A fare deal

DMRC should go in for regular tariff revisions

Delhi Chief Minister Arvind Kejriwal’s opposition to the fare increase by the Delhi Metro Rail Corporation (DMRC) has a whiff of populism about it. As head of the Delhi government, which owns half of DMRC, he is well within his rights to voice his reservations against the two-step fare increase. But his argument that the higher rates violate the law is weak. Consider the legal issue first. Metro fares are decided by a fare fixation committee, which has a statutory status under the 2002 law, Delhi Metro Operations and Maintenance Act. The latest one, a three-member committee comprising a retired Delhi High Court judge, a former chief secretary and an additional secretary in the urban development ministry, is only the fourth since DMRC started operations in 2002. The first phase of the fare increase took place in May and the second is due on October 10 – and it takes place after a gap of eight years. This fact in itself is absurd; how can any commercial enterprise survive without raising tariffs, even if only to cover inflation?  

Mr Kejriwal contends that the second fare rise should take place after a year, pending an audit of DMRC’s books. But even a cursory glance at DMRC’s financials – quite transparently available on its website – shows that losses before tax have been piling up steadily — from Rs 7.94 crore in 2012-13 to Rs 46.7 crore in 2015-16 and Rs 37.8 crore in 2016-17. The reason for this is clearly visible in the stagnant fare structure: In the same five years, revenues from fares have dropped from 45 per cent of total revenues to 25 per cent. From this year, the pressure on DMRC’s finances has increased because of a Rs 26,760 crore soft loan DMRC raised in March from its long-term financing partner Japan International Cooperation Agency (JICA) to finance the fourth phase of its expansion. Thus, according to a DMRC report, for every rupee earned from operations in 2017, the surplus available is Rs 0.26, and DMRC spends Rs 0.27 on servicing the JICA loan. 

It takes no sophisticated accountancy to figure out that this does not benefit consumers simply because it leaves very little money for asset replacement. This is a dangerous situation as the accelerating accident rate of the Indian Railways has repeatedly demonstrated. If DMRC is not to drop to the standards of Delhi Transport Corporation – to which the urban development minister alluded – or match the poor safety record of the Indian Railways, it is vital for it to continue with a high standard of maintenance, more so when daily ridership has reportedly grown enormously to over 3 million, far in excess of even its own projections. It is possible for the fare fixation committee to have explored a more gradual fare increase over a longer time-frame. However, a more sensible and far more sustainable solution (in terms of managing the political fallout) would be to have an annual increase of a certain percentage, thus ensuring both cost recovery while softening the blow for consumers as well as underlining to politicians that efficiency and free lunches are incompatible concepts.