The most enduring image I have of the Delhi metro is that of a shared ride with a construction worker. His shoes and clothes, turned a uniform grey by dirt, told the story of a hard day’s work spent on a construction site. A comfortable ride back home in the metro seemed like a sweet reward.
This image, however, stands threatened due to the steep 100 per cent fare hike implemented by the DMRC within a span of five months. The DMRC has justified the hike citing mounting operational expenses and loan repayments, and the need for full financial sustainability from internal revenues. But in doing so, the DMRC seems to have completely ignored a factor at the heart of all successful mass transit systems globally — affordability.
Pricing of urban mass transit systems has been a difficult challenge globally and needs a careful balance between financial sustainability and affordability, especially for the lower income populations. Affordability of public transit is globally measured as percentage of income that is spent on transit. Equity demands that metro fares must be made affordable for the poorest sections of the population, that is, those surviving on minimum wages. As is usually the case, these are the people staying in outermost pockets of the city who tend to travel the longest distances.
Hence, a fair measure of affordability for mass transit systems is the percentage of income that an unskilled minimum wage worker has to spend on the longest round trip fare. Figure 1 shows an affordability index created along these lines for top global cities and reveals the striking implications of Delhi metro’s recent fare hike.
Delhi, which by far has the highest poverty rate among the cities in comparison, has a metro fare structure that is at least twice as unaffordable as the next one (Singapore) and is three times unaffordable when compared to some of the most extensive metro systems in the world — Beijing, New York City and Paris.
It doesn’t end there, since the estimated affordability index for Delhi is a conservative figure and relies on two large assumptions. First, it assumes that the minimum daily wage, hiked recently by 37 per cent by Delhi government, is a reality on the ground. But, as is usually the case in India, the minimum wages notified by government have only a persuasive value and there is a substantial time lag before it translates into real wage increases for the 90 per cent of our workforce that works in the unorganised sector. Second, the highest roundtrip fare is a lower estimate of the daily expense on public transit since it doesn’t account for expenditure on buses, autos etc. Last mile connectivity has long been the holy grail of Delhi’s metro system, and unlike NYC or Singapore, Delhi’s metro is neither fully integrated nor offers free transfers to buses. If the above two factors are accounted for, it is likely that minimum wage workers in Delhi may need to shell out as much as 40 per cent of their daily wages for a safe and reliable commute — a disastrous consequence. Delhi metro’s fare structure also ignores equity concerns by not providing any targeted concessions to children, students, senior citizens or persons with disabilities as is the norm in almost all global cities cited above.
DMRC has justified its new fares by saying that they are comparable to other cities in India such as Kochi or Chennai. But if the above yardstick of affordability is applied to these cities, then they become even more unaffordable than Delhi, since Delhi’s minimum wages are the highest in India. What this reveals is that while DMRC and other metro authorities in India have developed commendable technical capacity to build and run metro systems, their pricing policies are rudimentary, narrowly focused on financial sustainability at the cost of affordability, and don’t account for the large spillover benefits to society due to affordable mass transit systems.
In a paper published in the American Economic Review in 2009, researchers Parry and Small develop a mass transit pricing model for 20 US cities factoring in the welfare effects of congestion, pollution, lower accidents etc. Their results support the efficiency of large fare subsidies starting at 50 per cent of operating costs. In yet another study, researchers Basso and Silva (American Economic Journal, 2014) examine transit subsidies in London and Santiago. Their advice to policymakers: If you care for equity, then you should put into place subsidies as this will do the most to help the poor and redistribute incomes, compared to the alternatives.
Those arguing against offering subsidy often ignore the multiplier effect that an efficient and affordable mass transit system can have on the urban economy. In Delhi itself, in the last two years, the Gross State Domestic Product (GSDP) has risen by 13 per cent annually with a concurrent surge in tax collections. While this may be a result of improved governance and business environment, the contribution of the Delhi metro in supporting high economic growth is far from negligible. It’s only fair, therefore, to ask the Delhi government and the Centre to jointly subsidise the capital expenditure and operating costs of Delhi metro. Indeed, the city governments of the top 20 US cities and Beijing do exactly this for their metro systems.
But any talk of subsidising fares of Delhi metro immediately brings in lazy comparisons with the city’s troubled bus authority, DTC, which is financially dependent on the Delhi government. The examples cited above provide ample evidence that the lack of financial sustainability from internal sources alone does not directly impinge on the efficiency and quality of service. As long as the Centre and state can agree on an alternate model of financial sustainability without making any changes to the operational autonomy of the DMRC, there is no reason why the DMRC cannot sustain its high standards of service. At the same time, the DMRC must be made accountable for generating substantially more revenues from its non-fare collections (property rentals, advertisements etc) than the 19 per cent it currently does. In comparison, the Hong Kong metro generates 37 per cent of its revenues from non-fare collections.
Delhi metro has been a source of dignity and pride for the people of Delhi and a model for all Indian cities. It also remains the city’s best bet to fight worsening air pollution, congestion, and the declining modal share of public transit. But today it stands at an important crossroad — either focus exclusively on financial sustainability by pricing out the lower income population, or aggressively prioritise increased ridership and affordability with subsidy support from state and Central governments. Its choices will affect the lives of millions and the economic trajectory of the national capital.
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