Benefits of Metro Rail

Industrialisation and
Land Value Capture Financing

Promit Mookherjee and Dhaval Desai
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ORF.
Attribution: Promit Mookherjee and Dhaval Desai, Assessing Co-Benefits from

Metro Rail in India: Industrialisation and Land Value Capture Financing, January 2023,
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Contents
Introduction 4
Metro Rail Policy in India 8
Industrial Growth from Metro Rail Development 13

• Policies for Building Domestic Capabilities
• Domestic Capabilities for Metro Subsystems
- Track and Station Infrastructure
- Traction Systems
- Rolling stock
- Signalling and communication systems
• Assessing the Role of Industrial Policy
• Maximising Co-Benefits from Local Manufacturing:
• The Way Forward
• Conclusion
Land Value Capture Financing 36

• Policy Environment in India
• Impact of Metro Projects on Land Value in India’s Cities
• Metro and Land Value Capture: Potential vs Realisation
• Will Stakeholders be Ready to Pay?
• Challenges to Land Value Capture
• Lessons from Global Cities
• Land Value Capture in Metro Development: The Way
Forward for India
64
Annexure
About the Authors 74

R
apid population growth and
Introduction the expansion of metropolitan

regions are defining features
of India’s economic growth
story. The number of Indian cities with
populations above one million increased
from 23 in 1991 to 53 in 2011.1 The
average population density has also
snowballed to 464 persons/sq km in
2020, 13 times more than the US and
three times as much as China.2 This
urban growth has led to a rapid rise in
transport activity, characterised by a 10-
fold expansion in registered motorised
vehicles since 1990, 80 percent of which
are two-wheelers and passenger cars.3
The increased proliferation of motor
vehicles, particularly private ones, has
exacerbated the negative externalities of
the transport sector—greater congestion
in cities and a rise in greenhouse gas
emissions and air pollution.
This scenario has led to greater

investments in mass rapid transit
systems to create more sustainable
urban transport systems. This is part
of a broader focus on ‘moving people,
not vehicles,’ a key tenet of the National
Urban Transport Policy (NUTP) released
in 2006. In particular, heavy metro rail
transit systems (MRTS) have received
substantial attention at the national and
subnational levels, given their ability
to cater to high passenger densities
(between 60,000 and 80,000 passengers
per hour per direction4) in an energy-
Introduction 5
efficient manner. These systems run Figure 1). Another 1,032 km of metro
on an exclusive right of way and can networks have been approved, expanding
operate at average speeds of around 40 to 27 cities by 2025. Until 2012, all the
km/hr, leading to reduced travel times metro systems were established in cities
and improved productivity. They are with populations above 10 milliona and
also considered an ecofriendly mode of high passenger densities. But following
travel since the high passenger densities the 2013 guidance from the central
and dependence on electricity reduce government that cities with populations
emissions at the point of use. above two million could consider
constructing metro rail systems,6 even
The Kolkata Metro is India’s oldest smaller cities have started to build
metro rail system, operated by the Indian metros. Since 2012, all cities that have
Railways since 1984. However, the story established metro rail systems have
of modern MRTS in India began with the populations below 10 million.b,7 Notably,
launch of the Delhi Metro in 2002, with a cities with populations below two
network of around 25 km. The success of million are also aspiring for metro rail
the Delhi Metro spurred other Tier-1 cities systems, but their focus is likely to be
to invest in MRTS. By 2014, operational on light metro systems such as the
metro routes had expanded to 248 MetroLite.c,8 The Gorakhpur Metro,
km across five cities. Between 2014
5
currently under development, is one
and 2021, the metro network almost such example.
tripled to 733 km across 18 cities (see
a
Kolkata, New Delhi, Mumbai, and Bengaluru
b
Agra, Ahmedabad, Bengaluru, Bhopal, Chennai, Gurugram, Hyderabad, Indore, Jaipur, Kanpur,
Kochi, Lucknow, Meerut, Nagpur, Navi Mumbai, Noida, Patna, Pune, and Surat
Metrolite rail, designed for lesser capacity (2,000 to 15,000 passengers per hour per direction)
c
with lower capital investment and operations and maintenance costs, primarily cater to cities
that are expected to have less ridership. Metrolite is also projected as a feeder system to the
high-capacity metro.
6 Introduction
Figure 1: Growth of Metro Systems in India

1800
1700
1600
1400
1200
Operational km
1000
800
733
600
400
248
200
3.4 35
0
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
Source: Ministry of Housing and Urban Affairs
Driven by government support, metros (US$25 billion) in metro rail systems,

have become India’s fastest-growing financed predominantly through
mass transit system. However, metro partnerships between the central and
construction and operations are highly state governments and concessional
capital-intensive, and investments have loans from various development
long gestation periods. Analyses of finance organisations.d Up to 2026,
several detailed project reports reveal approved metro rail projects have a
that an elevated metro rail corridor projected expenditure of INR 3 trillion
costs between INR 2.25 billion (US$29 (US$3.8 billion).10 There has been an
million) and INR 3 billion (US$38 million) increased focus on reducing costs and
per kilometre, and an underground identifying alternate forms of finance
corridor costs between INR 5.5 billion to make metro rail investments more
(US$70 million) and INR 5.75 billion sustainable. The Metro Rail Policy 2017
(US$74 million) per kilometre.9 Since aims to institutionalise some of these
2010, there has been a cumulative measures by mandating that all metro
investment of around INR 20 trillion projects consider certain cost-reduction
d
Authors’ analysis based on tenders for different metros
Introduction 7
and revenue-enhancing measures.11 This national and subnational policies. It

study assesses the present status of also examines the ability of the present
two such interventions enshrined in the governance structure to implement
policy. these mechanisms effectively and
channel finances to the metro rail sector.
First, the Metro Policy and prior efforts by Finally, it identifies policy measures
the central government have outlined a informed by the global experience,
clear path to indeginising the production allowing for better-integrated planning
of all metro subsystems. This study and enabling LVC practically and
assesses the progress towards creating acceptably.
domestic industrial capabilities for
metro subsystems and the contribution Inputs from stakeholders have
of specific policies. It identifies the shaped the direction of this research
areas where the policies have been Throughout the study, the authors
successful and the existing challenges interacted with several stakeholders,
to localisation. It also assesses the covering government representatives,
prevalent technology development local metro rail authorities,
models and details the long-term manufacturers, railway personnel,
implications of sticking to the existing consulting firms, and private research
pathway. Based on this analysis, specific organisations (see the Annexure for the
policy lessons are presented that can full list of stakeholders The study also
guide India’s efforts in the future. relies on policy documents, secondary
data, and existing secondary literature
The second part of the study assesses to validate and enhance the inputs
efforts to increase non-fare box revenues received from the stakeholders.
from the metro rail. In particular, it looks
at the progress towards implementing All interviews were conducted without
land value capture (LVC) mechanisms attribution to ensure a candid exchange
to monetise the increases in land value of views. The learnings from the
in metro rail influence areas. It assesses stakeholder consultations have been
the feasibility and acceptability of incorporated into the analyses and the
different LVC tools identified in the policy lessons.
M
etro projects in India
Metro are
overarching
guided by two
laws:
Rail
the Metro Railways
(Construction of Works) Act, 1978, and
Policy in
the Metro Railways (Operation and
Maintenance) Act, 2002. These laws lay
India
down the procedures for establishing
metro rail administration authorities,
and delineate their powers and
functions. The laws have formed the
basis for setting up special purpose
vehicles (SPVs)e,12 to carry out metro
operations, starting with the Delhi
Metro Rail Corporation (DMRC). They
also outline the procedures for land
acquisition, determining fares, and
various offences and penalties. Notably,
the metro rail authorities are not
given direct control of tariffs, with this
power vested in a separate fare-
determining committee.
While the laws provide the legal

framework, they do not offer any
guidance regarding when to construct
MRTS or how they should be financed.
Most cities are now keen to build metro
rail networks, including smaller cities
e
A special purpose vehicle, or SPV, is a legal entity that undertakes a project. All contractual
agreements between the various parties are negotiated between themselves and the SPV.
An SPV is a commercial company established under the relevant Act of a country through
an agreement (also known as memorandum of association) between the shareholders or
sponsors.
that have limited formal transportation metro projects. The policy advocates
systems. This bias toward metro rail for a systems approach, with metro rail
emerges from the need to provide mass embedded in a broader strategy to ensure
transit systems and its “aspirational” a seamless multimodal system. To this
connotations. The glut of requests from end, any city seeking assistance for
state governments for project approval metros should have already developed
and financial support led to the union a comprehensive mobility plan (CMP),
government notifying the Metro Rail presenting short-, medium-, and long-term
Policy in 2017,13 which lays down the strategies to improve mobility and justify
conditions for state governments to its proposal to the central government
receive central support for their metro and multilateral funding agencies. It also
projects (see Figure 2). mandates state governments to set up
unified metropolitan transport authorities
Since most metros are financed jointly (UMTAs) as a prerequisite to ensure an
by the Centre and states, receiving integrated approach to planning and
central support is critical to implementing management.
10 Introduction
Figure 2: Appraisal Framework for Projects under Metro Rail Policy
Preparation of CMP
Preparation of new
If CMP exists and is Preparation of new CMP,
CMP, if existing CMP is
not older than 5 years if CMP doesn’t exist.
older than S years.
Get approval from UMTA/

State government
Preparation of alternative analysis report

(approved by UMTA/ State government)
Metro Other PT modes
Preparation of DPR Decision by state

government for next steps
Submission of OPR
including the Metro Policy
checklist
Approval from UMTA/ Appraisal of DPR

State government by independent
agencies
Get approval from

Central Government and
Funding under Metro Rail
Policy, 2017
Source: Ministry of Housing and Urban Affairs

The policy also acknowledges that selection, financing models, operational

MRTS are highly capital-intensive and plans, and environmental impact
most suited for cities with growing assessment, among others. MoHUA
populations and favourable growth assesses the feasibility of metros on
prospects. Metros should be considered a combination of these factors, but how
for cities with high-density passenger the final decision is made on such a
corridors, typically with passenger broad range of analyses remains unclear.
volumes between 60,000 and 80,000
passengers per hour per direction. The 2017 metro policy also outlines
The policy mandates city authorities specific measures to reduce costs and
to conduct an alternatives analysis for enhance revenues. On the revenue side,
the proposed metro corridor, and the central funding will only be considered
Ministry of Housing and Urban Affairs if the proposal includes plans for setting
(MoHUA) has also specified standard up a comprehensive feeder system to
guidelines for such analyses. 14
The enlarge the catchment areas of every
analysis aims to assess the financial, station to at least five kilometres.
environmental, and social costs for the These feeder systems must consist of
different modes of transport capable paratransit and improvements in non-
of satisfying the transport needs in the motorised transport infrastructure.
proposed corridor. The overarching Furthermore, it mandates consideration
objective is to select the most locally- of transit-oriented development
preferred alternatives based on this (TOD) and value-capture financing in
multicriteria assessment. The MoHUA the detailed project report. All metro
guidelines suggest that each criterion rail proposals must plan for TOD,
included in the analysis should be focusing on intermodal integration,
given a certain numeric weight, and including paratransit and universal
the transport mode with the highest accessibility. They must also explicitly
cumulative score should be selected plan for capturing the benefits from TOD
for development. However, how the using LVC financing mechanisms
weights are determined is unclear, outlined in the National Value Capture
leaving the potential for bias in Finance Policy Framework.15 The
generating the final results. The proposal should identify the quantum
alternatives analysis is part of a of benefits transferred from value
broader detailed project report, which capture mechanisms to the metro
includes additional factors such as rail implementation agencies for
metro alignment and design, technology executing the project. These measures,
12 Metro Rail Policy in India
as highlighted in the metro policy, The policy also advocates for increasing
clearly recognise the capital-intensive private participation and urges all state
nature of metros and their ability to governments seeking central support
reshape land values in cities. to consider public-private partnerships
(PPPs) in their proposals. This
There is also a strong push for the consideration can be for construction
indigenisation of metro rail systems works and operational services,
to reduce costs. Metro authorities maintenance, and upgrades. In particular,
must commit to continued increases it highlights the need to increasingly
in mandatory local content in the include PPPs in operation and
procurement conditions. Furthermore, maintenance activities since they are
each metro must adhere to the more profitable than construction
standards for the different metro works, which require heavy up-front
components and focus on bulk capital investments.
procurement to create visible demand
for indigenous components.
T
he successful implementation
Assessing of metro rail projects
Industrial
consists of multiple stages
and subsystems, broadly
Growth from categorised

construction,
as track
rolling stock,
and station
traction
Metro Rail systems, signalling and communication

systems, and ticketing systems. The
Development recent boom in the metro rail sector

globally, particularly in Asia,16 has
spurred large-scale growth in industries
supplying the different subsystems.
However, control over the technology
needed for these different systems is
still concentrated in a few firms in a
small group of countries. Moreover,
the recent growth of metros has been
chiefly in developing nations with
limited technological capabilities to
produce these systems. As a result,
many of these countries, particularly
India, have implemented policies to
build local capacities. The driving
force behind this is the need to
reduce costs through local production.
Additional co-benefits from
indigenisation include job creation,
increased economic value-added, and
the potential to improve exports. This
section analyses India’s efforts to build
local metro rail system capabilities,
assessing each subsystem individually.
Policies for Building Domestic

Capabilities
The 2017 Metro Rail Policy identifies

indigenous production as a prerequisite
14 Industrial Growth from Metro Rail Development
for reducing costs. Even before the MoHUA has implemented a phased
policy was notified, this was a priority area manufacturing plan to increase
under the broader umbrella of the ‘Make localised content in the procurement
in India’ programme that mandated a process. Table 1 shows the most
certain proportion of local content in recent update (2021) to the mandated
the public procurement process, local content for the different metro rail
including metro rail. Metro rail authorities subsystems. Given India’s significant
have to follow the Public Procurement capacity to carry out most construction-
(Preference to Make in India) Order, related activities, civil works have
2017, issued by the Department for the highest local value addition. There
Promotion of Industry and Internal is still a dependence on foreign firms for
Trade (under the Ministry of Commerce tunnel boring equipment for underground
and Industry), which forms the basis works; hence, local content is slightly
for public procurement in India. This lower than for elevated sections. Rolling
order defines a selection process to stock has a 60 percent mandated
ensure that bidders with higher local value addition, marginally higher than
content are given preference.17 Firms the other systems at 50 percent. The
with local content above 50 percent are specific situation for each subsystem
classified as a ‘class-I local supplier’. The is discussed in detail in the subsequent
selection procedure is such that the sections.
lowest bidder among class-I suppliers
is awarded the contract even if this is not
the lowest bid across all applicants.
Table 1: Mandated local value addition as per the phased manufacturing

programme (2021)
Component Mandated local content
Rolling stock 60%
Telecom 50%
Signalling 50%
Civil works 90% (elevated), 80% (underground)
Electrical 50%
Source: Ministry of Housing and Urban Affairs18
f
Local content is defined as total value of the item procured (excluding net domestic indirect
taxes) minus the value of imported content in the item (including all customs duties).
Significantly, local content is defined up their local manufacturing efforts. In

as the total value of the items procured 2013, the erstwhile Ministry of Urban
minus the value of the imported content. Development constituted a committee to
In addition, the definition restricts itself prepare a ‘Base paper on Standardization
to the value of the materials needed to and Indigenisation of Metro Railway
manufacture an item. Thus, any firm Systems’.20 The paper identified the
meeting the mandated local content basis for setting standards for the
criteria can be eligible for the bidding metro subsystems based on inputs
process without restrictions on the firm’s from several stakeholders, including
origin country. This has been done to the original equipment manufacturers.
encourage Indian firms and foreign firms Subsequently, it also constituted
willing to set up manufacturing facilities individual committees for rolling stock,
in India through local subsidiaries or signalling systems, tractions systems,
joint ventures with Indian firms. Apart operations and maintenance, fare
from this, the MoHUA guidelines do collection systems, and track structures.
not distinguish between different Each sub-committee was tasked with
technology transfer models, and the identifying the key challenges to the
government has not been directly indigenisation of each subsystem and
involved in facilitating technology identifying standards to be followed by
transfers as in some other countries. all metro rail authorities. The intricacies
of the standards and the gaps in the
Furthermore, the cost of technology current process are discussed in the
acquisition, such as licensing fees or R&D subsequent sections.
expenditures, is not accounted for in the
local content. This has implications for Domestic Capabilities for Metro
the pace of innovation and investments Subsystems
in design engineering by Indian firms,
discussed further in subsequent Track and Station Infrastructure
sections. As such, neither the Metro
Rail Policy nor the procurement process The infrastructure needed in the
has any specific focus on technological initial phase of metro construction
development or innovation. includes civil works related to alignment
and formation, station buildings, and
Another effort to increase indigenisation permanent way. The basic structures
has been the standardisation of differ on the elevated and underground
different metro components to aggregate sections of the track. For elevated track
demand and encourage firms to scale sections, almost all the civil work is
catered to by domestic firms that can has a manufacturing facility in India (in
source most of the equipment and Chennai since 2007). The facility includes
materials locally. As a result, MoHUA 2,2250 square metres of TBM assembly
has mandated a 90-percent localisation and refurbishment capacity capable
for civil works on elevated track of producing 10 TBMs per year.
sections. The major firms that have Having local facilities has provided
won contracts for the construction Herrenknecht with an advantage in the
of these track sections—such as Indian market, with officials claiming
Hindustan Construction Company, KEC that their TBMs did around 70 percent
International Ltd, Larsen and Toubro- of the tunnelling in 2018.g However,
India, AFCONs, Infrastructure, NCC, J given the limited capacity in India,
Kumar Projects, and Dilip Buildcon—have the company still continues to import
facilities in India. TBMs from its facilities in China and
Europe. Notably, many projects now
The MoHUA has recommended using utilise refurbished TBMs instead of
tunnel boring machines (TBMs) over new ones, which are often stored in
traditional drilling and blasting methods India once a particular project is
for the underground track sections. completed and then refurbished abroad
However, Indian contractors continue for future use.21
to subcontract TBMs from foreign
suppliers. The major suppliers of Multiple factors have contributed to
TBMs to India are China Railway the lack of TBM capacity in India.
Construction Heavy Industry Corporation China’s existing capacity in China is a
Limited, Shanghai Tunnel Engineering key hindrance since foreign suppliers
Company (China), Terratec (Australia), with large plants in that country already
Herrenknecht (Germany), and the enjoy economies of scale and an existing
Robbins Company (US). Notably, many ecosystem for sourcing raw materials
non-Chinese manufacturers have also and components. Most are unwilling to
been supplying TBMs from their facilities replicate the large capital investments
in China. Herrenknecht, Terratec, and required to setup facilities in India when
Robbins Company have manufacturing they already have established export
capacity in China, but only Herrenknecht routes from China. Although there was
g
A more detailed break up of the TBM market was not available and was beyond the scope of
this study to estimate.
zero custom duty on TBM imports, a panels, distribution boards, cables,

seven percent duty has been levied wiring, lighting system, earthing system,
since 2021 to boost local and the uninterruptible power supply. For
manufacturing. Yet, these machines these systems, there is already some
continue to be taxed domestically in capacity to manufacture within India
the 18 percent GST bracket, leading to and the MoHUA mandated a 50 percent
increased costs. Another factor has local content requirement. Still, there is
been India’s underdeveloped logistic an import dependence for certain items
systems. TBMs consist of multiple parts, because there is also high demand from
most of which have to be customised for other sectors. Furthermore, in some
different projects, and the long delivery cases, the quality of imported products
times associated with components are are considered to be of better quality
a significant hurdle. This also forces than the local versions.
companies to maintain a high spare parts
inventory, adding to the manufacturing Underground stations also require two
cost. Improving logistics is a key aim other systems—the environmental
of the central government’s Gati Shakti control system (ECS) and the tunnel
(National Master Plan for Multi-modal ventilation system (TVS). The
Connectivity) scheme. If the scheme can automated ECS system consists of
substantially improve connectivity and heating, ventilation, and air conditioning
the domestic taxation structure on TBMs equipment. Many of the components
is rationalised, more manufacturers may needed for these systems are already
be inclined to set up facilities in India. being manufactured in India by
established suppliers such as Daikin,
For the stations, which broadly include Bluestar, and Voltas. MoHUA has already
the concourse and platform levels, the mandated 50 percent local content
civil works are almost exclusively carried for ECS contractors. However, certain
out by firms based in India utilising critical system parts, such as chillers,
local labour and materials. For the are still imported. For TVS, the MoHUA
electrical and mechanical items, on the committee had highlighted that most
other hand, there is still a substantial critical components, particularly the
dependence on imports. But there has tunnel ventilation fans (TVF), exhaust
been some change since 2018 when a system, dampers, and booster fans,
MoHUA committee put down standards were heavily dependent on imports
for electrical and mechanical systems even in 2018. However, it stated that
for all metro projects. The electrical for the TVF and exhaust systems, 75
systems broadly include low voltage percent of the required components
could be mandated to be manufactured pleasing, which may be a significant

or assembled in India by 2019. Since factor for the local authorities. However,
then, some capacity has been built the overhead 25 kV AC system is
locally, with tenders for some newer recommended for higher passenger
metro projects giving preference to densities due to its greater energy
suppliers that can guarantee 60 percent efficiency with heavier loads. The
local content. Some metro projects have committee also suggested that the
also decided to award the ECS and TVS 1500 kV DC overhead system can be
contracts as a turnkey solution. considered.
Overall, there has been substantial Many early projects, such as the initial
progress in terms of building up phases of the Delhi and Mumbai metros,
local capabilities for the electronic opted for the 25 kV AC overhead
components used in the stations. The catenary systems primarily because
firms engaged in these systems have Indian engineers already had significant
also shown a greater inclination to set up experience with these systems as they
local facilities as the demand for these were used by the Indian Railways. But the
products is expected to rise from metros more recent projects have preferred the
and other sectors. third rail system.
Traction Systems The choice of traction system has

implications for the level of localisation.
On traction systems, the MoHUA First, the choice of traction affects
committee recommended the adoption the demand for propulsion systems.
of either the 25 kV AC or 750 V DC Having multiple traction systems across
third rail system for Indian metros.22 cities could lead to lower demand
The 25 kV AC overhead catenary’s aggregation, translating into lower
propulsion system has two additional investment in domestic manufacturing
components than the 750 V DC third capacity. Second, the level of localisation
rail system—the transformer and possible for the traction and power
front-end converter. As such, although systems differs across the two
the MoHUA committee suggests technologies. As per a 2018 MoHUA
that the quoted costs for both these report,23 the overhead catenary system
systems are similar, the 25 kV AC already has a localisation level above
system could have slightly higher 50 percent, and only specific
rolling stock costs. The third rail system components, such as the conductor rail
is also considered more aesthetically and its fittings, are dependent on imports.
However, the components for the third the committee has comprehensively
rail system—such as the aluminium analysed the different tradeoffs
rail, circuit breakers, transformers, and associated with these systems. The
cables—are largely import-dependent. standardisation has also helped
The contracts for these systems are simplify the process for metro
currently being serviced by overseas authorities to select the right traction
firms with production facilities abroad, system. It might be worthwhile to
sometimes through their Indian regularly update the committee’s
subsidiaries. recommendations, given that the last
advice was based on information from
The increased proliferation of the third 2012. Since then, far more data has
rail system could thus have implications been gathered from the different metro
for the level of localisation possible rail experiences, and the cost of these
for traction systems. Furthermore, systems might have evolved, as was
since the demand for these systems suggested by the committee at the
is limited and fragmented, it will be time. This analysis could also add
difficult to convince manufacturers to the two new metro systems that have
put in the heavy capital investments been proposed, the MetroLite and
needed to create facilities to produce MetroNeo. h,24
These are supposed to be
these components locally. Since cost-effective alternatives to heavy metro
the production process for these rail systems for corridors with lower
components is also largely automated, passenger densities. They provide an
any labour cost advantages in India exciting new opportunity, but metro rail
might be minimal. authorities are still uncertain regarding
the criteria for choosing these systems.
This is not to say that metro rail The benchmarking and standardisation
authorities should select the traction of the cost and comparison with existing
system based on the level of systems will be crucial to increase the
localisation. The focus should be on uptake of these systems.
the most cost-effective solutions, and
h
MetroNeo is an articulated or bi-articulated trolley bus system with overhead electric traction,
perceived as a transport solution for Tier-2 and Tier-3 cities for 8,000 passengers per hour per
direction and extendable upto 10,000.
Rolling Stock regard, with multiple manufacturers

setting up facilities within the country,
Rolling stock is a critical part of any each with its own technology transfer
metro rail project and accounts for and content localisation strategy.
approximately 30 percent to 40 percent
of the total cost of that project. The rolling When the Delhi Metro started in 2002,
stock for the metro rail is different from rolling stock was primarily imported,
those used in traditional rail systems with some work subcontracted to Indian
primarily due to the higher prevalence manufacturers. Much has changed
of electrical components. Globally, since then, with a steady buildup of
metro rolling stock technology is manufacturing facilities for metro rail
concentrated in a few firms in developed rolling stock. Delhi Metro claims that
nations. China’s state-owned CRRC 90 percent of its coaches are produced
Corporation Limited caters to 67 percent in India.27 The increased capacity to
of the global metro rail rolling stock produce locally has also prompted
market. 25
However, CRRC’s growth the MoHUA to set standards for the
has been mainly driven by domestic proportion of rolling stock that must
demand, which contributed 90 percent be produced within the country. As per
of its operating revenue in 2017. the most recent circular (2017), at least
Notably, although CRRC has developed 75 percent of the tendered quantity of
technology competence, it was cars in any procurement order must be
previously heavily dependent on foreign manufactured within the country, either
suppliers for designs and technology. by establishing an exclusive facility
or in partnership with Indian
In contrast, the early movers in manufacturers.28 This is in addition to
developing metro rail technologies are the local content requirements, which
based mainly in Europe. Manufactures mandate 60 percent local value addition
like Alstom, Bombardier, CAF, and for rolling stock. These two measures
Siemens have utilised their first-mover are key to ensuring that the tendering
advantage to become the leading rolling- process is skewed towards domestic
stock technology exporters to most manufacturing.
countries that are now establishing
metro rail systems. However, developing However, neither of the conditions
countries have increasingly tried to related to localisation specify any
build domestic capabilities and reduce conditions related to the nature of
their dependence on direct imports. technology transfer or country of
India has had significant success in this origin for a particular manufacturer. As
a result, both foreign and domestic propulsion systems, were still

suppliers have adopted different imported.
models for setting up manufacturing
facilities in India. So far, five major rolling Since then, BEML has taken great
stock manufacturers have catered to strides in developing its in-house
the bulk of the demand. capacity to build rolling stock. In
2018, it won a contract worth INR
Rolling stock for the metro rail consists 30.15 billion (US$388 million) for
of two broad components, the train’s Mumbai Metro.29 The company now
body and the propulsion system. Some says that local content accounts
manufacturers provide integrated for 65 percent of the value of its
solutions by providing both systems, rolling stock. However, this is
while others engage subcontractors for limited to the car body and bogey
the propulsion systems. The different production. Critical components
strategies adopted by some of the major like the propulsion system are still
manufacturers are detailed below, with outsourced to foreign firms like
a specific focus on their localisation Mitsubishi. Furthermore, BEML’s
strategies: design capacity is still limited, and
the design aspects for the metro
• Bharat Earth Movers Limited trains are outsourced to foreign
(BEML): BEML, a public sector firms. To rectify this, the company
undertaking under the Ministry signed a memorandum of
of Defence, manufacturers understanding in 2021 with Rail
heavy equipment for defence, India Technical and Economic
construction, mining, and rail and Service to collaborate on
metro rail coaches. The first set of developing design capabilities.30
rolling stock contracts for Phase-1 As it expands its R&D capabilities,
of the Delhi Metro was awarded to the hope is that BEML can
a consortium of Hyundai Rotem increasingly come up with
and Mitsubishi Corporation, with indigenous designs for its
BEML as a subcontractor. In this trains, which will help increase
instance, 220 of the 280 cars localisation while reducing the
were manufactured by BEML at its cost of production and expenditure
Bengaluru facility. Hyundai Rotem on subcontracting. Having in-
provided the design for the metro house design capacity will also
cars. At this stage, most of the allow it to adapt its design to
components, including the cars’ cater to the export market and the
ever-changing domestic market, manufacturing facility in Asia,

where demand for newer metro rail with an average investment of €25
designs, such as the MetroLite, is million (US$26.5 million). It is also
likely to increase. supposed to generate 10,000 direct
and indirect jobs, indicating the
• Alstom-Bombardier: Alstom SA is significant employment potential
a French multinational company of the component industry in
that manufactures rolling stock India.32 Furthermore, it has also
and other metro systems. It is established two engineering
one of the oldest rolling stock facilities in India, a significant
manufacturers globally and one move in terms of creating local
of the first companies to enter the design capacity.
global market for manufacturing
metro rail systems. Alstom Interactions with former Alstom
SA entered India by establishing executives revealed an initial
a fully-owned subsidiary, Alstom dependence on their foreign
Projects India Ltd, in 1992. counterparts for the train designs.
Since then, it has expanded its However, this dependence hindered
operations to cater to multiple the ability to localise the sourcing of
areas, including the power different components, translating
sector. Alstom Transport India is into higher production costs and
now one of the major domestic non-competitive bids. This was
suppliers of metro rail rolling the key driving force behind the
stock, with multiple manufacturing increased focus on localisation
facilities in India. and creating design capacity within
India. The company focused on
In 2021, Alstom SA acquired hiring Indian engineers and training
Bombardier Inc. and took over them through foreign exposure to
its manufacturing facilities in design India-specific trains with
India.31 Today, the company high levels of localisation. Alstom’s
has two dedicated facilities for increased competitiveness is due
manufacturing metro coaches to the cost reductions achieved by
and two more component increasingly designing in India. It is
manufacturing facilities. Alstom- also one of the few firms capable
Bombardier’s Coimbatore of providing turnkey solutions to
plant is the largest component metro rail authorities covering
rolling stock, propulsion systems, Railways. Since 2007, it has also

and signalling and communication manufactured passenger trains
equipment. and has ventured into defence
equipment manufacturing. The
The Alstom experience is a company began its foray into
good example of how foreign manufacturing metro rail rolling
subsidiaries can adapt to local stock more recently. Notably,
markets and become competitive their model of technology
by being flexible in their design acquisition has been different
engineering. Now, the company from their competitors. In 2015, it
caters to the local market and acquired the Italian rolling stock
also exports trains manufactured manufacturer Firema SpA, thereby
in India to different parts of the gaining control over its technology
world, including Sao Paulo in for metro rail rolling stock and
Brazil, Riyadh in Saudi Arabia, propulsion systems. This has
and Sydney in Australia. Notably, made them the first completely
they also claim to have provided Indian company to have the
engineering services from India designs and technology needed
for its parent projects in other for rolling stock production. Since
countries. The cheaper cost of then, it has developed the capacity
engineering services in India and to manufacture metro cars from
a readily available talent pool its existing facilities in West
have been the driving forces Bengal and has access to Firema’s
behind establishing design facilities in Italy.
capabilities in India. This is
especially true for firms with It has also set up design
existing design capabilities capabilities in India, with engineers
and the ability to upskill Indian here actively collaborating with
workers through collaborative their Italian counterparts. In 2020,
knowledge-sharing with their it bagged an INR 11.22-billion
foreign counterparts. (US$135 billion) contract to supply
33 train sets of three coaches each
• Titagarh-Firema: Titagarh to the Pune Metro. Three of these
Wagons Ltd is an Indian company sets were to be manufactured in
established in 1997 with the their Italian plant, while the rest
primary purpose of manufacturing are to be manufactured in India. In
freight wagons for the Indian 2021, they unveiled the first three
trains for Pune, the first aluminium- investment (FDI) in this sector and
bodied metro trains in India. The greater investment from Indian
company believes that its in-house companies. There is a clear focus on
design capabilities and control over increasing localised content across the
technology will allow it to innovate board, and most manufacturers now
faster than its competitors, leading claim to have localisation levels above
to quicker cost reductions and the 80 percent. The strict procurement
use of localised content. conditions may have played a part in
this. Still, most suppliers stated that
Thus, the growth of metro rail has their primary motivation for localisation
spurred a notable increase in domestic was to reduce costs to better compete
capabilities for producing rolling stock in a crowded market. MoHUA’s
(see Table 2). There is now significant recommendations on rolling stock
competition in the rolling stock market, standardisation have also played a
with several newer players. This is key role in aggregating demand.
a result of increased foreign direct
Table 2: Snapshot of rolling stock manufacturing capacity in India

(as of January 2022)
Company Coaches Supplied Local Facilities
Two manufacturing facilities

Alstom-Bombardier 2,500
Two-component manufacturing facilities
CRRC 598 Two upcoming facilities
Bharat Earth Movers

1,500 One facility
Limited (BEML)*
Titagarh-Firema 102 One facility
*Some coaches were supplied as a subcontractor for Hyundai Rotem and Mitsubishi.
Source: Compiled from manufacturer brochures and stakeholder consultations.
However, domestic production particularly for BEML. Alstom also has

capabilities for niche components, set up two-component manufacturing
especially propulsion systems, are facilities to produce these systems.
limited. The propulsion system is the Titagarh’s acquisition of Firema has also
driving force of the train and consists given them access to technologies to
of the traction motor, main converter- make these systems in India and their
inverters, auxiliary converters, and the plant in Italy. It is plausible that most of
train control and management system. these systems could also be localised.
India’s prominent propulsion system
suppliers include Siemens, Mitsubishi, MoHUA’s committee on rolling stock
Toshiba, and Melco. Established rolling deliberated extensively on ways
stock suppliers such as Alstom and to accelerate the indigenisation of
Bombardier also produce these systems propulsion systems. The point of
and can provide integrated solutions contention was whether to make it
by manufacturing the body and the mandatory for suppliers to provide
propulsion system. However, there is the car and propulsion systems as a
still limited local capacity to produce single source, either on their own or
these systems. The Indian Railways has through a consortium. The argument
also traditionally depended on imports for the consortium approach was that
for these systems. In 2019, Siemens the integration of the different systems
announced that it had been provided would be smoother and encourage
India’s first indigenously designed and manufacturers to expand their domestic
developed propulsion system to the capacity for these systems. The main
Indian Railways. 33
Although the Indian proponent of this argument was Alstom,
knowledge content for this system is which could provide such turnkey
not clear, it is an example of standard solutions. However, this could also
expertise from Siemens being brought to have led to market monopolisation by
bear in an Indian context. certain players and increased costs in
the long run. Instead, the subcontracting
Similarly, these systems were also wholly approach, where car manufacturers are
import-dependent in the initial stages allowed to subcontract the propulsions
of India’s metro rail development. More system, would allow more players to
recently, there have been some positive enter the bidding process. Furthermore,
signs with some manufacturers setting the car manufacturers would have
up factories in India. In 2015, Mitsubishi enough negotiating power to decrease
set up a factory in Bidadi, Karnataka, costs. In the end, the committee
which now produces propulsion systems, recommended that the bidder could
adopt either approach. This seems to million (US$193,323) in the initial stages
have paid dividends, with increased of metro rail development. As demand
competition in the market driving down increases and design capabilities in the
costs substantially. country also improve, further reductions
could become evident. The last section
Another issue pertained to the eligibility provides some recommendations for
criteria for propulsion equipment accelerating this process.
manufacturers to qualify for the bidding
process. Presently, the entry criteria Signalling and Communication Systems
mandate that propulsion manufacturers
have a cumulative experience of 10 years. The signalling and communication
They must also have supplied a minimum systems ensure the safety of train
of five contracts in a country other than movement while also ensuring
India. This heavily skews the bidding operational efficiency by allowing
process to favour legacy manufacturers optimal headways. The demands from
and explains why newer Indian players are these systems differ substantially
not adequately incentivised to enter the between traditional mainline operations
market. However, to develop indigenous and metro rail operations. Metro systems
capacity, the committee recommended transport high passenger densities
that metro rail authorities consider giving over shorter distances with more
out development contracts to Indian frequent stoppages, whereas mainline
manufacturers for propulsion systems. trains move passengers over longer
There has been a reluctance to follow distances. The mainline operations have
this approach since most metro rail been traditionally dependent on fixed
authorities are trying to reduce costs block-based signalling systems with
and minimise risks associated with such headways predefined by the blocks’
deals. lengths. On the other hand, the
peculiarities of metro rail have led to
Overall, India’s metro rolling stock more focus on automated systems for
industry is a great example of how train detection and interlocking. This is
increased demand and competition essential to provide the higher order of
can drive industrialisation in a nascent safety needed to maintain the smaller
sector. The increased domestic headways needed for efficient metro
capabilities have already translated into operations.
a lower cost of production. The average
cost per coach is below INR 10 million Considering this, MoHUA has
(US$128,900) compared to INR 15 recommended that metros in India
focus on communication-based train the distance between two trains is

control (CBTC) systems as the gold maintained are constantly moving,
standard. 34
CBTC is a continuous allowing for trains to operate with
communication system between the shorter distances or headway between
train, the track, and the control centre each other. The main benefit of this
(see Table 3); the equipment onboard system over the traditional fixed block
the train constantly communicates system is that it allows trains to run
with the equipment on the track so that closer to each other with greater control
the train can be tracked in real-time. over train operations.
Thus, the blocks based on which
Table 3: Components of the CBTC system
Subsystem Description
- Installed at communication centre and wayside.

- Identifies tracks and displays trains to the control
Automatic train supervision centre
(ATS) equipment - Provides manual and auto route setting capabilities
- Controls train movement to maintain the operating
schedule
- Network of controllers based on electronic

processors installed on the track
- Interfaces with on-train equipment, interlocking
Wayside equipment
equipment and ATS
- Provides positioning reference to train-borne
equipment
- Processor-based controllers, speed measurement

equipment, and sensors for determining the location
Train-borne equipment
- Responsible for train location, speed enforcement,
and function of ATS
- Located at the control centre, wayside, and on-board

Data communication the train
equipment - Performs data communication within the train and
with the other data centres
Source: Ministry of Railways. 35

While the Indian Railways has some The mandated local content has
capacity to implement a fixed block- increased local sourcing of hardware
based signalling system, the technology components, including processors,
needed to implement CBTC systems is switches, cables, and track works.
primarily concentrated in the hands of a Some data preparation and verification
few European firms. Most of these firms work is also being done in a few local
have set up large manufacturing bases in centres. However, the critical software
Europe, from where these technologies components are still unavailable locally,
are supplied to all geographies, ensuring and foreign firms are not inclined to
a certain level of standardisation.36 design an India-specific CBTC system.
For Indian metros, CBTC has primarily Taking cognisance of this, the Delhi
been supplied by Alstom and Metro developed an in-house signalling
Siemens, with Thales, one of the most software system. The process has taken
prominent players globally, securing some time, but a big breakthrough came
some contracts. Discussions with in 2021 when the DMRC launched an
stakeholders suggest that these indigenous ATS system, the i-ATS. In
systems, particularly the software their communication to the authors,i
and testing associated with the ATS DMRC stated the following:
subsystem, are very costly to develop.
To set up the capacity to design “As part of the ‘Make in India’ initiative,
these systems in India would require Government of India decided to
significant investments from existing indigenise the CBTC technology. DMRC,
foreign vendors, which is not an NITI Aayog, MoHUA, Bharat Electronics
attractive proposition given the Limited (BEL), Research Design and
limited demand. Thus, MoHUA Standards Organisation of the Indian
recommendations were also not Railways, and the Centre for Development
too optimistic about the complete of Advanced Computing (C-DAC) are part
indigenisation of these systems. of this development. To take the project
However, the latest guidelines forward, DMRC and BEL had entered
mandate that 50 percent of these into an MoU last year. A dedicated team
systems must be localised by of DMRC and BEL, Ghaziabad, worked
encouraging foreign manufacturers together round the clock to take this
to source at least the hardware from important step.”
within the country.
i
Via email in January 2022.
The i-ATS is currently undergoing final enabled industrial growth. Government

trial on the Delhi Metro’s Red Line policies for technology development
and is expected to be deployed on can be classified as selective (vertical),
certain routes. This will be a major step functional (horizontal), or both.
towards reducing dependence on Selective policies involve the purposive
foreign vendors, reducing costs, and a targeting of certain activities or picking
major technological success for India. winners in a particular technology
i-ATS is a notable example of how transfer model. They can involve
collaboration between government favouring FDI or direct government
agencies and research institutes can involvement in the technology transfer
lead to technological breakthroughs to certain domestic entities, usually
when the private sector does not have large public sector-owned enterprises.
enough incentive to design country- Functional interventions aim to
specific technologies. improve the market and leave it
free to operate or influence the
Assessing the Role of Industrial Policy direction of growth by setting specific
national priorities.38
The rapid growth of metro rail in India
has spurred significant actions toward India’s Metro Rail Policy focused
building domestic capabilities for on creating the right conditions for
its different subsystems. The most domestic manufacturing without
notable success has been for rolling specifying any particular technology
stock, which has seen increased transfer model. In contrast, governments
domestic manufacturing through in other countries have been directly
foreign investments and domestic involved in transferring technology from
firms boosting their capacities. foreign firms to domestic counterparts.
Specific FDI data is not available One example is the high-speed rail in
for metro rail, but FDI for railway- China, where the Ministry of Railway
related components has increased facilitated the technology transfer,
rapidly, from US$25.40 million in which entered into train procurement
2011 to US$598.63 million in 2021, a and technology transfer contracts
sizeable share of which can be inferred with targeted foreign firms. As per the
to be from metro rolling stock.37 contract, the foreign firms were required
to jointly develop train designs along
It is pertinent to question the driving with local counterparts while also
force behind the increased technology providing access to train blueprints,
development and transfer that has manufacturing procedures, and the
training of engineers. The task of focus on turnkey solutions but allowed

developing indigenous technologies, the market for each subsystem to
based on the learnings from foreign develop individually. As a result, there
firms, was then passed on to has been no monopolisation of the
local manufacturers. In this case, the market by firms with the capability to
principles of design or supporting provide all the subsystems. This is in
data were not transferred to the contrast to other countries that have
local firms. Still, they had to develop favoured turnkey solutions since they
their designs by reverse engineering allow for better system integration.
based on the prototypes received from The instance of Indian firm Titagarh
foreign firms. 39
directly acquiring foreign technology
also represents a new paradigm in
In India, this process has been technology transfer, is likely to
more market-driven. The role of the increase competition, and further push
government has been to set the foreign and Indian firms to improve
priorities at a national level without their design capabilities.
interfering in the actual technology
transfer process. These priorities are The other side of the coin is that
related to the level of local content certain systems, such as propulsion
through mandates in the procurement and parts of traction and signalling
process. Thus, India’s initial metro systems, still lack indigenous
rail systems were based on foreign manufacturing and designing
designs. However, the existing capabilities due to technological
capabilities for rolling stock complexities associated with these
manufacturing for the Indian Railways systems. For these systems, the
allowed some initial cars to be national priorities for local value
subcontracted to BEML. addition have led to a certain level of
local materials sourcing. Still, control
Since then, there has been some over technology for these systems is
buildup of design capabilities in India. yet to be indigenised. Here again, the
It is clear from discussions with Metro Rail Policy has not attempted
stakeholders that India’s on-shoring to force technology transfer. Without
of design capabilities was due to adequate competitive advantages
increased competition in the market to export these systems from within
and the need to reduce costs. Another India, it is unlikely that voluntary
reason for the increased competition technology transfer from foreign firms
is that government priorities did not will happen soon. However, in the case
of developing a domestic signalling investment in design capacity are

system, the DMRC experience is a competition and the clear communication
great example of how investment in of future demand. Thus, going forward,
R&D and increased collaboration the role of government will be to
between the public sector and research maintain a stable policy framework
institutes can spur innovation when the while identifying methods to better
market fails to facilitate technology aggregate demand.
transfer. Such models need to be
explored for the other subsystems Maximising Co-Benefits From
that lack domestic capacity. Metro Local Manufacturing: The Way
authorities can aid in this by giving Forward
exploratory development contracts
to Indian manufacturers in public and Given the success in creating domestic
private sectors to encourage them to capacity, there is no need for policymakers
innovate in these areas. to make any drastic changes to
India’s indigenisation strategy. Most
Increasing technological design stakeholders agree that a stable policy
capabilities within the country is framework will be necessary to ensure
essential to maximise the co-benefits the further buildup of manufacturing
of metro development by: facilities. Still, some minor changes
could help motivate firms to increase
1. Employing India’s existing large their investment in this sector. Some of
engineering talent pool the key policy learnings are highlighted
2. Allowing for even greater content below:
localisation, providing a fillip to the
component industry, and becoming • Better demand aggregation: A key
another economic value-added criterion identified by stakeholders
and employment source for increasing investment in
3.
Enabling Indian manufacturers domestic capabilities was clear
to further utilise competitive communication of future demand.
advantages domestically and Each metro authority puts out a
make the country a major exporter tender for the different subsystems
in the rapidly growing market for in an ad hoc manner. The approval
metro systems. for metro projects also does not
follow a clear pattern or a coherent
Based on the experience, the main roadmap. This makes it difficult
factors influencing increased for suppliers to plan their future
investments in these segments. local firms to create domestic

The central government can capacity for specific systems.
help coordinate this process and These are special contracts
periodically send out a projected given to a specific Indian firm
demand for rolling stock and even if they do not meet the
other subsystems for the next five inclusion criteria for a particular
years. A centralised procurement tender with further guarantees on
system, where the tenders are future purchases. However, only
floated by MoHUA or a specific a certain part of the complete
body tasked to do so, could also tender quality can be given as
go a long way towards demand development orders, usually
aggregation. between five percent and
10 percent. This essentially
Furthermore, the present tenders encourages Indian manufacturers
for rolling stock require a single to invest in the production of
firm to deliver all the trains for any certain components or systems
particular order. This can often that they would have otherwise
lead to delays as a single firm avoided. A similar approach
may not be able to produce the should also be encouraged,
required coaches in the given or even mandated, for certain
time frame. Instead, if the order systems, such as the propulsion
could be broken up and different equipment and third rail traction,
firms could supply parts of the to incentivise local firms to
same order, it would create more develop these capabilities. There
demand while ensuring quicker is also great scope to utilise the
fulfilment of each order. Since the extensive research capabilities
specifications for rolling stock within the Indian Railways to
are already standardised, the design some of these systems
incompatibility issue is unlikely to within India collaboratively.
be a major one. Even if the trains
have slightly different designs, • Measured increases to local
they can still cater to the specific content mandates and import
system. substitution: The local content
requirements have set the
• Greater focus on development right priorities for domestic
orders: Indian Railways has manufacturing and technological
utilised development orders to development for the metro rail
subsystems. However, going technological development and

forward, local content for certain R&D. Increasingly, governments
systems, such as signalling and metro rail authorities
and communication equipment, must think about how they can
will need to be increased in a encourage increased spending
measured way to ensure that on R&D within the country. This
the overall growth of the can be done by incentivising R&D
manufacturing ecosystem is spending through tax breaks or
not hindered. Since competition preferential treatment for locally
has been the driving force developed components in the
behind innovation in this procurement process.
segment, manufacturers have
already utilised comparative Furthermore, India focuses on
advantages to localise as much as innovation through broader
possible. The localised systems policies, such as the Science,
and components will require Technology, and Innovation
significant investment that may Policy (STIP). The policy focusses
not be profitable. Furthermore, on increasing investment in R&D,
localising some of these with the period between 2010
components, such as the chips and 2020 declared as the ‘decade
used in these systems, may of innovation’. However, these
not yield substantial economic policies do not have separate
gains in terms of employment provisions for newer green
and value-added. Forcibly technologies and thus do
inducing local content may not always link directly to the
hamper production in such innovation needed in specific
cases, and the costs may not industries. Going forward, there
justify the benefits. is a need to prioritise innovation
in sector-specific policies and to
• Promoting innovation: While link those with existing provisions
much success has been available in the overarching
achieved in manufacturing innovation policies. Increased
many metro subsystems locally, collaboration between research
there remains a limited ability to institutes, industries, and metro
design these systems in India. authorities could also lead to
Policies for local manufacturing commercialising various new
have largely ignored the need for technologies across subsystems,
as has already been witnessed in the standardisation process

signalling systems. can be used as a knowledge-
sharing and knowledge-production
• Standardisation versus process if it can be made into
innovation: The standardisation a common platform to bring
exercise carried out by MoHUA together actors with different
has been successful in aggregating capacities and knowledge,
demand and sending the right including the research community
signals for increased investment in and industry. Also, the standards
local capabilities. However, a rigid contain a codification of
standardisation process could knowledge and can encourage
discourage the innovation needed newer firms to focus their
to develop local knowledge for innovation within the bounds
the different metro subsystems. A set by the standards, often
clear causal relationship between leading to more effective scaling
standards and innovations is yet up of these innovations.
to be defined; the relationship
also differs according to the type
Going forward, some
of technology in question. 40
The improvements can be made to
benefits of standardisation are the standardisation process in
relatively clear—they promote the India. A clear process, focusing
development of economies of on an open and consultative
scale while maintaining quality. approach, should be defined
At the same time, it can also for setting the standards. The
lead to market monopolisation discussion should not only include
if the standards are skewed the established suppliers, as is
towards technologies that favour the case now, but also newer firms
certain suppliers with significant with the potential to innovate and
capabilities in these technologies research institutes with experience
or through strong intellectual in research on metro subsystems.
property rights protection. Furthermore, the standards
should be updated at regular
On the other hand, standards intervals to ensure that they do
are also postulated to not lead to lock-ins with old or
promote innovation if they inferior technologies. As much
are flexible and framed in a as possible, the mandated
deliberative manner. Essentially, specifications should also
be technology-neutral and economy, and competition.

performance-based. Finally, for
some subsystems, the standards However, while the success thus far
should allow for more leniency is commendable, enabling continued
if it can lead to greater growth will require a balancing act
innovation. This can be to ensure that a more inward-looking
particularly true for traction industrial policy does not come at the
systems since many new cost of overall growth and innovation.
cities opting for metro rail have Both policymakers and private players
lower passenger densities than will need to focus more specifically
envisaged in the initial metro on innovation and R&D. The next shift
standardisation process. In these will have to be from just ‘Make in
cities, traction systems other than India’ to ‘Design in India’. This focus
the two mandated by the MoHUA and increased public-private research
may be more cost effective and collaboration are also essential if India
even more suited to localisation. is to develop capacities for producing
some of the subsystems that are still
Conclusion nascent domestically. If India can
successfully manage this balancing
The growth of metro systems in India act and be at the forefront of producing
has already been accompanied by the latest metro technologies, it will
a substantial buildup of industrial not only be able to satisfy its domestic
capabilities, although some subsystems demand for most subsystems but
still have a long way to go. This section also become a reliable exporter
has outlined the unique factors that globally, particularly for the developing
have shaped the growth of domestic countries.
capabilities, essentially a combination
of targeted industrial policy, an open
M
etro rail projects are
Assessing capital-intensive.
example, Mumbai’s eight
For
Land Value metro rail corridors are

estimated to cost about INR 722 billion
Capture
(US$9.62 billionj) up to 2034, as per
the CMP prepared by the Municipal
Financing
Corporation of Greater Mumbai
(MCGM).41 Similarly, the three phases
of the Bangalore Metro, spread over 276
km, are estimated to cost nearly INR 895
billion (US$11.93 billion).42
The constraints on borrowing capacity

and the limitations of internal coffers
and state or central grants are inhibiting
factors for such large-scale infrastructure
development. Additionally, given the
political sensitiveness of increasing
farebox revenue, k
their operations,
long-term maintenance, and upgrades
pose a challenge for the states and
operators. Therefore, to explore newer
revenue streams from owned assets and
exploit the increase in land value, states
across India are resorting to land-based
financing for metro development based
on land value capture (LVC) principles.
j
At exchange rate of INR 75 to US$1
k
Farebox revenue refers to all revenue collected from fare-paying passengers either in the
form of cash or pass sales.
Practised worldwide, LVC leverages TOD zones. They have suitably altered
the benefit that accrues to private planning and zoning layouts to local
land and properties in the direct demand to boost private investment
“influence zone” of new infrastructure and redevelopment in the metro
corridors and the corresponding influence zones. The resulting gains in
public investments made for the land and property value enhance the
purpose. 43
Land value appreciation revenue-generating sources for the city
resulting from infrastructure governments.
development is captured by deploying
relevant LVC tools and reinvesting to Oregon Metro in the United States offers
maintain the infrastructure created or insights into leveraging the synergies
finance new public projects, forming of TOD and LVC. The Tri-County
a virtuous cycle that creates, realises, Metropolitan Transportation District
captures, and reinvests. Steps other of Oregon (TriMet), the implementing
than direct public investment by the agency of the metro, has been vested
government cause such land value with powers to levy taxes within its
enhancement. Therefore, it differs service area.45 In the two decades
from user fees levied by the operator since its inception, the metro’s TOD
for service provision and allows mechanism has made cumulative
governments and infrastructure investments of over US$35 million
development agencies to launch new through strategic investments and
projects despite the small resource incentivising PPPs for housing and
base at their disposal. LVC provides commercial development.46 Since
an opportunity via executive 1998, Oregon Metro’s investments in
authorisation or risk-sharing for public TOD mechanisms have raised US$1.19
projects for private stakeholders. billion in residential and commercial
real estate served by high-quality
Several cities globally have reaped transportation.
the benefits of LVC by implementing
TOD policies by enabling mixed-use On the other hand, China’s Shenzhen
development in proximity to and oriented is an example of how integrated metro
to metro rail transit systems. Typically,
44
rail transit and land-use plans have
city governments have leveraged LVC overcome the mismatch between
through direct capital investments and real estate development and market
offering diverse development incentives, demand.47 Hong Kong,48 Jakarta
further enhanced by levying various (Indonesia), 49
Manila (Philippines),50
fees for private development within the Bangkok (Thailand),51 Tokyo (Japan),52
38 Land Value Capture Financing
and Singapore53 are the other success two critical policy guidelines—the
stories of LVC for urban transit, which Value Capture Finance (VCF) Policy
provide crucial lessons to India as it Framework and the National TOD
emerges as one of the most prominent Policy. Thus, within the scope of urban
metro destinations globally. transport planning in India, both TOD
(as a concept that integrates land-use
Policy Environment for LVC in India and transport planning to develop
sustainable urban growth centres)
While urban transportation has long and LVC (as a concept to leverage the
been a challenge in India, the concept enhanced land value as an additional
of ‘planning’ for its provision was largely resource for financing infrastructure
absent from policy discussions until the projects, and as a subset of TOD) are still
rollout of the reforms-led Jawaharlal in their infancy.
Nehru National Urban Renewal Mission
(JnNURM) in 2005.54 Subsequently, the The TOD policy envisions a major shift
2006 National Urban Transport Policy from a private vehicle-dependent city
(NUTP) attempted to provide a roadmap to public transport-oriented development
for the states and urban local bodies by promoting affordable, comfortable,
(ULBs) to integrate mass transit in their and universally-accessible multimodal
long-term strategic development and public transport. The objective is to
land-use plans.55 However, even the encourage walking and cycling and
NUTP made no concrete other forms of non-motorised transport
recommendations for integrating LVC (NMT) and eventually create liveable and
in transport planning. It broadly affordable localities that are compact
mentioned the need to levy dedicated and walkable.56 The policy document
taxes to supplement petrol and diesel also includes a chapter on LVC as
taxes, betterment levy on landowners, an effective tool to make TOD
and even an employment tax on financially viable through additional land
employers. It also recommended value tax or a one-time betterment levy,
commercially utilising the land development charges or impact fee, and
resources with public transport service transfer of development rights.
providers to augment revenue sources.
The VCF Framework’s primary focus is
In 2017, as numerous Indian cities to present a systematic approach
sought to construct metro rail projects for states and ULBs to adopt LVC to
as perceived long-term solutions to finance urban infrastructure. The
transport woes, the MoHUA established framework urges multistakeholder
involvement in financing and VCF Framework. It further mandates

implementing infrastructure projects transferring the financial benefits
and fine-tuning and synergising existing accruing in the metro alignment’s
mechanisms for ULBs to generate influence zone on TOD policies and
sustainable financial resources. It also VCF Framework to the SPV/metro rail
enumerates ways to leverage LVC authority. The policy mandates that
as an efficient instrument for revenue all metro development proposals
generation and includes a guidance specify the estimated quantum of
note highlighting the practical aspects LVC benefits pumped back into the
of the imposition of impact fees. metro balance sheet.
Impact fees, commonly accepted
worldwide, are a one-time charge Besides such broad mandates for
paid by developers when land in the raising additional revenue through
designated benefit or influence zone is LVC, the metro policy also
sold or developed. necessitates project proposals to
have concrete plans for three other
Coinciding with the announcement ways to enhance revenues:
of the value capture framework,
MoHUA notified India’s Metro Rail 1.
Feeder systems facilitating
Policy in 2017. 57
The policy, among enhancement of the influence
other measures, devotes a chapter zone of each station to at least
to ‘enhancing revenues’ through the 5 km through last-mile
two interdependent and harmonising connectivity provided by
aspects of TOD and value capture pedestrian walkways, NMT
finance (VCF). The policy mandates infrastructure, buses, and
that each project proposal contains paratransit modes, including
a chapter on TOD with planned taxis and auto-rickshaws
intermodal integration, universal 2. Commercial/property development
accessibility, adequate walkways and at stations
pathways for NMT, stations for public 3. Specific ideas for improving
bike-sharing, commensurate parking non-farebox revenue through
lots for cycles and personal vehicles, conventional and innovative
and proper arrangement for receiving means.
and dispatching feeder buses at all
metro stations. It also seeks firm Since 2005, when urban transportation
commitment from states to adhere started to gain the attention of
to the guidelines enumerated in the policymakers, all policies and
schemes of the Indian government Impact of Metro Projects on Land Value

have highlighted the urgent need for in India’s Cities
decentralisation and empowering the
ULBs to lead and manage all aspects The proliferation of metro rail in India’s
of urban transport planning. cities has resulted in a bonanza for the
Empowerment of the ULBs through real estate sector. Multiple cities have
functional, financial and administrative seen a 20-percent surge in land value,
decentralisation was also the primary while residential and commercial rates
objective of the 74th Constitutional have grown by up to 25 percent along
Amendment Act in 1992.58 However, the entire length of the metro rail
despite its avowed objectives, the corridors. Increased convenience and
experience of the past two decades comfort and decreased commuting
has shown that state governments, costs have drawn home and commercial
unwilling to yield their own financial space buyers, developers and investors
and administrative powers, have only to sites along the metro corridors
increased their control over the ULBs. 59
despite the surge in land and property
value. While land value has appreciated
The successful implementation of up to 5 percent annually following the
these urban transport policies and commissioning of the metro lines,
schemes remains incumbent on the even the mere announcement of
state governments, who first have metro projects has pushed demand
to internally carry out corresponding for residential and commercial
and enabling institutional, structural, properties, triggering a boom. Reports
systemic, policy and, most importantly, have indicated that the trend of
attitudinal reforms. This will appreciation in real estate prices as
facilitate a smooth devolution of a direct result of the metro will
powers to the ULBs—or the metro significantly appreciate over the long
authority in the case of metro rail—to run.60 Several studies conducted by
fully realise the potential benefits of LVC. leading property marketeers and real
estate consultants have portrayed the
pre- and post-metro impact on land and
property values in cities (see Table 4).
Table 4: Impact of metro development on land value real estate in

Indian cities
Upon project Upon project

City Metro line Length (km) announcement commissioning
(year) (year)
40-50%
Kochi Phase 1 25 20-25% (2016)
(post-2017)
₹ 3,600/sq ft ₹ 7,000/sq ft
Chennai Phase 1 45
(US$48) (2015) (US$93) (2019)
Pune Phase 1 31.25 38% (2016) 45% (2022)
₹ 6,000/sq ft ₹ 10,000/sq ft
Ahmedabad Phase 1 21.16 km
(US$80) (2017) (US$133) (2019)
Namma Metro
Bangalore 18 km 10-15% (2009) 30-55% (2011)
Purple Line
Jaipur Phase 1A 9.63 km 5-10% (2010) 15-25% (2015)
Phase 1 – ₹ 2,433/sq ft ₹ 6,753/sq ft

Hyderabad 29 km
Corridor 1 (US$32) (2012) (US$90) (2017)
Source: Magicbricks,60 CommonFloor,61 Nagpur Metro Rail,62 The Metro Rail Guy,63 Business Today64
According to a 2021 study by real 20 percent in less than four years

estate services firm JLL India, metro (2018 to the first quarter of 2021). In
corridors have contributed to up to Chennai, properties closer to the metro
a 20 percent increase in land prices, corridor have registered an increase of
especially within the initial 500 metres about 35 percent. In addition, several
of their influence zones. 66
Commercial locations close to the central business
property prices within this distance district (CBD) and secondary business
have experienced a sharp growth district (SBD) in Bengaluru witnessed
of up to 25 percent due to reduced a 10 percent rise in prices soon after
commute costs and improved job the commissioning of the metro line.
opportunities. For instance, from 2015 The report forecasts that across India,
to 2021, South Delhi witnessed a 20 depending on the location and land use,
percent rise in residential property the overall property prices are likely to
rates. In contrast, Hyderabad’s micro- surge by at least 15 percent as new metro
markets of Corridors 1 and 2 have projects become operational.
reflected an increase in prices by
Other reports have also revealed the announcement of a metro project, the
direct impact of the metro on rentals real LVC benefits flow to the commercial
within CBDs and IT parks. For example, and office space developers only once
at the DLF Cyber City in Gurugram, the metro line becomes operational.
seamless metro connectivity has While this will not impact LVC over the
increased property rental prices long term, the resultant uncertainty
from US$0.9 per sq ft in 2012-16 to and inflationary trends will dampen
US$1.75 per sq ft in 2019. 67
Similarly, real estate enthusiasm until the world
the influence zone around the under- and India, in particular, realises the
construction Whitefield metro line damage caused to the global economic
in Bengaluru has witnessed a steep sentiments.
increase in mixed-use real estate
development. Metro and LVC: Potential versus
Realisation
These findings suggest that India’s
urban population is willing to pay The frenzy of developing metro rail
more for the convenience of property transit systems witnessed across
projects around the metro vicinity. The many cities in India has contributed
immediate socioeconomic benefits to socioeconomic growth. The long-
emerging from a metro corridor have term increase in land value, booming
contributed to the increase in land real estate and property markets along
value, land-use change, and the metro corridors’ influence zones,
densification along the corridor. As a overall improvement in quality of
mass transit system, the metro has life, reduced costs of commute and
also contributed to easing traffic reduced commute time, and enhanced
congestion on the streets. job opportunities have led governments
to realise the importance of the much-
However, in 2022, the lingering needed but often-ignored concepts
economic slowdown because of the of TOD. However, detailed studies on
COVID-19 pandemic and the uncertain the adoption of LVC to augment the
economic fallout of the ongoing Ukraine financial strength and non-farebox
war and subsequent global sanctions revenues of the implementing agencies
on Russia may create hurdles to metro have revealed mixed results. Many
development in India in new ways. It is metro projects, especially those
also worth noting that while residential sanctioned before the release of
property developers can opt to increase the Metro Rail Policy and the VCF
their prices overnight following the Framework in 2017, have either missed
the point or made poor attempts revenue through commercial

at realising the LVC benefits. This exploitation of its physical
report evaluates the LVC experience assets, much like Delhi. Some
of two Indian cities, Bengaluru and of the interventions also provide
Mumbai, that have been selected for learnings on what other cities must
the following reasons: be cognisant of in their quest to
maximise LVC gains.
- LVC was ignored in the planning of
Mumbai Metro One, which began • Bengaluru
operations in 2014. However, Bengaluru’s Namma Metro, operated
the metro authority has made it by the Bangalore Metro Rail Corporation
an integral part of the rollout of Limited (BMRCL), an SPV established as
all the other metro rail corridors a joint venture by the Indian government
expected to significantly improve and Karnatak state government, is India’s
living conditions and reduce the third-largest operational metro network.
load on the severely overburdened Spanning 42 km, the metro project’s
suburban railway, which ferries Phase 1 began staggered operations
eight million passengers daily. between 2011 and 2017. At the end of
While two metro lines were Phase 3, the network will cover a route
inaugurated on 2 April 2022, length of 277 km.
eight others, spreading the
metro rail network to 337 km, Of the total Phase 1 project cost
are expected to be launched in of INR 138.45 billion (US$1.846
2024-2026. 68
Learning from the billion), INR 81.34 billion (US$1.085
mistakes of Mumbai Metro One, billion) was funded by the central and
the government has proposed to state governments through equity
incorporate multiple LVC tools for contribution and subordinate debt.
all the upcoming corridors. Senior term debt from multilateral/
foreign funding agencies, banks, and
- Bengaluru’s 55.6-km metro financial institutions was approved to
corridor is India’s third-largest raise the remaining INR 57.1 billion
operational metro rail network. (US$761 million). As of 31 March 2021,
Phase 2, expected to be completed BMRCL raised INR 50.46 billion (US$673
in 2024-25, will add 115.85 km to million), leaving scope to raise the
this network. The metro authority balance INR 6.64 billion (US$89 million)
has leveraged two fee-based LVC through senior term debt.69 The company
tools besides earning non-farebox also plans to bridge an additional
funding gap of INR 1.82 billion (US$24 through the debt route by issuing
million) per the initial funding pattern. privately placed secure non-convertible
BMRCL is exploring options to meet debentures or bonds (see Table 5).
these shortfalls from new loans or
Table 5: Cumulative funding of Namma Metro Phase 1 (INR billion)
Government Senior
Funding pattern State Total
of India debt
Equity 19.83 19.83 - 39.66
Subordinate debt 30.77 10.90 - 41.67
Japan International
- - 32.08 32.08
Cooperation Agency
Agence Française de
- - 8.73 8.73
Développement
Housing and Urban

- - 6.50 6.50
Development Corporation Ltd
Karnataka Urban
Infrastructure Development - - 1.47 1.47
and Finance Corporation
Non-convertible Debentures
- - 3.00 3.00
(Bond series 1)
Balance to be raised - - 6.64 6.64
Total 50.60 30.73 58.42 139.75
Source: BMRCL Annual Report 2020-2170
With excellent connectivity along its Notably, though it achieved an

east-west and north-south corridors, the operational surplus of INR 540 million
metro has drastically reduced travel time (US$7.2 million) in 2019-20, this was
(from hours via road to about 30-45 spent on servicing debt and other
minutes). Phase 1 continues to log a expenses.71 According to reports,
daily ridership of around 400,000. BMRCL will take two decades to repay
its debt to foreign funding agencies The seamless connectivity

and another two decades to service its provided by metro lines in Bengaluru
loans from the state and central has transformed several lesser-
governments. Currently, the operator developed inner-city and underdeveloped
pays INR 1.30 billion (US$17 million) peripheral areas into commercial
per annum as an interest amount zones. Peripheral areas also witnessed
for the external and internal lenders unprecedented development as new
for Phase 1. 72
residential hubs.75 This transformation
presents a unique opportunity for
While it is common for public transport LVC for the mutual benefit of both
providers to struggle to break even the TOD communities and the
and rare to register profits given the government. The BMRCL is now actively
socially obligatory nature of their exploring LVC mechanisms to augment
service, Bengaluru’s metro has resulted its coffers.
in rich dividends for the city’s economic
landscape. The fare structure includes To encourage TOD, BMRCL has adopted
tokens—best used for single one- two fee-based LVC tools—betterment
way commutes—priced anywhere levy and premium floor area ratio (FAR).76
between INR 10 (US$0.13) and INR 60 The betterment levy is a one-time
(US$0.8). 73
BMRCL also offers group upfront fee charged on the direct
tickets for a minimum of 25 passengers metro-related land value gains within
travelling between the same stations 150 metres on either side of the
at a 10-percent discount over the token corridor. On the other hand, the FAR is
fares. It also provides the rechargeable a one-time tax collected for sanctioning
‘Varshik’ smart cards at 5 percent off an extra FAR of four to property
on the token fare, but their use is still developers for construction, thereby
limited as other modes of transport, increasing densities and opportunities
especially the city buses, are yet to in the metro’s immediate influence zone.
upgrade their ticketing systems for
common mobility across transport Cumulatively, LVC tools, including
modes. Passenger fares contribute up premium FAR, betterment levy, naming
to 79 percent of BMRCL’s operational and advertising rights, asset and
revenue, while it earns only nine airspace commercialisation, and cess
percent from other non-farebox on approval of new projects in the
sources, including rental and influence zone, are estimated to raise
advertisement income. 74
INR 21.31 billion (US$284 million).
According to BMRCL best-case
scenario estimates, the sale of premium increasing the metro influence zone
FAR on the proposed Outer Ring Road to 500 metres to multiply the returns
line can potentially raise INR 11.43 billion from premium FAR and increase the
(US$152 million). 77
The BMRCL’s 2019 TOD reach (see Table 6).
TOD policy has sought to levy a cess
of 10 percent on residential buildings However, developers fear the
and 20 percent on commercial buildings proposed premium FAR will be
on the premium FAR. 78
It has detrimental to the city’s real estate
recommended revenue sharing market. While the premium FAR offers
among the BMRCL, Bruhat Bengaluru half the guidance value (or market
Mahanagara Palike (BBMP), the value) of the proposed built-up area,
Bangalore Water Supply and Sewerage transferable development rights (TDRs)
Board (BWSSB), and Bangalore offer twice the price of the land guidance
Development Authority (BDA) in the ratio value. So while the formula to evaluate
of 60 percent, 20 percent, 10 percent and the TDR versus premium FAR gains is
10 percent, respectively. The proposed still being debated, real estate
betterment levy would be a one-time developers have cautioned that the
upfront payment charged at 1.5 percent proposal would create an “artificial
of the overall value of a commercial market” and lead to an “inflation in
built-up area within one km of the metro property costs”.79
corridor once the project is approved.
The TOD policy has also recommended
Table 6: LVC tools proposed by Bengaluru’s TOD policy
Proposed LVC
Description Status
tool
Additional surcharge at 5 percent of the property’s
market value for developments within the BDA Mired in legal
area under Section 18A of the Karnataka Town ambiguity
and Country Planning Act
Levy of Proceeds used to establish a Metro Infrastructure

surcharge Fund to be shared by BMRCL (65%), BWSSB (20%),
and BDA (15%)
Pending
approval
To be shared between BMRCL and allied agencies
for metro development and other civic amenities
and utilities
Extra premium FAR of four to all developments

within 500 metres on either side of the metro
corridor for Phases 1 and 2
Modified
Cess of 10% on residential and 20% on commercial proposal
Cess on properties on premium FAR utilised awaiting
premium FAR state
Revenue sharing between BMRCL (60%), BBMP
government
(20%), and BWSSB and BDA (10% each)
approval
To be used to repay BMRCL’s loans and fund civic
amenities and infrastructure for the densification
and development of station areas
TDR for issuance by BMRCL against land acquired Discussion

TDR
for metro development stage
BMRCL to initiate PPP for rolling stock and

Discussion
PPP operation and management for two new lines in
stage
Phase 2
BMRCL to earn tradable carbon credits for the Discussion

Carbon credits
projects to finance operational expenditure stage
BMRCL to explore surge pricing wherever feasible

Differential and charge higher fares during peak hours for trips Discussion
fares between stipulated stations and increase farebox stage
revenue
Source: Bengaluru TOD Policy80

Although most aspects of the BMRCL • Mumbai

TOD policy failed to go beyond the Although Mumbai’s metro rail plans
discussion stage, the Karnataka received in-principle approvals in
government’s Directorate of Land 2006, the progress of the metro
Transport introduced a revised TOD network has been woefully slow.
policy in November 2021.81 It proposes Several other cities, which
to increase the share of public conceptualised the metro much later,
transport in Bengaluru from the current have progressed far beyond India’s
48 percent to 70 percent by 2031 by business capital, with many already
expanding mass transit systems, in having operational corridors.
line with the city’s estimated
population growth. The revised policy The Metropolitan Region Development
has also yet to progress beyond Authority (MMRDA), tasked with
the discussion stage. regional planning, promoting new growth
centres, financing and implementing
Besides these proposals for leveraging strategic and infrastructure
LVC, the BMRCL has co-developed development in the Mumbai
five metro stations through the PPP Metropolitan Region (MMR), is
model. It has also raised non-farebox implementing Mumbai’s metro
revenue through rentals and licencing system. Mumbai Metro One, the
fees by leasing station floor space 11.40-km metro line
to retail and commercial ventures, connecting the western suburb
including parking lots. In 2017, of Andheri to Ghatkopar in the east,
the BMRCL raised INR 2.51 billion was inaugurated in June 2014. With
(US$33 million) by entering into a the suburban railway only providing
long-term lease agreement with the linear south-north connectivity and
Swedish furniture giant IKEA for poor arterial road networks failing
13 acres of land at the Nagasandra to provide the much-needed reliable
metro station.82 east-west connectivity, the metro line
reduced the travel time from 90-120
However, these efforts have had minutes to 21 minutes.83 The line is
limited results, given the lack of operated under a PPP arrangement
supporting policies and the freedom by the Mumbai Metro One Private
to implement innovative practices. As Limited (MMOPL), an SPV incorporated
a result, BMRCL has not exploited jointly by the MMRDA, Reliance
the full potential of capturing the Infrastructure, and Veolia Transport
land value. France with a 35-year concession
period. MMOPL, structured as a BOOT Land value studies carried out

model PPPl, is mandated with the independently by realty consultants
design, finance, construction, operations, during the construction phase of the
maintenance, and eventual system Mumbai Metro One had indicated
transfer to the state government at that the metro would prove to be a
the end of the concession period.84 “gamechanger” for Mumbai’s suburban
northeastern fringe.86 The metro line,
The construction of the line began connecting two city regions unserved
in 2007. Still, the project suffered by the suburban railway, was believed to
from considerable cost and time “single-handedly account for at least 22
overruns owing to factors such as the percent variation in land value” near both
right of way, changes in design, and sides of the corridor. The increase would
delayed safety and other technical be much higher if considered in unison
approvals from the Indian Railways. with other infrastructure development
At the time of completion, the delay of projects around the metro corridor, such
two years resulted in the project cost as the Chembur-Wadala Monorail.
increasing to INR 43.21 billion (US$576
million) from the estimated INR 23.56 Despite this anticipated windfall in
billion (US$314 million). 85
The project land values in the metro line’s influence
had a viability gap funding provision of zone, the PPP for Mumbai Metro One
INR 6.5 billion (US$87 million). hinged solely on the projected ridership
based on a traffic demand model. The
government failed to factor into the
l
In a build-own-operate-transfer (BOOT) model PPP, the public-sector partner enters into a
long-term contract with a private developer (typically a large corporation or consortium of
businesses with proven expertise) to design and implement a public project. The public-sector
partner usually partially funds the project or passes on benefits, such as tax exemptions to
the private partner, while the latter assumes all risks associated with planning, constructing,
operating, and maintaining the project for a specified time period. During the ‘own and
operate’ phase of the contract, the developer charges users of the built infrastructure a fee
to realise a profit; for example, tolls paid at bridges and flyovers. At the end of the contract
period, the private partner transfers ownership to the public sector partner, according to the
contract terms.
planning process the impact of the formation of a new FFC to decide on

metro line on land value and the the fare structure.91 The new FFC was
corresponding revenue generation constituted only in 2019 and is yet to
to enhance the operator’s earnings. decide on a fare revision, leaving the
The traffic demand model MMOPL to continue suffering a daily loss
estimated that the metro would of INR 9 million (US$120,000).92
attract ridership of 665,000 per day by
2021 and 883,000 per day by 2031.87 Ironically, Mumbai is one of the few
Contrary to this projection, since its Indian cities with legislative provisions
inauguration in 2014, the ridership has for LVC ingrained in its civic and town
averaged 450,000 per day. 88
planning laws. The Maharashtra
Regional and Town Planning Act,
With no alternate sources of income 1966, entitles the MCGM to recover
besides the limited revenue from development charges by selling
rentals of commercial space within additional floor space index upon any
station areas and advertising, factors change in land use. The MCGM is also
such as an overdependence on farebox empowered by the Mumbai Municipal
revenues, high operations costs, and Corporation Act, 1888, to collect
high loan interest rates started to property tax from all city land and
pinch the MMOPL’s coffers in the buildings and recover betterment fees
early days of operation. In 2015, the on any windfall gain that may accrue
fare fixation committee (FFC) set up by from public investments and
the Indian government fixed a fare band improvement projects. On the other
of INR 10 to INR 110 (US$0.13 to hand, the MMRDA Act of 1974
US$1.46) for MMOPL.89 Within one empowers the metropolitan planning
year of beginning operations, the and development authority to levy
FFC recommended a fare hike in five betterment charges on any windfall
slabs at INR 10, INR 20, INR 25, gains—of not more than 50 percent
INR 35, and INR 45, as against the of the windfall gain—to private
then prevailing slabs of INR 20 for landowners resulting from an MMRDA
2-5 km, INR 20 for 5-8 km, and INR 40 development project. However, it
for commutes beyond 8 km. 90
The FFC failed to levy betterment charges on
once again completely ignored the the metro line’s influence zone as it could
potential gains through LVC. However, not empirically evaluate the metro’s
following litigation, the Bombay High impact on its adjoining land value.93
Court stayed its implementation in
December 2017 and ordered the
A 2018 study using a hedonic price 33 percent of the total and grew to
model to assess Mumbai Metro One’s 35 percent in 2014, when the metro
impact on land value in its catchment line began operations. Within no time,
area revealed that properties located the western SBD office stock had
within 1-2 km from the metro stations grown to 40 million sq ft, spreading to
recorded a gain of 14 percent, resulting micro-markets in Andheri, Jogeshwari,
in a new revenue source to the tune Goregaon, and Malad, while the share
of US$179 million
m.94
The findings of the CBD shrunk to 13 percent.95 In
illustrated how Mumbai Metro One had the three years between the project
directly contributed to increased land announcement and construction
value beyond the traditional 500-metre commencement, the Andheri East
influence zone. Had the MMRDA used residential property appreciated by
its legislative powers to capture this 185 percent, growing to INR 8,000
substantial increase in land value, the (US$106.66) per sq ft from INR 2,800
Mumbai Metro One would not have had (US$37.33) per sq ft. During the
to resort to fare hikes as an existential construction phase and inauguration
need. of the metro operations from 2007-08
to 2014, residential real estate
Another study noted that in 2000, appreciated by a further 94 percent
office stock in the CBD, mainly to INR 15,500 (US$206.66) per sq ft.
restricted to around Nariman Point in The study has estimated a similar
South Mumbai, was up to 14 million impact on land values in the
sq ft, almost 72 percent of Mumbai’s influence zones of the upcoming metro
total stock. In contrast, the SBD’s corridors in Mumbai.96
share in the metro’s influence area, the
western business district, was just But Mumbai Metro One is only the tip
8 percent. Within two years of the state of the iceberg, considering MMRDA’s
approval of the metro, the western extensive metro planning across the
SBD’s office stock rose to 23 percent. metropolitan region, much beyond the
Within one year of the commencement boundaries of Greater Mumbai. The
of the construction, it reached MMR is currently working on 14 other
m
At 2017 exchange rates.
metro corridors, of which line 3 is being lack coordination, the absence of the
implemented by the Mumbai Metro required empowerment to the metro
Rail Corporation Ltd., a joint venture of authority, the lack of an overarching
the Maharashtra government and the and empowered unified transport
Indian government on a 50:50 sharing authority, suspicion over the accuracy
basis, and all others being developed of measurement of the perceived
directly by MMRDA. Estimated to land value appreciation, and other
cost INR 1.50 trillion (US$20 billion), factors continue to cast doubts on the
the corridors will cover a route length successful implementation of LVC.
of 300 km within the MMR.97 The Leveraging land value as a finance tool
MMRDA has incorporated a range of for infrastructure projects has also
tax- and land-based LVC tools in the raised concerns over the misuse of
design of all forthcoming lines. While land resources for commercial gains,
the 18.5-km Dahisar-DN Nagar Metro which might accrue only to the powerful
2A and the 16.5-km Dahisar private builder lobby.98 For example,
East-Andheri East Metro 7 began BMRCL’s Mantri Square Sampige
operations on 2 April 2022, work on Road station was constructed on a
many more is in an advanced stage. 5.04 acre plot acquired in the city’s
Running parallel to the Western prime area for “industrial use” with
Express Highway and the Linking suggestive overtones of “public purpose”.
Road, these two metro lines are With 32-storeyed residential towers
expected to ferry one million and a 27-storeyed commercial building,
commuters daily. the station complex was developed
under a PPP between BMRCL and the
Will Stakeholders be Ready to Pay? private developer, loosely designed
on Hong Kong’s rail-plus-property
Despite LVC gaining the attention (R+P) model. n,99
Unlike the Hong Kong
of policymakers, questions remain model, where the metro authority owns
about its effective implementation. the development, the Mantri Square
The multiplicity of jurisdictions that station developer invested capital for
Hong Kong’s unique rail-plus-property (R+P) model creates an integrated community,

n
providing housing, shopping, office, and leisure facilities under one roof, with easy access
to public transport. The R+P model requires no direct government financing. Instead, the
government receives a significant land premium and enhanced equity value through majority
shareholding in the Metro Transit Rail Corporation.
the entire station complex in return for a price model, the study analysed the
99-year land lease, which was valued value variation of 160,000 apartments
at INR 3 billion, with an assured bounty over 2012-16 and studied 314,000
from the sale proceeds owing to the apartments in 2016. The study revealed
development’s walkable connectivity that the Namma Metro has led to
with the station. But the private citywide land value appreciation. A
developer reportedly reaped ‘before’ and ‘after’ comparison from
disproportionate benefits from LVC, the commencement of the metro rail
leaving a pittance for the metro rail operations indicated a price uplift
authority.100 Studies of the project have of 4.5 percent across the city and
also highlighted how gains from public showed a significant mushrooming of
infrastructure were diverted to favour residences, companies, services, and
private developers in alleged violation industries in close proximity, resulting
of local planning laws, with the state in cost reductions and efficiency
government ignoring genuine concerns gains. This localised agglomeration
in the PPP formulation and glossing over economy triggered by the metro
suspected illegalities in the transfer of led to people being willing to pay
land to private players.101 US$306 million for metro rail
accessibility. 102
These factors combine to raise

questions on the ability of the This finding has far-reaching policy
government to implement fair and implications in the Indian context. Firstly,
accurate LVC and the willingness of as the core of the urban fabric, the
the stakeholders in the influence zone transportation sector impacts all urban
to share the windfall gains in their land activities and has a citywide impact in
value and pay additional levies for sculpting demand beyond its perceived
the comfort and convenience that the influence zone. Secondly, with traffic
public infrastructure provides. In congestion blocking potential economic
addition, the trust deficit among growth, the metro significantly improves
the people in the government and connectivity and accessibility and spurs
private developers may pose a bigger newer avenues of economic growth.
challenge. For India’s developing cities, the metro
means more significant agglomeration
Yet, a study of the Bengaluru metro benefits brought by bigger accessibility
provides some exciting insights into gains.103 Most large cities seem to have
the willingness to pay. Deploying a implemented this learning in the rollout
cross-sectional panel data hedonic of their metro works (see Table 7).
Table 7: LVC tools being considered for metro rail development in cities
TDR/ Additional FAR/Incentive
Development charge/ Impact

Additional Stamp Duty
Land-use change fee
fee/ Bettermnt Levy

Floor Space Index
Vacant land tax

Land Value Tax
City
Mumbai Y Y Y Y Y -
Pune - Y Y Y Y Y
Nagpur - Y Y Y Y -
Bengaluru - Y - Y - -
Chennai Y Y - Y Y Y
Kochi - - - Y - -
Ahmedabad - Y - Y Y -
Bhopal Y - Y Y Y -
Bhubaneswar - Y - Y - Y
Lucknow - Y - Y Y Y
Delhi - Y Y Y Y -
Source: National Institute of Urban Affairs104 and various others
i) Land Value Tax (LVT) is different from the municipal property taxes. Successfully used in several western economies, it is a new
concept for India. LVT as an LVC tool in urban areas can provide additional sources of revenue to the government for investment
in public infrastructure projects. LVT also helps in ending specuative land hoarding and reduce prices for the buyer.105 While a few
metro athorities have incorporated the LVT concept in their TOD-LVC planning, implementation will depend on political backing and
legislative approval.
ii) Land-use change fee is a one-time levy. States in India have earmarked different land-use conversion fees and they also tend to
vary in different districts and even in areas within districts. For example, New Delhi has a conversation fee ranges from INR 14,328 to
INR 24,777 per sq mt. State governments may also levy these fees as a percentage of the land value. In Karnataka, land-use change
certification is facilitated online, and the fee conversion fee is also recovered online. Section 199 of the Greater Hyderabad Municipal
Corporation Act, 1955 also empowers the municipal corporation to levy 0.05 percent of land value capital as VLT. However, other
cities have faced legal hurdles. For example, the Supreme Court of India has stripped New Delhi Municipal Council (NDMC) of its
powers to levy VLT under the NDMC (Determination of Annual Rent) Bye-laws, 2009.106
iii) ULBs governing large cities in India have started levying Vacant Land Tax (VLT) on vacant land and plots in prime areas to prevent
wasteful use of expensive and scarce land resources. Since 2009, the Greater Chennai Municipal Corporation (GCMC) charges VLT of
50 paise per sq ft from vacant landowners in inner city areas and INR 1.60 from vacant land lying close to the main city bus routes.107
Yet, the Hyderabad metro rail, with an Challenges to LVC

operational Phase 1 network of 71 km
built at the cost of INR 165.11 billion For any LVC policy to realise tangible
(US$2.20 billion) 108
and an under- results, it is incumbent on the government
construction Phase 2 covering 58 km, at the state and city levels to work with
has restricted itself solely to station an empowered implementing agency
area development and advertisement by adopting a multistakeholder and
tax as the key LVC tools to generate participatory approach. Land-financing
non-farebox revenue. Accordingly, it mechanisms through TOD must not
exploits joint commercial development compromise on equity and fairness
in parking and circulation areas from six to all income classes and must not
million sq ft at 25 stations to earn lease create more avenues for builder lobby-
and rental income. It also has shopping favouring markets. But the government
malls at Panjagutta, Hi-tech City, and must first create appropriate institutional
Erra Manzil under three-year sub-licence frameworks to prioritise, facilitate, and
arrangements. The Park Hyderabad app coordinate proper land use transport
offers paid parking for two- and four- integration to finance TOD. Revenue
wheelers at all metro rail stations.109 earned and reinvested can improve
The company has also exploited 12.5 the metro authority’s financial health,
million sq ft at its depots at Miyapur, strengthening the PPPs and preventing
Falaknuma, and Nagole by planning joint situations faced by Mumbai Metro One
development of IT/IT enabled services when the government partner in the
offices, hospitals, high street retail, PPP resorted to litigation against the
leisure and entertainment, hostels and proposed fare hike.
service apartments, and other ‘built to
suit’ spaces.110 Locational: Prevalent income disparities,
job opportunities, differences in the size
The project implemented under a of land parcels and civic amenities in
concession agreement with the state the various pockets also create hurdles.
government and L&T was claimed to The inadequacy or absence of primary
be the “world’s largest PPP” model. The physical and social infrastructure and
Hyderabad Metro Rail is supported by a services and poor integration of last-
consortium of 10 banks led by the State mile multimodal connectivity in the
Bank of India, incurring a debt burden of metro design keep investors away
INR 110 billion (US$1.46 billion) on the from peripheral lands. Extracting the
metro rail company. 111
benefits from premium FAR becomes
difficult from the fragmented and small-
sized plots in the core areas, further of the metro rail system and left the
curtailed by zoning regulations. The long-term mobility aspects unaddressed.
restrictions on additional FAR for land Experts have also termed Bengaluru’s
lying beyond a specific distance from the CMP a “paper exercise” to access
rail corridor must also be implemented central funds for the expensive metro rail
dynamically, considering the locational system.112 On the other hand, Mumbai’s
characteristics. upcoming metro rail lines have benefited
from the city’s CMP and the development
Planning and regulations: Typically, plan (DP) being in sync. The MCGM
cities lack institutional structures and prepared the CMP in 2016, two years
integrated planning between the different before the state government’s approval
state agencies involved with service of the city’s DP. The significant delay in
delivery. Each agency works, plans, the construction of new metro rail lines
executes and manages in a silo, resulting has, in this case, given the planners an
in diffused decision-making. Primarily, opportunity to integrate its design into
city planning is governed by the ULB, both the CMP and DP. City planners are
which does not have any direct say in said to have taken due care to keep the
preparing transportation plans. The state dynamic in mind for the upcoming metro
has not included a single Indian ULB in rail lines, the proposed Mumbai Trans
the metro rail plans for the city it governs. Harbour Link, and the coastal road.
While many cities have attempted to In case of any future zone alteration
create CMPs, the metro rail corridors requirement, the CMP will prevail over the
are coming up without the crucial micro- long-term DP.
planning for the metro rail influence
zones. Cities have also not established UMTAs
with overarching empowerment to plan
Concerns also remain regarding and supervise multimodal transport
properly integrating the draft CMP and development. Even the metro authorities
the city master plans and vice versa. have failed to incorporate influence
For example, metro rail development zone planning along the corridors and
by BMRCL has reportedly neither accurately estimate the perceived
integrated the Bengaluru CMP (2019) windfall gains in land value in the
nor the development plans of other influence zones. As a result, the
civic agencies in its design. The lack of execution of TOD has failed to factor in
integration of metro rail projects with the full benefits of LVC.
other city planning agencies is believed
to have hampered the proper utilisation
Executional: Nearly all big infrastructure the transport company remains self-
development projects in India have financing, unlike most of its counterparts
traditionally suffered from time and across the world, which are perennially
cost overruns owing to complexities loss-making and survive on government
emerging from land acquisition, eviction subsidies.
of slums from large land parcels, long-
drawn litigations, and delays in getting While well-established transporters
approvals from central agencies. 113,114,115
such as the New York City subway
In Mumbai’s experience, nearly all and Transport for London perform
projects, including the World Bank-funded poorly, how has the MTRC remained
Mumbai Urban Transport Projects, the profitable despite comparable fares (that
Bandra-Worli Sealink, and the metros contribute 170 percent of the system’s
have resulted in high costs to the public operating costs)?116 The MTRC’s R+P
exchequer because of procedural and model provides answers. The R+P model
legal delays. Nearly all cities rolling out is based on a simple mantra—make the
metro projects have also failed to meet best multi-use of public infrastructure
extended deadlines leading to enormous and the scarce urban space it stands on
cost escalation. The perceived gains to provide high-quality housing with easy
through LVC diminish as the capital access to transport modes and maximise
expenditure increases because of time revenues from rental and sales. MTRC
overruns. gets land and development rights from
the government, the majority shareholder
LVC Lessons from Global Cities in the venture, at the price before the
metro is constructed. As the line is
Several cities in Asia, particularly Hong built, MTRC invites private developers
Kong and Shenzhen (China), have reaped to build residential and commercial
immense benefits from LVC for their complexes above and within its station
metro projects. periphery, earning capital for the
system’s operations and management
Hong Kong: Few public transport through its share of the sale proceeds or
services return a profit. Hong Kong is an rental incomes. However, not all MTRC
outlier, making net profits of more than development is at greenfield sites. For
HKD 10 billion (US$1.43 billion) year- example, it has successfully retrofitted
on-year since 2011. Hong Kong’s Mass the existing Fo Tan depot to suit the R+P
Transit Railway Corporation (MTRC) model.117
runs a R+P model that has successfully
leveraged gains from LVC to ensure that
Since its implementation in 1980, the and developers to plan and finance metro
R+P model has been expanded across lines and the surrounding real estate
Hong Kong, and MTRC today manages developments.
47 developments above its 93 stations
and depots, generating revenue of HKD Using municipal grants and loans to
5 billion (US$700 million) through initiate the first phase of the metro
property management and rental income. project, Shenzhen was forced to adopt
A new township with a population innovative financing mechanisms when
of 380,000 was established from project costs shot up tenfold during
revenues earned by the Tseung Kwan O expansion. It implemented variable risk-
line extension. and profit-sharing tools that helped a
beneficial spread of gains and expenses
However, of late, MTRC has also faced among the stakeholders. The outcome
criticism for profit maximisation by was a win-win situation as housing
building housing and amenities only for value within 500 metres of the metro
the high-income sections, creating a increased by 23 percent. While residents
severe shortage of affordable housing. gain from increased accessibility and
This has also become a politically enhanced opportunities, the developers
sensitive issue. Anthony Cheung Bing- who have invested in the R+P model
Leung, Hong Kong’s former transport gain from increased property values.
minister, stated that the government At the same time, the metro company
must curtail the exclusive rights given to gains by reducing its dependency on
MTRC to build housing and commercial public investments and facilitating
amenities on its properties. 118
In 2018, the urban planning and social and economic
government forced MTRC to reallocate growth.120
30 percent of its new residential
developments to public housing. This In the early days of experimenting with
pressure has resulted in the development the R+P model, the Shenzhen Metro
of two new sites at Siu Ho Wan and Group (SMG) found itself grappling
Tuen Mun, where the MTRC’s first with issues beyond its expertise and
public housing development will create was reluctant to expand the business
22,000 flats.
119
portfolio and take on additional
development costs and market risks.
Shenzhen: Shenzhen is the first city However, the government forced it
in China to emulate Hong Kong’s to adopt the R+P model using a
R+P model in its metro development. carrot-and-stick policy with three
Shenzhen’s model forges partnerships tactical interventions.121
between the public sector, transporters,
1. The government lowered its capital as a special economic zone (SEZ)

investment in SMG to 50 percent conceptualised since 1980 have also
from 70 percent, forcing it to seek helped the city implement development
other funding sources projects that are difficult to emulate
2. The land was transferred to SMG in other parts of China owing to more
through auctions with special stringent city laws and regulations.
terms restricting the number and
qualifications of bidders, enabling Since the turn of the century,
the group to acquire land at prices Shenzhen’s metro has moved away from
lower than in an open-market dependency on public investment to
auction seek newer modes of revenue through
3. The land concession fees paid land equity investment. The willingness
by SMG was returned as capital of government and project agencies
investments to break away from the conventional
practice and bring transparency in their
The government further supported dealings with stakeholders has created
institutional and procedural changes for an enabling environment. The city
the development of Shenzhen Line 4 by has nurtured PPPs using the principle
MTR Shenzhen, a local project agency of capturing and creating land value,
tasked with financing, construction, allowing the public sector to invest in
operation, and extension. This process social inclusion and accessibility through
helped SMG acquire land use rights for mass transit systems while incentivising
free and keep a significant share in the the private sector to invest in quality
future value appreciation to improve development. It has created land value
its financial health. SMG was also and shared and reinvested it, creating a
allowed to engage developers through virtuous cycle for urban infrastructure
a build-transfer PPP, offsetting the development.122
construction risks.
LVC in Metro Development: The Way
Over the years, Shenzhen has seen Forward for India
several bold innovations and aligned
the visions of different stakeholders, Upcoming metro projects in India
integrated rail transit and land use can substantially increase their LVC
planning with financial planning and potential if the government makes it
introduced flexible regulatory zoning conducive for appropriate regulations
to implement TOD and maximise LVC and incentives to prioritise TOD-based
gains. In addition, its special powers development in all city master plans.
Reinvesting LVC revenues into the For example, in Mumbai, the MCGM
metro system and its expansion can is tasked with the CMP and DP for the
strengthen the joint venture/SPV model city, but it has no say over the planning
funded by the governments at the and execution of the metro lines by the
central and state levels and supplement MMRDA. Meanwhile, except for Mumbai
efforts for forging mutually-beneficial Metro One and Line 3, all other metro
PPPs, which can spur development- line operations are vested in the Maha
based LVC mechanisms. The experience Mumbai Metro Operation Corporation
of Mumbai, Bengaluru and several Ltd., tasked with operating and
other cities highlight the following managing all metro rail corridors in
essential tasks the governments must the metropolitan region. In Bengaluru,
urgently take up to foster a conducive planning and execution of public
environment for maximising LVC returns infrastructure, civic services, and metro
for metro projects. operations are divided among the
BBPM, BDA, BWSSB, BMRCL, and other
Institutional, policy and regulatory state agencies managing diverse aspects
frameworks: Government policies and of city governance.
schemes, from the JnNURM and NUTP
to the Metro Policy, have repeatedly An empowered UMTA must also adopt
highlighted the importance of CMPs a participatory approach and prioritise
and UMTAs to integrate land-use community engagement to spread
planning and transport development. awareness of the potential windfall
CMPs and UMTAs are the prerequisites gains in land value through increased
for metro agencies to prioritise their access to help the metro agencies
roles in planning processes and focus secure the much-needed public
on TOD. However, this mandate has support for LVC levies. Furthermore,
largely remained unfulfilled. States must instead of merely reiterating the
prioritise establishing financially- and concept of UMTAs in policies, the
legally-empowered UMTAs through government must clarify its stand and
legislation as overarching bodies ensure that UMTAs are institutionalised
to facilitate land use and transport at the state level.
planning integration. Currently, as both
these functions are vested in different Several cities across India have
agencies, the centrality of mass transport developed long-term mobility plans
in land development is ignored, resulting following the NUTP guidelines and the
in fragmented decision-making and increasing pressure from the centre
diffused approaches to TOD. on states to prepare CMPs as a
precondition to receiving grants. to consolidate available resources

However, many CMPs have been drafted for investment in TOD schemes.
only to fulfil an obligation. In the case The government must develop clear
of the civic reforms-driven JnNURM, guidelines and mandates for properly
in a rush to receive central grants, pooling these resources to plan and
states cooked up the necessary service execute necessary land-use change and
benchmarks without implementing the readjustment interventions. Only such
mandated governance and systemic institutional and regulatory interventions
reforms. Many cities prepared their by an empowered UMTA can ensure that
CMPs before they conceptualised the the CMP aligns with the city’s master plan
metro. All the CMPs must, therefore, and that the ever-changing needs and
be reviewed for their accuracy and TOD are prioritised. In addition, the Urban
fine-tuned to meet the pre- and Transport Fund could provide the vital
post-metro impact on the mobility of link to reinvest the fund pool generated
each city. through LVC and TOD for other transit-
oriented developments.
Cities must follow the Bengaluru model
to develop TOD policies customised Additionally, while metro rails are
to their specific needs while being being built with substantial state and
mindful of possible malpractices and central assistance, their operations and
vested interests. The draft 2041 Delhi maintenance are solely vested in the
Development Plan has also integrated metro authority, where the private partner
the city’s 2019 TOD Policy to envisage is in the game to make money. While the
joint ventures for station area farebox revenue amounts to marginal
development and multimodal transit returns, revenue generation through
hubs between multiple transport TOD and LVC will not suffice to meet
agencies through a proper demand the recurring annual financial
assessment of the kind of services at requirements of the metro system, which
the station and along the transit corridor. are bound to grow. The bus rapid transit
All the master plans prepared before system (BRTS) implementation by ULBs
the approval of the metro must be in various cities under the JnNURM
revised and made coherent with the central financial assistance offers critical
resultant impact on mobility and learnings. Soon after the discontinuation
development. of central funding, the ULBs and other
agencies tasked with BRTS operations
Several states have also announced the went bankrupt. While many cities,
creation of an Urban Transport Fund including Delhi, Pune, and Pimpri, have
BRTS, bus-led mass transport has use development and, importantly,

been abandoned in favour of the more- multilevel parking, which no station
expensive metro rail. Such uncertainty designs have incorporated. Already,
of assured and continuous investments Delhi has reaped rich dividends
in the projects over the long term is from leasing out commercial space
something that metro rail development at its stations. The DMRC’s non-
in India can ill afford. Therefore, it farebox revenues—including through
is imperative for national policies to advertisement, naming and branding,
seriously look at the financial health licencing, and leasing and rental—
of metro agencies to overcome long- account for 20 percent of its total
term challenges. revenue. In 2018-19, the DMRC earned
INR 31.19 billion (US$416 million) from
Strategising LVC+: Shenzhen’s success fares while netting INR 5.64 billion
with LVC has primarily depended on (US$75 million) in non-fare revenue.123
its unique status as an SEZ with more
flexible institutional, policy, and legal The flipside of densification in the
frameworks to support TOD. Under Indian context: Revenue raised through
the UMTAs’ overall supervision, metro densification will expand the financial
agencies could adopt the R+P model capacity of the operator through
after due customisations to adhere LVC methods and increase farebox
to existing regulations to meet collections as a result of increased
the objectives of TOD through ridership. However, LVC has been used
multistakeholder partnerships. indiscriminately across cities before
Designating TOD locations as special the metro rail. Past projects that have
zones will help establish a strong aided densification, such as road
link between value capture and value infrastructure and slum redevelopment,
creation, and promote high-density and have exploited LVC in some form or
compact communities in the metro other. However, it is important to
influence zone. Such interventions will consider the impact of such use of LVC
help maximise public investments in on the city’s well-being. Densification
targeted area improvements and create through TOD in Indian cities must
allied infrastructure. The potential be understood differently from its
for such customised and location- perception in the West, where, but for
specific R+P interventions must be some global megacities, the population
explored in cities like Mumbai, where per sq km seldom crosses 5,000-7,000.
the elevated metro stations on road However, metropolitan densities in
medians provide ample scope for multi- India tend to be around 20,000-30,000
persons per sq km. Therefore, though pandemic—in all cities where the metro
TOD may create more habitable space has been under construction since
by providing more vertical floor space 2017.124 In Mumbai, this will mean a
per capita, it may lead to undesirable and total imposition of a 6-percent stamp
unsustainable city densities. duty on the entire asset value, while in
cities such as Pune and Nagpur, it will
Further densification of the dense Indian grow from 6 percent to 7 percent. The
cities may become counterproductive move could be counterproductive. For
due to greater congestion, environmental example, during the two-year waiver,
degradation, and increased load on the major cities in Maharashtra registered
already overburdened civic infrastructure an unprecedented increase in property
and services. Additionally, if the TOD registrations, yielding the best-ever
fosters exclusion and inequity by recovery of INR 5.61 billion (US$75
catering only to the city’s rich (as in million) worth of stamp duty in February
Hong Kong), it will further amplify the 2022.125 Pune registered a 92-percent
shortage of affordable housing and increase in registration and 59-percent
encourage more slumisation. Therefore, growth in stamp duty collection in
economic decisions to maximise 2020 than the previous year. Builders
LVC gains must not compromise the associations have indicated that the
concept of equitable cities and the reimposition of the metro cess will push
first Sustainable Development Goal residential and commercial property
of poverty alleviation, which is a top prices up, dampening the market
national priority. sentiment.
Looking beyond the influence zone: Thus, while enforcing citywide levies
The impact of the metro on Mumbai, to exploit the broader impact of the
Bengaluru, and Delhi has proved that metro on land value, governments must
land value appreciation happens exercise due caution. Before introducing
beyond the metro’s direct influence such sweeping levies, states and cities
zone. Several cities have incorporated must first consider the issues of basic
additional stamp duty on any land amenities, such as water and sanitation,
and property transactions besides which remain unaddressed in urban India.
implementing the betterment levy to India will not be able to reap the TOD-LVC
capture the citywide value appreciation. dividends unless all the constituents of
the TOD ecosystem—the government,
The Maharashtra government, for financiers, developers and, importantly,
instance, has reintroduced the 1 percent the people—derive equitable benefits.
metro cess—waived during the COVID-19
Annexure
L
isted below are the stakeholders interviewed as part of the authors’
consultations. The views expressed by the interviewees are
strictly personal and do no reflect the views of their organisations.
Metro Authorities
R. Ramana, Executive Director, Planning Mumbai Metro Rail Corporation Limited
(MMRCL).
Ashwini Bhide, Ex-MD, Mumbai Metro Rail Corporation Limited (MMRCL).
Tomojit Bhattacharya, Public Relations Officer, Delhi Metro Rail Corporation (DMRC).
Anuj Dayal, Executive Director, Delhi Metro Rail Corporation (DMRC).
Manufacturers
Bharat Salhotra, Former MD, Alstom Transport India.
Pritish Chowdhary, Non-Executive Director, Titagarh Wagons India.
Government Representatives
Sharmila Chavaly, Joint Secretary, Finance, Indian Infrastructure Finance Company.Ltd;
and Former Member, Railway Board.
Dr Ramanath Jha, Ex Metropolitan Commissioner, Mumbai Metropolitan Region
Development Authority.
Indian Railways
Vivek Sahai, Former Chairman, Railway Board.
Shri Prakash, Former Railway Board Member.
Research Organisations
Jaya Dhindaw, Program Director, Urban Development, WRI.
Ravi Gadepalli, Consultant, International Association of Public Transport and World
Bank.
Endnotes
1
Ministry of Housing and Urban Affairs, Government of India, Urban Statistics Handbook, 2019,
https://mohua.gov.in/pdf/5c80e2225a124Handbook%20of%20Urban%20Statistics%20
2019.pdf
2
Worldometer, World Population by Country, https://www.worldometers.info/world-
population/?&utm_campaign=?#density
3
Ministry of Road Transport and Highways, Government of India, Road Transport Yearbook,
2018, https://morth.nic.in/sites/default/files/RTYB-2017-18-2018-19.pdf
4
MinistryofHousingandUrbanAffairs,GovernmentofIndia,NationalTransitOrientedDevelopment
(TOD) Policy, 2017, https://mohua.gov.in/upload/whatsnew/59a4070e85256Transit_
Oriented_Developoment_Policy.pdf
5
Ministry of Housing and Urban Affairs, Government of India, Presentation on Metro Rail Sector,
2021, https://mohua.gov.in/upload/uploadfiles/files/Metro%20Rail%20_%20MoHUA.pdf
6
“Urban Transport and the Role of Metro Rail,” Trafficinfratech, April 1, 2013, https://www.
trafficinfratech.com/urban-transport-and-the-role-of-metro-rail/
7
“Metro Rail Projects in India – Quick Snapshot”, The Metro Rail Guy, https://themetrorailguy.
com/metro-rail-projects-in-india/
8
Ministry of Housing and Urban Affairs, Government of India, “Standard Specifications
of Light Urban Rail System “Metrolite”, https://mohua.gov.in/upload/uploadfiles/files/
Standards_for_Light_Urban_Rail_Transit_System_(Metro%20Lite)_in_India.pdf
9
“Metro-rail in India high on construction cost,”, ConstructionWorld.in, April 1, 2019, https://
www.constructionworld.in/transport-infrastructure/metro-rail-and-railways-infrastructure/
metro-rail-in-india-high-on-construction-cost/20883
10
UITP, Performance of Indian metro systems: Lessons for upcoming urban rail projects, 2021,
https://cms.uitp.org/wp/wp-content/uploads/2022/01/Knowledge-Brief-November-2021.
pdf
11
Ministry of Housing and Urban Affairs, Government of India, Metro Rail Policy, 2017, https://
www.mohua.gov.in/upload/whatsnew/59a3f7f130eecMetro_Rail_Policy_2017.pdf
12
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Public-Private Partnerships in Infrastructure Development,” UNESCAP, https://www.unescap.
org/ttdw/ppp/ppp_primer/211_special_purpose_vehicle_spv.html
13
Ministry of Housing and Urban Affairs, Metro Rail Policy
14
Ministry of Housing and Urban Affairs, Government of India, Appraisal Guidelines for Metro
Rail Project Proposals, 2017, https://mohua.gov.in/upload/uploadfiles/files/Appraisal%20
Guidelines%20for%20Metro%20Rail.pdf
15
Ministry of Urban Development, Government of India, Value Capture Finance Policy Framework,
2017, https://mohua.gov.in/upload/whatsnew/59c0bb2d8f11bVCF_Policy_Book_FINAL.pdf
16
UITP, World Metro Figures, 2018, https://cms.uitp.org/wp/wp-content/uploads/2020/06/
Statistics-Brief-World-metro-figures-2018V3_WEB.pdf
17
Ministry of Commerce and Industry, Public Procurement (Preference to Make in India),
Order 2017- Revision, 2020, https://www.meity.gov.in/writereaddata/files/PPP_MII_Order_
dated_16_09_2020.pdf
18
Ministry of Housing and Urban Affairs, Government of India, Revision of Minimum Local
Content of various metro rail components under MI-PPP order, 2017 of DPIIT, October 14, 2020,
https://mohua.gov.in/upload/uploadfiles/files/Revision%20of%20Minimum%20Local%20
Content%20of%20various%20Metro%20Rail%20Components%20under%20PPP-MII%20
Order%202017%20of%20DPIIT.pdf
19
Ministry of Housing and Urban Affairs, Government of India, Report of the Committee on
Standardization and Indigenisation of Metro Railways, Systems and Sub-Systems, 2013,
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About the Authors
Promit Mookherjee is an Associate Fellow at ORF’s Centre for Economy and Growth.
Dhaval Desai is Senior Fellow and Vice President at ORF Mumbai.

20, Rouse Avenue Institutional Area German Development Institute / Deutsches
New Delhi - 110 002, INDIA Institut für Entwicklungspolitik (DIE)
+91-11-35332000 Fax: +91-11-35332005 Tulpenfeld 6, D-53113 Bonn, Germany
contactus@orfonline.org E-mail: DIE@die-gdi.de
www.orfonline.org Phone: +49 (0)228 94927-0
Website: www.die-gdi.de/en/

Benefits of Metro Rail

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Benefits of Metro Rail

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Industrialisation and

Land Value Capture Financing

Attribution: Promit Mookherjee and Dhaval Desai, Assessing Co-Benefits from

Observer Research Foundation

The Observer Research Foundation (ORF) provides non-partisan, independent analyses

Design & Layout: Rahil Miya Shaikh

Metro Rail Policy in India 8

Industrial Growth from Metro Rail Development 13

Land Value Capture Financing 36

About the Authors 74

Introduction the expansion of metropolitan

This scenario has led to greater

Figure 1: Growth of Metro Systems in India

Source: Ministry of Housing and Urban Affairs

Driven by government support, metros (US$25 billion) in metro rail systems,

and revenue-enhancing measures.11 This national and subnational policies. It

While the laws provide the legal

Figure 2: Appraisal Framework for Projects under Metro Rail Policy

Get approval from UMTA/

Preparation of alternative analysis report

Metro Other PT modes

Preparation of DPR Decision by state

Approval from UMTA/ Appraisal of DPR

Get approval from

Source: Ministry of Housing and Urban Affairs

The policy also acknowledges that selection, financing models, operational

Growth from categorised

Metro Rail systems, signalling and communication

Development recent boom in the metro rail sector

Policies for Building Domestic

The 2017 Metro Rail Policy identifies

Table 1: Mandated local value addition as per the phased manufacturing

Component Mandated local content

Rolling stock 60%

Civil works 90% (elevated), 80% (underground)

Source: Ministry of Housing and Urban Affairs18

Significantly, local content is defined up their local manufacturing efforts. In

zero custom duty on TBM imports, a panels, distribution boards, cables,

could be mandated to be manufactured pleasing, which may be a significant

Traction Systems The choice of traction system has

Rolling Stock regard, with multiple manufacturers

a result, both foreign and domestic propulsion systems, were still

ever-changing domestic market, manufacturing facility in Asia,

rolling stock, propulsion systems, Railways. Since 2007, it has also

Table 2: Snapshot of rolling stock manufacturing capacity in India

Company Coaches Supplied Local Facilities

Two manufacturing facilities

CRRC 598 Two upcoming facilities

Bharat Earth Movers

Titagarh-Firema 102 One facility

However, domestic production particularly for BEML. Alstom also has

focus on communication-based train the distance between two trains is

Table 3: Components of the CBTC system

- Installed at communication centre and wayside.

- Network of controllers based on electronic

- Processor-based controllers, speed measurement

- Located at the control centre, wayside, and on-board

Source: Ministry of Railways. 35