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A K Bhattacharya: In defence of Delhi Metro

NEW DELHI DIARY

A K Bhattacharya  |  New Delhi 

Those who regularly use the Delhi Metro service swear by it. The first phase of the network, covering a 65-kilometre stretch that now carries about 800,000 passengers every day, was completed ahead of schedule. Its service was efficient, when it started the first leg of the network more than five years ago. It continues to be so even today. The service stands out because of the manner in which its coaches and the station areas are regularly maintained and kept clean. Most users are impressed by Delhi Metro’s adherence to basic safety guidelines, punctuality of service and the use of technology for the benefit of its passengers.

What’s more, Delhi Metro’s operational efficiency will make any manager turn green with envy. Its operating ratio (expenditure as a proportion of the total income) has seen steady improvements over the years. In 2007-08, it was down to 0.52 from 0.60-0.64 a year before. In other words, Delhi Metro’s expenditure on running the service is now just about half its total income.

For connoisseurs, experts and economists, though, Delhi Metro has many problems. First, there are those who question the very model of running a highly capital-intensive metro service in a city like Delhi. A metro service, they argue, is better suited to cities that have grown vertically and not to those like Delhi, which has seen circular growth.

Second, there are legitimate questions about the manner in which Delhi Metro has been funded. The bulk of Delhi Metro’s financing needs has been met through long-term loans from Japanese and other agencies at hugely concessional interest rates. The money it has got is virtually free. So, its real costs have been hidden and the operational efficiency that Delhi Metro boasts of will not look as dramatic if it had to budget for market rates of interest on the funds it used to build the network.

Third, there is a view that Delhi Metro has hugely benefitted from the large tracts of land it got from the government. It has used that land to develop real estate and augment its income. Indeed, only 40 per cent of its total revenue is coming from traffic operations and Delhi Metro’s target is to reduce it further. In other words, Delhi Metro’s profit is boosted not so much by its traffic income as by what it earns from real estate (which incidentally is now more than its revenue from traffic).

And finally, there is the argument that the ownership structure followed for Delhi Metro is not sustainable. With the state and the Centre owning 50 per cent each in Delhi Metro, neither of the shareholders can actually assert itself or drive the company. This, it is argued, is not a healthy structure.

Each of these arguments may have some merit. Delhi Metro may not be the ideal form of public transport in the capital city. Concessional funds may have skewed the general assessment of Delhi Metro’s financial performance and credit is being given where it is not due (though, public transport projects are globally subsidised through such concessional funding). Real estate development has given an advantage to Delhi Metro which no other public transport provider in the country has got so far. And finally, there may be some merit in the view that the success of Delhi Metro is largely dependent on an efficient administrator like its present managing director, E Sreedharan. But once he is gone, the system might collapse. So, Delhi Metro’s ownership structure is not what should be replicated in any other city.

But it is important to note that the entire debate on Delhi Metro has centred round its financial model, its ownership structure and the use of real estate to augment revenues. The fact that it is a public transport network offering service efficiently and at a reasonable tariff seems to have no place in this debate. There are few examples of an efficient public service network in this country and when one of them shines like the way Delhi Metro does, it is perhaps more appropriate to assess how that model has worked, instead of focussing on what is wrong with it.

Indeed, the 50:50 ownership pattern, followed for Delhi Metro, may well be the preferred option for most other public transport systems, provided the management of such a network is given the kind of operational autonomy that E Sreedharan has got. There is no need to allow him to run metro services in other cities as subsidiaries of Delhi Metro. But surely the same ownership structure with a top management that enjoys full autonomy with clearly defined performance goals will be a better option.

The Hyderabad metro project has raised hopes of a new model in which a private sector infrastructure company will implement the public transport project at no cost to the government. The irony is that the Hyderabad metro project also is dependent on real estate development as a significant source of revenue. And given what problems surface when private sector players start acquiring land for their projects (special economic zones and Posco are recent examples), the government’s gains from the Hyderabad project may well remain illusory.

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First Published: Wed, August 13 2008. 00:00 IST
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