India's metro boom hits a fare wall: Who decides what commuters pay?

As India's metro network races past 1,000 km, questions over fare setting, cost recovery, and the absence of an independent regulator reveal cracks beneath the country's shiny urban transport dream

In the race to modernise India’s cities, metro networks have become the new symbols of progress. They are sleek, silent, and politically charged. Bengaluru’s trains glide over snarled roads, but beneath the steel and glass lies a deeper story of cost, control, and accountability. As India’s metro map expands past a thousand kilometres, a quieter question also hums along the tracks: who really decides what we pay to ride?

 

Bengaluru has an operational length of metro trains of 77 kilometres, covering just a third of the proposed length in the city. But detailed project reports catering to demands for extending the system further have already surfaced. These, however, do not account for the capital cost of these projects. The overriding consideration is that they offer fast alternatives to the snarls on the roads. So, setting fares on these sleek trains is becoming a political hot potato.

 

Expanding metro network

 

India now has 1,013 kilometres of operational metro track across 23 cities. Another 997 kilometres is under construction in 28 cities in the country, according to data shared with Parliament by Manohar Lal Khattar, minister for housing and urban affairs. He claimed, “India is well on its way to having the second-largest metro network in the world”, behind China.

 

These are costly exercises. Already, India has spent Rs 2.5 trillion on these projects. In FY26, India will spend Rs 34,807 crore on metro projects, split between the central and state governments — up more than six times from the Rs 5,798 crore spent in FY14, as per Press Information Bureau data.

 

Who decides the metro fares?

But unlike other sectors where the efficiency of capital expenditure is linked to price recovery from users, mediated by regulators, this spate of projects has no comparable external control.

 

So, decisions on fares are taken by the metro operator, which also decides how much to spend to build and run these networks. This is quite a distinct approach from other sectors in India. In the airlines sector, for instance, airports have to show their capital cost to the Airports Economic Regulatory Authority to charge passengers accordingly. In the case of electricity, power distribution companies have to show their costs to the state electricity regulatory commissions.

 

This means there are no independent means to verify if the projects, as they are conceived and executed, satisfy the central government’s own Metro Rail Policy of 2017. The policy, for instance, states that central financial assistance for metro projects will only be provided if they can ensure a minimum Economic Internal Rate of Return of 14 per cent on the capital deployed and also involve mandatory private sector participation through public-private partnerships.

 

The role of private sector in metro rail network

Both yardsticks seem elusive. The Bangalore Metro Rail Corporation Limited (BMRCL) is a special purpose vehicle set up by the Government of India and the Karnataka state government. The role of the private sector is limited to that of engineering, procurement, and construction. A source associated with the project said the company was set up before the rollout of the Metro Rail Policy of 2017 and so the capital structure could not be refashioned. An email sent to BMRCL did not elicit any reply.

 

However, even SPVs set up after the policy came into place, like the Lucknow Metro, do not have private sector participation. Next door in Madhya Pradesh, the same situation prevails. The Madhya Pradesh Metro Rail Corporation was incorporated as a 50:50 joint venture between the Government of India and the state government in August 2019.

 

Multilateral institutions are comfortable with the capital structure. On October 1, the Asian Development Bank approved a $190 million loan to support the development of the Indore Metro Rail Project. The Manila-based institution described the loan as a “transformative initiative aimed at enhancing urban mobility, reducing pollution, and promoting inclusive growth in the largest city of Madhya Pradesh, India”.

 

The fallout is clear. The SPVs are uncomfortable setting fares that are economic and move along with inflation. The same challenges, in an earlier era, led to the demise of the tram system in Kolkata. While locals rejoiced at the effectiveness of the ponderous system, the risk-averse fare structure made it impossible to sustain.

 

The modern Delhi Metro Rail Corporation revised fares in late August this year. This was the first revision of its ticket prices after eight years. Commuters in Bengaluru, while happy to escape the interminable traffic chaos on roads, have begun to gripe about the fares.

 

Yet, the Metro Rail Policy mandates cities to prepare Comprehensive Mobility Plans (CMPs) and establish Urban Metropolitan Transport Authorities (UMTAs) to guide the development of metro systems with a strong emphasis on sustainability, economic viability, and integrated urban mobility. To qualify for projects, cities have to show how they will finance them, including revenue from different sources such as fares and non-fare box revenue like advertisements and property development along the metro route. All of these are supposed to add up to a 14 per cent Economic Internal Rate of Return. (See box)

 

Transparency challenges

In the absence of a regulator like the UMTA, which would hold public hearings where the cost of the project would be paired with ticket prices, metro projects have never disclosed their cost–price equation. In Delhi, for instance, in the absence of a regulator, the central government has sometimes appointed a fare fixation committee, an ad hoc mechanism to decide fares. This too has been in limbo. The fourth fare fixation committee was set up in 2016, based on which the last revision was made. For the new fares from August this year, no such committee was set up, even though the hikes were nominal. The Bill for setting up UMTAs in each city has been languishing for years in the Ministry of Housing and Urban Affairs.

 

The risks from this non-transparency are rising. Average daily ridership reached 1.12 crore in August 2025, up from 28 lakh in FY14. The numbers are fast catching up with India’s inter-city train service. Daily ridership on inter-city trains is less than 3 crore on most days. Those too face charges of opaque fare setting, which deters the private sector from investing in them.

 

Metro projects, in comparison, should not face such problems. As the Metro Rail Policy itself notes, there are a raft of possible ways to fund them using versions of PPP such as BOT, DBFOT, DFBOT, and Developer Finance Models.

 

Unfurnished costs: 

Financial Returns: FIRR with a 30-year time horizon. Sensitivity analysis should be done based on scenario building with variation in ridership estimates, cost estimates, and time overrun. Alternative scenarios based on different options for funding and implementation of the project should be evaluated. A project should be able to meet its financial requirement for cost recovery and, under a set of plausible assumptions, be able to self-finance its activities. The state governments will have to ensure the financial sustainability of the project through financial assistance.