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Non-fare revenue rolls in for IL&FS Rail's Rapid Metro in Gurugram

Rapid Metro was launched in 2013 with a small stretch connecting the Sikanderpur drop point of Delhi Metro with DLF Cyber City

Megha Manchanda & Jyoti Mukul  |  New Delhi 

Non-fare revenue rolls in for IL&FS Rail's Rapid Metro in Gurugram

Almost a year into its second phase, the country’s first privately run metro, IL&FS Rail Ltd’s Rapid Metro in Gurugram, is seeing its non-fare revenue outperforming the fare segment. This is rare in the country, though metro systems globally survive on non-fare revenue.

“Fare revenue by itself can never ever make a project viable. There has to be very significant portions of non-fare revenue, which could be out of advertisement, property development, retail or advertising,” Rajiv Banga, managing director and chief executive officer, IL&FS Rail, told Business Standard. Rapid Metro’s non-fare revenue is half its total revenue, compared to Rail Corporation (DMRC), where the share is about 20 per cent of the total. “Over 50 per cent of our revenue from the first loop to Cyber City is from non-fare collections,” said Banga.

Rapid Metro was launched in 2013 with a small stretch connecting the Sikanderpur drop point of with DLF Cyber City. It was the opening of the second leg that connected the system to Gurugram residential areas and the upscale Golf Course Road which brought volumes. Banga said 30 per cent of the south line traffic (second phase) comes to Cyber City.

The company operates 11.7 kilometre of a metro rail route in Gurugram built at Rs 36 billion, with 11 stations.

Non-fare revenue rolls in for IL&FS Rail's Rapid Metro in Gurugram

Since metro construction is capital intensive and fares cannot be raised to a level where it is not attractive, these systems are either cross-subsidised through non-fare revenue or depend on government grants in the form of viability gap funding (VGF).

Though Rapid Metro did not have any component of VGF, Banga said it was needed for metro rail systems. This is a one-time grant or a deferred one, provided to support infrastructure projects that are economically justified but fall short of financial viability. Authorities should ensure enough avenues are made available for such projects to be viable, he said. “Infrastructure projects have a longer gestation period of 15-20 years and traffic takes time to build up. Commercial loans are only for 15 years and repayment of loans coincides with the period when the traffic is still building up. There is front-ending of the repayment of the asset but the traffic built up is back-ended,” he added. The Airport Express Line in Delhi is a case in point. The private operator found it unsustainable, after it could not get the anticipated non-fare revenue from advertising and commercial utilisation of station premises. The line is now run by

Experts say each such case is different. “Metro companies earn the bulk of their revenues from real estate,” said Abhaya Agarwal, partner at EY India.

Financial sustainability of the system also depends on traffic volumes. The initial traffic risk (for the first five years of operation) should be borne by the government, as successful execution depends on traffic, which can be very volatile, Agarwal said.

Private systems face competition from unregulated and asset-light cab aggregators and autorikshaws, Banga said. “We compete with asset-light models that do have a fare policy, while we are capital-intensive and regulated,” he added.

First Published: Fri, March 02 2018. 06:00 IST
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