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Metro Rail Expansion

Implications for Urban Land Use

Meenakshi Sinha (meenakshi.9066@gmail.com) is a doctoral candidate at King’s College, London.

The evolving policy context of metro rail expansion, particularly in the last five years in India, the concerns emanating due to public–private partnerships in financing and developing metro projects, and the possible implications of these on patterns of urban land use are discussed.

The current regime under the leadership of Narendra Modi has laid down its goal of metro rail projects covering as many as 50 cities in India (Haider 2018). This has been followed by the sanctioning of about six new metro rail projects, in addition to some of the operational metro projects, across different Indian cities in 2018 itself (Dash 2018). Amidst the proposals for new metro rail projects and the existing metro projects that are either operational or at the construction stage, the question of financial viability of metro systems is of core concern. While so far the budgetary support from the government has provided for a significant share of investments for most metro projects in India, recent policy shifts in India indicate a move towards reduction in it and a thrust on greater involvement of private actors in financing and developing these projects. However, private participation in the development of metro projects comes at its own cost. Private entities are likely to take up metro construction and implementation activities only if they are able to generate profits in return for their investments. In this context, it appears that under the current policy framework, the expansion of metro rail projects across the country will only accelerate the process of conversion of land in urban and peri-urban areas for consumer-oriented use.

Viability of Metro Projects

Modern metro rail-based transport systems are both technology intensive and have a long gestation period. They are generally regarded as one of the most expensive forms of mass rapid transit systems and, like many other large-scale infrastructure projects, they require large initial investments as well as long-term financial support (Lall and Anand 2009; Wright and Fjellstrom 2003). Consequently, state governments in India have adopted a diverse mix of public and private financing means to generate revenues for metro projects. For example, there are metro projects in Delhi, Bengaluru and Kochi that have ­received a substantial share of budgetary support from central and state governments. There are other examples like Hyderabad metro where a private company has played the role of a major investor, with the government only being a minor investor for the project. In general, given the scale of investments required for metro rail projects, diversification of financial sources has been a necessary aspect of most project schemes.

The metro projects, further, have high operational costs and low returns. Moreover, the efficacy of metro systems to optimally cater to public transportation needs, for all kinds of cities, is debatable. Studies on mass rapid transit systems have cautioned against the unqualified adoption of metro rail-based systems, particularly in developing countries, where other cheaper modes of transport may be able to solve the problems of public transportation at much lower rates of investment (Mohan 2008; Sharma et al 2013; Wright and Fjellstrom 2003). ­Despite high incremental costs, precarious rates of return and lack of serious ­efforts to assess the actual realised benefits versus the projected benefits of metro projects, state governments in ­India have pitched proposals for metro projects in their cities. The incentives for state governments to implement metro rail systems then, need to be understood beyond the projected visions of metro projects as solutions to the public transport needs of Indian cities.

The installation of metro rail systems does not only alter transit patterns within cities, it also entails significant changes in patterns of urban land use. Metro projects are often associated with mechanisms of land monetisation (Ramachandraiah 2009; Ranjan 2018). Land monetisation along metro corridors has manifested itself in the form of property development for commercial use, or high-end residential complexes that are meant for consumers who can pay the best price. These are, thus, profit-generating real estate development projects that are usually undertaken through public–private partnerships (PPPs) between state agencies and private  developers on lands acquired along the metro corridors. Given the limitations of budgetary means to finance metro rail projects, land monetisation has been projected as a means to supplement revenues for the metro projects (MoUD 2014; PIB 2017). Land monetisation results in significant diversion of urban land use from public use to private profit-making activities. Therefore, metro rail systems as infrastructure development projects carry vested business interests.

Policy Context

Until 2017, the implementation and sanctioning of metro rail projects in India was broadly guided by a consolidated framework put forth by the Ministry of Urban Development that recognised both the Recommendations of Working Group on Urban Transport for Twelfth Five Year Plan and the National Urban Transport Policy, 2006 (MoUD 2013). Recognising the limitations of PPP models for implementing metro rail projects due to risks1 associated with the metro rail systems and given the limited experience of India in executing metro rail systems on a PPP basis, the consolidated framework had set its preference for executing metro rail projects primarily through government funding. The consolidated framework also emphasised that the real estate component of PPP projects must constitute only a minor aspect of the total project cost, so as not to convert the transport project into a real estate project. In line with its recommendations, the consolidated framework advocated for execution of metro projects through joint ventures between the central and state governments, with the central government as an active participant in project planning, which includes funding the project through equity sharing rather than leaving the states to fend for themselves.

Apart from these broad guidelines, the consolidated framework did not altogether rule out the possibility of the PPP model for implementing metro systems, especially for corridors that were mostly elevated and were likely to attract high ridership. Also, in its subsequent policy articulations, the Government of India, through the National Urban Transport Policy of 2014, has encouraged state governments to mobilise resources for transport infrastructures through the exploitation of its own land resources and private participation (MoUD 2014). Practical experience of executing metro projects in the country shows that real estate projects through land allocation to private developers invariably have constituted part of the revenue generation for financing metro rail projects (Down to Earth 2015; Ramachandraiah 2009; Sinha 2018); albeit, the degree varies for different projects.

However, marking a departure from its previous policy on metro rail projects that saw private participation as non-obligatory, at least in principle, in 2017 the government issued a new metro policy that has made private participation a mandatory component for metro projects to secure the central government’s financial assistance. According to the new metro policy, the essential requirement of private participation “either for complete provisioning of metro rail or for some unbundled components,” such as automatic fare collection or some form of operation and maintenance activities, will apply to all three prevalent arrangements of executing metro projects (MoHUA 2017). These are: (i) metro projects executed on a PPP basis with central assistance through viability gap funding; (ii) projects where state governments receive grants from central governments; and (iii) projects that are executed under equal sharing of ownership between central and state governments through an equity sharing model.

The new policy further recognises that property development at stations and on other urban land has been a key instrument in raising finances for metro rail projects, and urges the metro rail implementing agencies to endeavour to maximise revenue through commercial development at stations and on land allocated for this purpose (MoHUD 2017). The declaration of a new metro policy, with emphasis on mandatory incorporation of private sector participation in implementation of metro rail projects in 2017, was followed by a reduction of about 20% in allocation for metro projects in the 2018–19 budget from the previous budget (PTI 2018). Therefore, there is a clear indication from the central government that it wants to prune down its own financial role in funding metro projects, while simultaneously roping in the private sector. This will lead to enhanced emphasis on mechanisms of PPPs.

Adequacy of PPPs

PPP is a loosely defined term. In the context of infrastructure financing in India, a PPP project generally operates based on a concession agreement or a contract between the government entity and a private sector company for delivering infrastructure services on payment of user charges (Lakshmanan 2008). The PPPs have been advocated with the intention to bring in managerial efficiencies and to encourage competition in service deli­very of infrastructure projects (Kish­ore 2016; MoHUA 2017). However, contrary to these expectations, many of the PPP deals for metro projects have run into serious disputes of land encroachment and have inadequacies in the bidding process that hamper competition and encourage corruption. In the cases of both Hyd­e­r­a­bad metro and Bengaluru metro, serious irregularities have been reported in allocation of PPP deals to private players (Krishnaprasad 2014; Ramachandraiah 2009). Be it Delhi metro, Hyderabad metro, Bengaluru metro or Kochi metro, they have all seen significant transfers of large tracts of land by state agencies to private developers for real estate projects (Down to Earth 2015; Ramachandraiah 2009; Sinha 2018).

The gains made by private developers in the process are huge. The land parcels transferred to private developers in these cases are either government-owned lands or land acquired by the state agencies through dictum of public purpose. Even if these lands are sold to private developers at the market price, the profits incurred through real estate projects by private developers usually far exceed the cost of acquisition of land. Furthermore, if private developers had to acquire these lands on their own, it would require private companies to get clearance from several bureaucratic regulatory authorities. However, many of the land clearance procedures are not met when land is acquired through intervention of state agencies. The metro projects have, thus, become grounds for real estate deals between the state and business interest groups, where the state acts almost as a land broker for private developers.

Moreover, effective realisation of profits for state agencies through PPP agreements depends on adequate distribution of risks and sharing of rewards from the projects between the participating entities, that is, the government agency, and the private company. However, in practice, most government departments lack the expertise and skills to successfully design and handle a PPP agreement (Bagal 2008; Kishore 2016). The state agencies are often not entitled to anything more than a share of nominal ­revenues from most of the allied real estate projects along the metro corridors, while the private developers gain access to some of the prime land within urban areas and even additional building rights on the acquired piece of land for future construction.2 The real estate development may also be exempted from local taxes and charges, causing significant losses to state exchequer.3 The result is that in the case of most of the PPPs, while the government agency ends up bearing the risks associated with projects, the private entity sweeps in the majority share of profits from the projects. The PPP sharing arrangements, then, instead of realising the aim of bringing in private investments to fulfil public projects, drain away much of the public resources to private entities.

In Conclusion

Large-scale transit projects are significant not only for the purpose of increasing mobility, but also for the series of changes in land use patterns that they trigger. Moreover, most of these projects are developed and implemented by joint ventures or special purpose authorities, over which urban governments and ­decentralised local state authorities have little control. Therefore, most of the decisions regarding these projects are taken through opaque procedures and in the absence of consultation from local authorities. In such a scenario, unhinder­ed private sector participation in these ­projects without adequate regulatory measures can only lead to diversion of public resources into the hands of a ­select few private players. In practice, the Indian government has a poor record in regulating PPPs. The PPPs in the case of metro projects have manifestly become sites of crony capitalism and a means for accumulating land by private companies. Thus, there is need for a serious ­assessment of the efficacy and the likely benefits of increasing private sector parti­cipation in metro rail projects before the adoption of this model as mandated by the new metro policy. Otherwise, the upcoming metro projects are only going to deepen the existing disparities in distribution of urban resources, and will further aggravate the tensions surrounding land acquisition in urban areas.

Notes

1 Due to reasons of large financial investments and low profitability associated with metro projects, private players view metro projects as risky investment avenues. Further, there is always an apprehension that private developers may back out in the middle of project development in the case of losses or very low profitability. Hence, government funding is usually advocated for metro projects.

2 This statement draws on an analysis of a PPP concession agreement obtained from a civil society activist during my own research study on the Bengaluru metro, conducted between 2013 and 2018. The PPP concession agreement was executed between Bangalore Metro Rail Corporation and a private developer, namely, Mantri Infrastructures, for the construction of a metro station and an integrated residential and commercial complex.

3 See Ramachandraiah (2009) for the case instance of Hyderabad metro.

References

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Updated On : 7th Jan, 2019

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