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Ensuring Financial Sustainability of India’s Metro

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• GS Paper 3: Infrastructure: Energy, Ports, Roads, Airports, Railways etc.
• Tags: #IndianMetro #CarbonEmission #IIMAhmedabad #UPSC #CurrentAffairs #MintEditorial.

Why in the News?

India’s expanding metro rail networks face financial challenges despite their potential to alleviate urban congestion. A research paper by The Infravision Foundation (TIF) and IIM-Ahmedabad recommends policy changes and innovative revenue sources to ensure their sustainability.

Growth of India’s Metro Rail Network

India has significantly expanded its metro rail network from 229km across five cities in 2014 to 860km across 20 cities by April 2023.

• The government has allocated approximately ₹90,000 crore for metro projects from 2014 to 2022.
• Metro rail networks are acknowledged globally for their potential to alleviate urban traffic congestion, enhance air quality, improve mobility, accessibility, and boost the local economy.
• While metros have improved public transport quality, they are capital-intensive and often struggle financially.
• Most metro systems, including mature ones, struggle to cover their operational expenses with existing revenue streams.
• The substantial financial losses incurred by metro systems may soon outweigh their environmental and social benefits.

The Infravision Foundation (TIF) and IIM-Ahmedabad’s research paper recommends a comprehensive institutional and policy framework to ensure the financial sustainability of India’s metro rail systems.

Importance of Financial Performance

Ensuring the financial performance of existing metro systems is crucial, distinct from choosing the right transport system for a city.

Challenges in Fare Management

Indian metro systems face issues like

• Infrequent fare updates
• Resulting in real fare value erosion
• Reduced revenues
• Higher subsidies, and
• Sporadic substantial fare hikes, which dissatisfy customers and lead to ridership loss.

Policy and procedural changes

The research paper recommends several changes to address these challenges. Key recommendations include

• Systematic Fare Adjustments: Implementing systematic and automatic formula-based fare adjustments to prevent erosion of real fare values.
• Independent Fare Regulation Committee: Establishing an independent metro fare regulation committee to oversee fare changes and maintain transparency.
• Leveraging Infrastructure Charging Experience: Utilizing India’s experience in determining user charges for infrastructure assets to guide metro fare policies.

Government Responsibility for Funding

• Governments at the central and state levels should take the lead in securing justified funding and revenue sources to supplement fares and non-fare revenues.
• Ensuring financial sustainability and preventing loan repayment defaults and service decline.

Justified Funding Sources

To support metro systems, governments can explore various justified funding sources, including:

• Property Value Gains: Appropriating a portion of property value gains resulting from investments in metro infrastructure.
• Green Investment Funds: Allocating a share of funds earmarked for green investments.
• Subsidy Savings: Redirecting savings from removing unjust subsidies on personal or carbon-intensive vehicles.
• Fiscal Tools: Utilizing fiscal tools such as taxes and fees.

Local and Equitable Approach

• These sources should primarily be local, targeting areas with concentrated beneficiaries.
• New fees and taxes should focus on promoting equity and addressing distortions like free parking.
• Increasing government funding support may be necessary if periodic fare revisions are not established to keep metro fares affordable and socially acceptable.

Principles for Non-Fare Revenue

The research paper outlines three guiding principles for non-fare revenue generation:

• Beneficiary Pays: Those benefiting from positive spillovers of metro facilities should contribute.
• Polluter Pays: Polluting urban transportation should compensate for the damages caused.
• Local Collection: Urban public transit funds should be collected from where they are expended, emphasizing efficiency, equity, and effectiveness.

Revenue Generation Avenues

The research paper suggests three revenue-generation avenues

• Land Value Capture: Leveraging mechanisms like air rights development.
• Carbon-Intensive Transport Taxes: Implementing charges on polluting transportation modes (e.g., congestion road fees).
• Carbon and Emission Taxes: Levying taxes under cap-and-trade systems, along with local taxes, fees, and finance sources (e.g., vehicle registration surcharges).

Key Elements for Metro Rail Financial Health

In summary, five core elements include

• Innovative Local Revenue Sources: Activate creative local funding avenues.
• Subsidy Removal: Eliminate private vehicle ownership/usage subsidies.
• Enhanced Metro Authority: Strengthen financial capacity and accountability of metro authorities.
• Fare Review Streamlining: Automate fare review processes.
• Private Sector Investment: Foster private sector involvement in metro systems and ensure responsible public spending on metro projects.

The research paper advocates for Unified Metropolitan Transport Authorities UMTA 2.0, where these authorities would have comprehensive control over transportation systems in their jurisdiction, including planning, ownership, construction, and operation. It suggests an organizational structure, delineating legal powers, functions, responsibilities, and accountability for these entities.

Source: Livemint

Mains Question

Explain the concept of unified metropolitan transport authorities (UMTAs) and how the proposed UMTA 2.0 model can contribute to improving the financial health of metro rail systems. What are the potential benefits and challenges associated with the implementation of UMTAs?