Ministry of Housing and Urban Affairs (MoHUA) has framed a new Metro Rail Policy to promote ‘Make in India’ initiative and ‘Private Participation’ in metro rail projects. The policy has been approved by the cabinet meeting and will be unveiled soon. There was no metro specific policy framework in India. The policy aims to enable realization of growing metro rail aspirations of a large number of cities but in a responsible manner. Metro Rail Policy 2017 (download the copy) was officially released on 15 September 2017.

Government of India has sanctioned at least INR 306.53 billion to Metro projects across the country between the periods of 2012-16. There is need for more investment in coming years. India is adding currently opened only 20-25 km of new Metro rail every year, whereas, China is adding 300 km metro network every year. The government indicated that the new policy will help to bring more investment in the sector.

At present, metro projects with a total length of 370 kms are operational in 8 cities viz.

(*Mumbai include Mono Rail System of 9.0 kms)

Metro Projects with a total length of 537 kms are in progress in 13 cities including the expansion of existing metro system, as well as, new cities including - Hyderabad (71 kms), Nagpur (38 kms), Ahmedabad (36 kms), Pune (31.25 kms) and Lucknow (23 kms).

Many new cities have approached MoHUA to get central assistance to start metro projects in their cities. Metro projects with a total length of 595 kms in 13 cities including 10 new cities are at various stages of planning and appraisal.

* - Delhi Metro Phase IV / ** - Kochi Metro Phase II / *** - Chennai Metro Phase II / # - Thiruvananthapuram & Kozhikode Light rail system)

Key salient points of the new metro rail policy are:

1) Third Party Assessment: The ministry shall do rigorous assessment of new metro proposals and proposes an independent third party assessment by agencies to be identified by the Government, such as Institute of Urban Transport and other such Centre of Excellence.

2) Economic Internal Rate of Return: The new policy highlighted that the metro projects leads to substantial social, economic and environmental gains. Thus, there is need to assess the larger impact rather than just financial return in line with global practices. The policy stipulated a shift from the present ‘Financial Internal Rate of Return of 8%’ to ‘Economic Internal Rate of Return of 14%’ for approving metro projects.

3) Urban Metropolitan Transport Authority: The city shall setup Urban Metropolitan Transport Authority (UMTA) to prepare Comprehensive Mobility Plans for states / cities for ensuring complete multi-modal integration for optimal utilization of capacities. Further, It requires that the city shall select the least cost mass transit mode is selected for public transport by conducting 'Alternate Analysis', requiring evaluation of other modes of mass transit like BRTS (Bus Rapid Transit System), Light Rail Transit, Tramways, Metro Rail and Regional Rail in terms of demand, capacity, cost and ease of implementation. 

4) Private Participation: The policy made PPP component mandatory for availing central assistance for new metro projects either for complete provision of metro rail or for some unbundled components like Automatic Fare Collection, Operation & Maintenance of services etc. This is done to capitalize on private resources, expertise and entrepreneurship. Further, the government highlighted that the state should look for innovative forms of financing of metro projects to meet the huge resource demand for capital intensive high capacity metro projects. 

5) Business Model: All states / cities do not have requisite experience to operate and maintain the metro system. The policy envisages private sector participation in Operation and Maintenance (O&M) of metro services in following ways:

  • Cost plus fee contract:   Private operator is paid a monthly/annual payment for O&M of system. This can have a fixed and variable component depending on the quality of service. Operational and revenue risk is borne by the owner.
  • Gross Cost Contract:  Private operator is paid a fixed sum for the duration of the contract. The operator to bear the O&M risk, while the owner bears the revenue risk.
  • Net Cost Contract: The operator collects the complete revenue generated for the services provided. If revenue generation is below the O&M cost, the owner may agree to compensate.

6) Transit Oriented Development: The ministry emphasised that states should see urban mass transit projects like metro as urban transformation projects. As per the new policy, States should allow Transit Oriented Development (TOD) to promote compact and dense urban development along metro corridors since TOD reduces travel distances besides enabling efficient land use in urban areas. States should provide for higher floor area ratio to keep the costs low for commuters, and to promote compact and dense urban development along metro corridors. States shall adopt innovative mechanisms like Value Capture Financing tools to mobilize resources for financing metro projects by capturing a share of increase in the asset values through ‘Betterment Levy’. States would also be required to enable low cost debt capital through issuance of corporate bonds for metro projects.

7) Last Mile Connectivity: Most of the metro system does not have good feeder network. The new policy mandates new metro system to ensure it focusing on a catchment area of five kms on either side of metro stations to provide necessary last mile connectivity through feeder services, Non-Motorised Transport infrastructure like walking and cycling pathways and introduction of para-transport facilities. States, proposing new metro projects will be required to indicate in project report the proposals and investments that would be made for such services.

8) Fare Fixation Committee: The new policy empowers States to make rules and regulations and set up permanent Fare Fixation Authority for timely revision of fares. States can take up metro projects exercising any of the three options for availing central assistance. These include; PPP with central assistance under the Viability Gap Funding scheme of the Ministry of Finance, Grant by Government of India under which 10% of the project cost will be given as lump sum central assistance and 50:50 Equity sharing model between central and state governments. Under all these options, private participation is mandatory.

9) Non-Fare Revenue: In order to ensure financial viability of metro projects, the new Metro Rail Policy requires the States to clearly indicate in the project report the measures to be taken for commercial/property development at stations and on other urban land and for other means of maximum non-fare revenue generation through advertisements, lease of space etc., backed by statutory support. States are also required to commit to accord all required permissions and approvals.

New Metro Rail Policy does not see metro project in isolation but promote the concept of multi-modal transport integration. The policy is a good step to ensure sustainable development in the cities.

UITP and Delhi Metro Rail Corporation (DMRC) are organising seminar on "Metro Rail Projects - A Future Perspective" on 15-16 November 2017 in New Delhi. The seminar will bring together national and international experts to discuss the growth of metro rail projects in India.