Chanakya IAS Academy Blog


Going off track: PPP model has not succeeded in metro rail projects

The Union Cabinet approved a new metro rail policy that seeks to enable realization of growing metro rail aspirations of a large number of cities but in a responsible manner.

The policy opens a large window for private investments across a range of metro operations by making Public private partnership mandatory for availing central assistance for new metro projects.

To meet the huge resource demand for capital intensive high capacity metro projects, private investment and other innovative forms of financing of metro projects have been made compulsory.

The new metro rail policy also marks a significant shift in governments approach towards urban mass transit projects and brings public private partnership back in the Centre’s scheme of things.

Various reasons why India has by and large steered clear of PPP in its metro rail projects:

  • The capital-intensive nature of such projects does not allow private players to get a return on their investments easily
  • The returns can only be generated by steep hike in their fares, but this is a problematic prospect for various reasons
  • The metro has several externalities that make it imperative for the government to subsidize it
  • From enhanced mobility, to its relatively low carbon footprint, metro usage has benefits that cannot be measured through the purely commercial yardstick of profit and loss

Indian experience with PPP model in metro projects:

  • In pressing for the PPP model, the government is ignoring an important lesson from the success of the Delhi Metro, where the centre and state governments have footed much of the bills
  • The project, in fact, experienced one of its rare failures when the airport line, then run by Reliance Infrastructure, shut down for six months in 2012 and Reliance ultimately pulled out of the venture in early 2013

Why PPP model fails in case of metro projects:

  • The unsuccessful association between the private sector and metro projects has been underscored by a number of studies
  • E.Sreedharan, whose stewardship of the Delhi Metro project earned him the sobriquet of India’s Metro Man has pointed out that nowhere in the world, has the construct and maintain model of PPP in metro rail completely succeeded
  • Private players look for a return of around 12-15 per cent, while no metro project has yielded an investment return of more than 3 per cent.

Way forward:

As Indian cities expand, the metro will be an important constituent of the transport mix. The government should learn from its past successes and failures, in planning for this mode of transport. It will profit from paying heed to the counsel of India’s Metro Man.

Read 1320 times Last modified on Tuesday, 22 August 2017 13:43

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