Abhaya K Agarwal
The Delhi Metro has become a lifeline to millions of people in the National Capital Region. Its average daily ridership has increased by 56% in the last five years. Despite this, the Delhi Metro Rail Corporation (DMRC) reported a net loss of around Rs 708 crore in 2015-16. The fare fixation committee had recommended a two-phase fare hike to double the fares and make up for the financial losses and pay back Japanese loans. The first hike came into effect in May when the maximum fare was hiked from Rs 30 to Rs 50. The second fare hike earlier this month saw the maximum fare increase to Rs 60. After the hike in May, DMRC saw the number of passengers fall from 27 lakh per day in June 2016 to 25 lakh per day in June 2017. The second hike is expected to further reduce daily ridership, though this may be expected to recover in due course of time. With Metro fares having more than doubled since May, 2017, the DMRC’s revenue from traffic operations is expected to increase significantly despite a steep fall in daily ridership. But, there are a few questions that need to be answered before one justifies or opposes the fare hikes. Is there any other way to reduce the DMRC’s losses than by increasing fares? Could these fare hikes have been effected in a different way?
The Delhi Metro connects the heart of the city to its outskirts where a majority of Delhi’s manual workers live. The recent fare hikes pose a huge financial burden on these workers who are likely to lose one-fourth of their daily earnings on travel expenses. A fare determination mechanism should be created keeping in mind affordability and the project’s viability and it should be a continuous process reflecting y-o-y adjustment rather than a one-time adjustment in 7-8 years. In Singapore, the fare adjustment mechanism is based on the Consumer Price Index (0.5x), Wage Index (0.4x) and Energy Index (0.2x), thereby incorporating the affordability factor into the process.
In India, Transit Oriented Development (TOD) and Value Capture Finance (VCF) have been proposed in the Metro Rail Policy 2017 to enhance revenues. Commercial development at stations and on other urban land has been used as a key instrument for maximising revenues in metro rail/railway systems of cities around the world. In Copenhagen, about 40-45% of the construction cost of the metro was met through VCF, i.e. by selling real estate around the metro sites. In the TransMilenio BRT System in Bogota, fare revenue was only to meet the operational expenses of the private player, thereby making the system affordable to all. In Hong Kong and Tokyo, metro agencies have maximised revenue through commercial development at stations and on land allocated for this purpose. DMRC may also look to generate revenues through TOD, VCF and other similar taxes/charges.
The betterment tax in Greater London is a classic example in this context. It has been levied by increasing the business property tax in Greater London, to add a new line to the Cross Rail 1 project. In Delhi, the government may also like to increase fuel taxes, which are one of the lowest in the country at present, and apportion the additional collection as revenue to the DMRC. This will ease some financial burden of the corporation balance sheet. In short, the DMRC should look into the following suggestions: (i) keep fares affordable by using a mechanism that factors in the affordability of users; (ii) explore TOD and VCF models to enhance non-fare revenues; and (iii) explore other revenue sources such as advertisement, betterment tax, fuel taxes, etc. This way, the DMRC would not only be able to address the issue of financial losses but also serve better the interests of society.
The writer is partner — Infrastructure & PPP, EY LLP India