There is a need to actively explore innovative funding models and maximise sources of non-fare revenues to make public transport viable, says Siddharth Sinha
India is investing massively in the infrastructure sector as is evident with finance minister’s announcement, which said that an investment of Rs 100 lakh crore to the sector will be made over the next five years. A major part of the expenditure goes to the transport sector — National Highways, Railways, Metro Rails, Airports and the development of Multimodal Logistics Hubs. As a fast developing nation, it is essential to provide seamless connectivity to states, towns, cities, villages and people. In trying to keep pace with the growing demand for connectivity and its significantly positive impact on the economy of India, India hit a highway building average of 27 km/day in 2017-18 in addition to the development of various urban and regional connectivity projects.
As urban centres become growth engines, the inward migration increases and so does the pressure on the urban infrastructure, particularly on transport. A classic example of this phenomenon is currently being witnessed by the national capital. Delhi has now sprawled into NCR which includes far flung areas including Meerut in Uttar Pradesh and Alwar in Rajasthan. This highlights the need to not just focus on Urban Transit projects but also on increasing regional connectivity. The Delhi-Meerut Regional Rapid Transit System (RRTS), which is being developed by the National Capital Region Transport Corporation (NCRTC) aims to connect Delhi-Meerut by a high speed regional rail which runs above the national highway. As per a NITI Aayog report, the corridor, which will reduce the travel time from 3.5 hours on road to 55 minutes in high speed, air-conditioned trains will take almost one lakh vehicles off the road and provide a boost to economic development along its route. The development of such innovative and transformational projects is certainly a positive indicator that India is moving on the right track. However, the focus should not just be limited to developing such projects but also on making them operationally, and more importantly, financially sustainable. As per the Global Infrastructure Outlook, India will need approximately $4.5 trillion by 2040 for the development of infrastructure. However, we are likely to face a deficit of $0.6 trillion.
It is concerning that in order to fund new projects, a lot of money is being raised through increasing borrowings from multilateral institutions, which have a ripple effect on the macro-economic indicators. At the same time, the planning and implementing agencies of projects do not seem to be exploring the massive potential for generating non-fare revenues. It needs to be understood that making transport projects financially sustainable is extremely important for three reasons — first, the debt needs to be serviced; second, the government needs to raise adequate revenue to fund the extensions of the existing project as well as fund the development of new projects; third, adequate revenue should be made available for the Operation and Maintenance (O&M) of such projects. However, fare can only be increased to a certain degree without negatively impacting ridership as such limited increase in fare does not ensure financial sustainability of projects. In the absence of revenue, the transport agencies are forced to pass on the expenditure incurred on these projects in the form of increased fares to passengers, something which is against the very idea of public transport systems since it discourages ridership. Thus, there is a need to actively explore innovative funding models, pursue and maximise sources of non-fare revenues and monetise projects by tapping into the value of assets.
A number of tools and techniques are available to achieve this purpose, the most prominent being Value Capture Finance (VCF), a technique which enables the project implementing agencies and the government to generate funds by tapping into the appreciated value of assets. Such appreciation occurs as a result of the development of transport infrastructure in the periphery of the asset. VCF broadly includes tools such as land pooling, joint development, transfer of development rights, special assessment tax, vacant land tax and transit oriented development (TOD) besides others. Of these, TOD is particularly important, where planned infrastructure development occurs in the region around the projects, which are often a mix of commercial, residential, and institutional aspects. The development of such infrastructure normally occurs in a radius of between one to three kilometres around the projects and includes the development of parking bays, walkways, cycle tracks, office spaces, shopping complexes, education centres, etc. The presence of such infrastructure not only boosts the local economy but also enhances the ridership since people now have a developed centre catering to their needs in the immediate vicinity of a mode of transport. For instance, a metro rail. The rents and revenues thus generated can be used to subsidise fares, channel funds into developing extensions of the project or invest in the development of infrastructure elsewhere in the city. The acquisition of land remains a key hindrance in a majority of infrastructure development projects in India. The owners are often not willing to give up their land and prolonged court battles often ensue. On the other hand, agencies often have to dole out huge compensation to the land-owners, often a result of the appreciation in land value due to the speculative effect of their forthcoming project. This can be solved by joint development, a process which allows a mutual agreement between the developers and the land-owners with the latter handing their land over to the developers. The project developers then use a part of this land to build the infrastructure required for the project and the rest of the plot is developed and returned back to the owner. The land-owner retains ownership and now has a developed piece of land which will witness increased footfall due to the development of the project. He may choose to undertake a commercial activity which is likely to do well. The development agencies, on the other hand, do not have to pay a compensation nor do they have to engage in a protracted legal battle. The net result being that both are now better off, which is a win-win situation eventually.
The need for transport planners to broaden their horizons is equally important. A lot of such techniques are currently limited to urban transit projects (such as metro rails) despite there being enough scope for their application to railways, highways and civil aviation. Further, there is a need to push for the application of such tools to not just the development of greenfield projects but also on brownfield projects — infrastructure which already exists. For instance, the availability of abundant space in Indian railway stations can be utilised for TOD in the form of vertical development. Such vertical development can include house parking spots, bus stations, shops and even budget hotels. A prime example such development is the Shinjuku Railway station in Japan.
There is also a need to reduce or distribute the upfront expenditure incurred on projects. Railways and various metro corporations should adopt the concept of leasing versus excessive spending in procurement of goods and services. In UK and many other countries, for instance, train coaches are not procured but leased. Similarly, Infrastructure Investment Trust, which enables individuals and institutions to invest collectively in transport projects and earn a return, can be used as a funding tool in projects which are capital intensive. National Highways Authority of India (NHAI) plans to raise around Rs 75,000 crore from the market in this way.
Such techniques have been highly successful in the global context and have led to the development of transformational transportation systems. In the context of India, the potential is yet to be utilised and challenges do exist. These include but are not limited to multiplicity of implementation agencies, misalignment of incentives of stakeholders, lack of capacity building at the municipal level and the absence of a unifying policy framework, something which NITI Aayog is working to correct.
Transport projects form the backbone of the economic development of a country by virtue of them connecting people and infrastructure. Moving towards the development of innovative, holistic, inclusive, financially sustainable and transformational projects in the sector will bring us closer towards achieving our $5 trillion economy target.
(The author is a young professional with the infrastructure connectivity vertical of NITI Aayog. Views expressed are strictly personal.)
