. The key is to regularly set appropriate fares, boost non-fare revenues and promote ridership. Non-fare revenue is the revenue generated by any means other than inflows from travel tickets (like parking charges, advertisements and levies).
Indian metro rail systems suffer from a lack of periodic fare updates, leading to gradual erosion of the real value of fares, plummeting real revenues, increasing subsidy requirements and sudden large fare hikes after long gaps. Such increases cause significant customer dissatisfaction and ridership loss. The research paper recommends a set of policy and procedural changes, specifically highlighting the need for systematic/automatic formula-based fare changes and the establishment of an independent metro fare regulation committee. India’s extensive experience in determining user charges for infrastructure assets can be leveraged.
The central and state governments must also take on the responsibility of securing innovative ‘justified’ funding and/or revenue sources to supplement fare intake and other operations-related non-fare revenues. This will ensure financial sustainability and help avert vicious cycles of loan repayment defaults and service deterioration.
Justified sources include appropriating part of the property value gains from investments, claiming a portion of funds earmarked for green investments, savings from a removal of unjust subsidies on personal/carbon-intensive vehicles, and using other fiscal tools (like taxes). Most of these sources should be local (i.e., where beneficiaries are concentrated), and new fees or taxes should aim at promoting equity (by removing distortions such as free parking, for example). Such measures will increase the share of total government funding support for metro rail systems, and if periodic fare revision processes are not established, this support may continue to increase just to keep the metro fares affordable and socially acceptable.
The research paper identifies effective, efficient and equitable non-fare revenue sources that can be leveraged for funding and financing metro rail systems. It provides three key guiding principles of such revenue raising: first, beneficiaries of the positive spillovers of metro facilities should pay; second, polluting urban transportation must pay for the damages caused; and third, urban public transit funds should (to the extent possible) be collected from where they are spent.
Based on global experiences and best practices, the research paper presents three revenue-generation avenues:
One, land value capture mechanisms (e.g., air rights development)
Two, taxes and fees on carbon-intensive transportation modes (e.g., congestion road charges).
Three, carbon and emission-related taxes (e.g., under a cap-and-trade system), and other local taxes, fees and sources of finance (e.g., vehicle registration surcharges).
In summary, there are five elements at the core of attempts to improve the financial health of our metro rail systems: activate innovative local revenue sources, remove subsidies on private vehicle ownership/usage, increase the financial power and accountability of metro rail authorities, streamline/automate fare review processes, enhance private sector investment in metro systems, and ensure that public money is spent responsibly on metro projects.
The principal change that is essential to effect such changes would be the establishment of unified metropolitan transport authorities (UMTAs). While the idea of a UMTA is not new, the research paper proposes a UMTA 2.0 model, where the authority for an urban or regional jurisdiction serves as the planner, owner, builder and operator of all transportation systems and networks within it. The study proposes an organizational structure for these entities , along with their legal powers, functions, responsibilities and accountability.
