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Economic Analysis of Hyderabad Metro Rail Project

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DOI: 10.5958/2231-3915.2015.00039.5

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 International J. Technology; July – December, 2015; Vol. 5: Issue 2

ISSN 2231-3907 (Print) www.enggresearch.net

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RESEARCH ARTICLE

Economic Analysis of Hyderabad Metro Rail Project

Bharath. K.1, Shishir K Jain1, Kottam Varun1, Ramakrishna N.2
1
PGP Students of ACM, National Institute of Construction Management and Research, Pune
2
Associate Professor, National Institute of Construction Management and Research, Pune
*Corresponding Author Email: nramakrishna@nicmar.ac.in

ABSTRACT:
Hyderabad city is one of the larger metropolitan cities in India which has been undergoing the burgeoning of its population
and facing the concomitant challenges of traffic and transportation problems over last couple of decades. The existing
transportation modes – buses and trains – are already over-stretched and show the limits of mass transportation in such large
cities; therefore, there is a need for developing Mass Rapid Transit Systems (MRTS) in them. The Hyderabad Metro Rail
Project (HMRP) is one of the few MRTS projects undertaken in India with some of its own distinctions. The HMRP is
perhaps the first MRTS project conceived and developed under Public-Private Partnership (PPP) model in India. It is on the
verge of completion now after sailing through a lot of difficulties at the various stages of project. This paper first discusses
the importance of HMRP towards improving the traffic and transportation of Hyderabad city and its citizens. It then attempts
to make an economic analysis of the HMRP using the framework of “Cost Benefit Analysis (CBA)”, which is widely used in
the traditional project feasibility analysis to extend it to include socio-economic aspects of projects. The CBA of HMRP
finds that the project is favourable on the numeraire measure of Cost-Benefit ratio.

KEYWORDS: Transportation, MRTS, Hyderabad Metro Rail, Economic analysis and SCBA.

INTRODUCTION:
Infrastructure is vital to a nation’s economic growth and it is considered to be the backbone on which the society is built. Poor
transport and communications infrastructure inhibit the participation of developing countries in global production networks
(Limao andVenables, 2001) [4]. This in turn suggests that this can be overcome by improving transport infrastructure, and
thereby improving competitiveness. However, many factors influence the road to achieving a good transport infrastructure. For
instance, institutional arrangements can have great influence on the quality of transportation in a country. Adequate funding is
required to construct and maintain such infrastructure. The immediate need for such projects coupled with chronic budget
shortages experienced by public agencies has encouraged the use of innovative financing. Institutional arrangements like Public-
Private Partnerships (PPPs) are important, especially in developing countries, so as to reduce the burden to national treasury.
PPPs have the advantage of private companies operating efficiently (using technology and management) and thereby reducing
costs. However, public involvement is needed to ensure this happens such that it benefits the society. Therefore, improvement in
transportation infrastructure through PPPs is the way forward (Foster and Briceno-Garmendia, 2010) [3].

PPPs broadly refer to long term, contractual partnerships between the public and private sector agencies, specially targeted
towards financing, designing, implementing, and operating infrastructure facilities and services that were traditionally provided
by the Government and/or its agencies (Nallathiga 2006) [6]. These collaborative ventures are built around the expertise and
capacity of the project partners and are based on a contractual agreement, which ensures appropriate and mutually agreed
allocation of resources, risks, and returns. This approach of developing and operating public utilities and infrastructure by the
private sector under terms and conditions agreeable to both the government and the private sector is the feature of PPPs.

Transport situation in most Indian metropolitan cities is rapidly deteriorating because of the increasing travel demand and
inadequate transportation system. Indian cities of all sizes are facing the crisis of urban transport. Despite investments in road
infrastructure and plans for land use and transport development, all face the problem of congestion traffic accidents and air
pollution and the problems continue to grow. Large cities are facing an unprecedented growth of personal vehicles (two wheelers
and cars) and in medium and small cities different forms of intermediate public transport provided by informal sector are
struggling to meet the mobility demands of city resident.

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 International J. Technology; July – December, 2015; Vol. 5: Issue 2

Growing cities, growing population and growing traffic has invariably called for a shift from private modes of conveyance to
public transport. A glance at the world's developing nations indicates that well planned Mass Rapid Transit Systems (MRTS)
exist successfully. Figure 1 shows the various MRTS options for cities in India. In 2009, it was decided to invest 2000 billion
(US$33.2 billion) on metro rail projects in the following ten years. It is planned that all Indian cities having population more that
2 million will have metro rail system. Currently, rapid transit systems operate in 15 cities and more are under construction or in
planning in several cities of India.

Mass Rapid
Transit Systems

Bus Rapid Transit

Rail-based MRTS
Systems

Sub-Urban Rail Light Rail Transit

Metro Rail
Transport System

Figure 1 Types of MRTS in India

(Source: Author’s Own)

METRO RAIL TRANSPORT IN INDIA

India (like many other developing countries) however has lagged behind, though its first metro, the Kolkata Metro, started
working almost 25 years ago. The reasons could be attributed to the lack of funds as it is known that such projects require huge
capital investments, a long gestation period and complex technology. Other reasons could include the lack of integration between
various systems of mass transportation and the absence of comprehensive traffic and transportation planning. While researches
show that the ideal modal share of public transport should be around 70%, however it is in tune to only 35%–40% in India's
metro cities. India is looking to create a world class infrastructure with its existent Kolkata and Delhi Metros with the addition of
Mumbai, Bengaluru, Hyderabad, Chennai, Jaipur, and Kochi metros in the next few years while Metro rail proposals for Pune,
Chandigarh, Ahmadabad, Kanpur, Ludhiana, Bhopal, Indore and Faridabad are being made.

Advantages of Metro Rail Transport

Cost Factors
Metro rail projects are meant to cater to cities with more than four million population and the costs in these cases are related to
areas which are proposed to serve underground, elevated or at grade alignment. Larger the underground and elevated proposal,
larger shall be the cost involved. It is advantageous to get funding through PPP model (Public-Private Partnership) as in
Hyderabad and Mumbai or by DMRC model by the state or the central government as in Bangalore, Chennai and Kolkata.

Advantages and Disadvantages

Metro rail, as a cheap mode of transport, helps in low energy consumption, is eco-friendly (runs on electricity, thus minimising
air and sound pollution), averts the number of accidents, is efficient in terms of space occupancy and provides comfort with ultra
modern coaches and modern systems like automatic ticketing, advanced signalling systems, automatic train protection system
and integrated security systems.

The only disadvantage of metros is the slight congestion on roads at the time of construction which has to be taken care of while
the cost factor as the disadvantage, the solution for which is to integrate metros with others systems considering the volume,
structure, availability of space and resources for traffic and transportation.

LITERATURE REVIEW
There are only few Indian studies on the economic performance of Metro Transport Systems. One such study is ASSOCHAM
(2011) [2]. This study focuses on the rising urban population of Indian cities and the inefficient transit system which are
inadequate to handle the growing cities and a rising population. It gives a complete report on the advantages of Metro Rail transit
system to reduce traffic congestion and to connect the different areas of a city with the commercial and economic centres of a
city. It gives the list of cities with potential for Metro Rail System and also gives the impact it will have on their economic
growth.

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 International J. Technology; July – December, 2015; Vol. 5: Issue 2

Murty et al (2006) [5] performed the social cost-benefit analysis of Delhi Metro in this paper. It tries to measure all the benefits
and costs from Phase I and Phase II projects covering a total distance of 108 kms in Delhi. Estimates of the social benefits and
costs of the project are obtained using the recently estimated shadow prices of investment, foreign exchange and unskilled labour
as well as the social time preference rate for the Indian economy. The internal rate of return on investments in the Metro is
estimated as 17 percent while the economic rate of return is 24 percent. Accounting for benefits from the reduction of urban air
pollution due to the Metro has increased the economic rate of return by 1.4 percent.

Tiwari (2011) [7] is another study that deals with Benefits of a low cost and low carbon mass rapid transit system in Indian urban
cities. The study in detail gives the various phases of the Delhi Metro Rail project and the shows the planning, financial and
execution phases of the Delhi Metro. The study also shows the revenue generated and the saving the Government of India makes
by successful execution of the Delhi Metro Rail project.

The current study was carried out to understand the technical features and economic importance of Hyderabad metro rail transit
project as a successful PPP project. This paper proposes to understand importance of the project from transport and traffic
conditions in the city and the socio-economic analysis of Hyderabad metro project towards meeting objectives.

POPULATION GROWTH TRAFFIC AND TRANSPORTATION IN HYDERABAD METROPOLITAN CITY:

The Hyderabad Metropolitan Area (HMA) is spread over 1905 Sq Km. This area is greater than that of other metropolitan cities
like Delhi, Calcutta, Bangalore and Chennai. Hyderabad Urban Development Authority (HUDA) (now known as Hyderabad
Metropolitan Development Authority (HMDA)) is the nodal agency for promoting planned development of the city which makes
it automatically the nodal agency for studying and implementing transport related projects within the urban agglomeration.

Population Growth
The population of Hyderabad city grew from 0.448 million in the year 1901 to 6.383 millions in the year 2001. Growth of
population since 1971 is shown in Figure 2. The metropolitan area comprise of the area under MCH (covering core city), 10
municipalities and remaining parts of HUDA area. The HMA recorded an increase in its population from 2.99 to 4.67 millions
and then to 6.383 millions, in the year 2001. Table 1 shows the metropolitan growth. The projected population as per Draft
Master Plan - 2021 for HUDA area is 9.055 and 13.644 millions in the year 2011 and 2021 respectively. Besides, floating
population of the order of a million a day is estimated.

Figure 2: Population Growth over Time in Hyderabad

Source: City Development Plan of Hyderabad (2011)

Table 1 Population Growth Rates in Hyderabad Urban Development Area

Constituent part of HMA Growth rate (1981-91) Growth rate (1991-01)
MCH 42 19
Ten Municipalities 158 72
Cantonment Board 26 19
13 Outgrowths 44 43
5 Census Towns 68 27
Panchayat areas covering Medchal, Gandipet and Ghatkesar 33 109
Total 56 37
Source: City Development Plan of Hyderabad (2011)
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 International J. Technology; July – December, 2015; Vol. 5: Issue 2

Motor Vehicle Growth :

The main modes of transport in the city presently are private transport (two-wheelers/ cars), public transport (buses) and
intermediate public transport (autos). The number of registered motor vehicles was 1.56 million in 2001. The growth in motor
vehicles has been at a rate of 11.5% per annum during the period 1996-2001. The share of two wheelers out of the total
registered vehicles is over 74%. The city has also a very large number of three wheelers (more than 71,000). This indicates the
inadequate supply of public transport system in the form of buses. The growth of vehicles (total and two-wheelers) is shown in
Figure 3.

Figure 3 Vehicle population growth in Hyderabad

Source: City Development Plan of Hyderabad (2011)

The increasing amount of private vehicle population is also evident from table 2.

Table 2 Private transport vehicles in Hyderabad metropolitan area

Metropolitan city Two-wheelers Two-wheelers Two-wheelers Cars Cars Cars
(2000) (2009) CAGR (%) (2000) (2009) CAGR (%)
Hyderabad 757684 1836549 10.34 99314 426733 17.58
Source: City Development Plan of Hyderabad (2011)

Road Accidents
The number of accidents that occurred in MCH area in the 1990s is given in Table 3. It can be seen that road accidents have been
growing over the years. About 12% of the accidents are fatal and remaining 88% injurious. Two wheeler / Car were involved in
50% of the accidents, while about 10% involves RTC buses/ Lorries each and about 15% involved Auto rickshaws.

Table 3 Number of Accidents within MCH Area

Accident Type 1992 1993 1994 1995 1996 1997 1999 2000 2001*
Fatal 312 310 337 347 342 357 380 425 214
Share (%) 18.9% 17.5% 17.5% 15.2% 14.1% 12.9% 14.7% 14.9% 1.6%
Injurious 1339 1463 1593 1932 2080 2404 2210 2422 1620
Share (%) 80.3% 81.1% 82.5% 82.5% 84.8% 85.9% 85.3% 85.1% 88.4%
Total 1651 1773 1930 2279 2422 2761 2590 2847 1834
Source: MCH * Data up to 31/07/2001

Public Transport System

Public transport system needs to be the soul of a city. The presence of a good public transport system can deliver better
environmental conditions, faster speeds of travel, better mobility and economic growth. The existing public transport in
Hyderabad mainly comprises bus system exclusively operated by the State run Road Transport Corporation (APSRTC). The
modal share of bus system in Hyderabad at present is 45% of total vehicular transport demand against the Ideal modal share of
70-75% for the city of the size of Hyderabad. This shows that a large proportion of demand is being met by personalized and
intermediate modes of transport which is resulting in increased road congestion and higher emissions.
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 International J. Technology; July – December, 2015; Vol. 5: Issue 2

Air Pollution
High growth in motor vehicles has led to over-crowded roads and a polluted environment. The transportation sector is the main
contributor to the ever increasing air pollutant concentration in Hyderabad. According to a recent study, cars and two-wheelers
contribute 11% and 78% respectively of the total transport related air pollution and vehicles are responsible for around 64% the
total air pollution load. The alarming increase in the pollution has been primarily responsible for most of the respiratory
problems. The total pollution emission load for various years in Hyderabad is given in Table 4. It indicates increasing emissions
over year. Higher pollution is largely due to inadequate public transport system.

Table 4 Daily Pollution Emission of Hyderabad

S. No. Year Total Load (Tonnes/Day)
1 1997-1998 934
2 1998-1999 978
3 1999-2000 1040
4 2000-2001 1123
5 2001-2002 1272
Source: Andhra Pradesh Pollution Control Board

Transport and Air Quality

The prevalence of two- and three-wheelers in Hyderabad has led to a rapid increase in air pollution, particularly suspended
particulate matter, or SPM. SPM is one of the leading causes of upper- respiratory disease. There is no healthy level of SPM, but
an acceptable standard by the World Health Organization is 30 mg/m3. Hyderabad is more than 20 times above this standard,
resulting in thousands of pre-mature deaths each year. Attracting passenger trips away from two-wheelers and onto MRTS is
therefore critical.

ECONOMIC ANALYSIS of HYDERABAD METRO PROJECT

Cost-benefit analysis
Cost-Benefit Analysis (CBA) is a tool for comparing alternate projects by reference to net social benefits that they produce for
the community as a whole. The term ‘net social benefit’ refers to the difference between social benefits and social costs. Benefits
and costs are ‘social’ i.e., they are measured to whom they accrue; they are not limited to specific market transactions. Thus, they
are identified on a more comprehensive basis than private sector evaluations. Here cost-benefit analysis proceeds by estimating
hypothetical values that reflect real economic values. Therefore, there values are measured as direct and indirect values. Here, we
use the CBA framework established by Abelson (1996) [1] for Metro rail projects.

CBA Framework of Hyderabad Metro Project

The framework used for the Cost – Benefit Analysis in the study is shown in Figure 4.

Social Cost
Benefit
Analysis of
Metro Rail

Benefits of Costs of
Metro Rail Metro Rail

Direct Benefits Direct costs

Indirect Benefits Indirect Costs
- Construction
- Time savings - Traffic improvement - Social Costs
- Operation &
- Cost savings - Traffic delays
- Accident avoidance Maintenance
- Flood Mitigation
- Air quality benefits

Figure 4: Framework of CBA of Hyderabad Metro Rail Project

(Source: Author’s Own)

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 International J. Technology; July – December, 2015; Vol. 5: Issue 2

User benefits of Metro Rail Project

(A) Direct benefits
(i) Rail User Time Benefits
 It is the value of travel time savings, dependent upon time savings per rail passenger per trip, number of total trips and
monetary value of travel time.
 With an estimated average time savings of 20 minutes and value of time saving is Rs 16 per hour, the average value of time
savings was Rs 5.4 per rail trip.

(ii) Rail User Comfort Benefits

 Consumer surplus due to better comfort in rail transport which was estimated at Rs 1.62 per rail trip per passengers.

(B) Indirect User Benefits

(i) Traffic Relief Benefits after Constructions
 Construction of RoWs would increase average speed from 25 to 45 kmph with average time saving of Rs 15.4 per minute
per vehicle, annual benefits were about Rs 174 crores (that may increase with traffic growth).

(ii) Accident Avoidance Benefits

 The transfer of 350 million or more passengers annually from buses, two wheelers , three wheelers and cars (currently used)
to proposed rail will lead to significant reduction in road accidents to transferees and road users.
 Based on the incidence of traffic accidents across various junctions (fatal, serious, and minor) and unit cost of them under
each such accident category, the accident cost where estimated at Rs 764.98 crores. With estimated average cost of per
accident of Rs 1, 30, 000.

(iii) Flood Mitigation Benefits

 The RoW of metro will lead to poor drainage and result in flooding which was estimated to cause damages to road, utilities,
property, health, traffic delays and inconvenience, and drainage works to prevent that were estimated at Rs 236.78 crores.

(iv) Air Quality Benefits

 There would be net improvement in air quality after metro (in terms of reduction in CO, Nox, HC and PM) which leads to
savings in health damage costs.
 Health benefits were estimated at Rs 19.25 crores per annum. Estimated loss of 10 working days of close to 1 million of the
population of the city with cost of Rs 19.25 per person affected.

Costs of Metro Rail Project

(A) Total Direct construction cost
The following are the estimated costs of Metro Rail Construction and Operating Cost
 Construction cost – Rs 5949.94 crores
 Rolling stock –Rs 1810.85 crores
 Operating Cost- Rs 4322.40
 Land costs in RoW- Rs 1043 crores
 Other land for stations Depot etc- Rs 2009.58

(B) Indirect Costs

(i) Social disturbance costs and Severance costs
 Construction of various proposed structures for the Metro will lead to displacement of business and households, who lose
their properties who need to be compensated at a premium (of 35% over cost of property) for livelihoods loss and
attachment to land.
 Construction of structures is also going to form a divide that leads to discontinuity and extra effort (to cover extra distance
and take more time) is required to overcome it.
 The Estimated Costs as per provided by the officials are-
Social Disturbance costs – Rs 589 crores
Severance Costs – Rs 1019.35 crores

(ii) Traffic Delay Costs during Construction

 Construction of various proposed structures for the Metro were expected to cause traffic disruptions to abort 200,000 vehicle
trips per day(with average passenger load of 8 persons) during construction period causing 10 min delay, which was
estimated to cost Rs 469.41crores in spread over 6 years.

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 International J. Technology; July – December, 2015; Vol. 5: Issue 2

Summary of Economic Evaluation

Table 5 and 6 show the summaries of the economic costs and benefits measures of Hyderabad metro rail system using the CBA
framework and their relative shares.

Table 5: Summary of Economic Costs of Hyderabad Metro

Metro Costs Amount (Crores) Percentage
Construction 5949.94 34.74
Rolling Stock 1810.85 10.6
Operating cost 4322.40 25.23
Land in RoW 1043.33 6.1
Other land 2009.58 11.73
Disturbance 498.44 2.91
Severance 1019.35 5.95
Traffic Delay 469.41 2.74
Total 17128.54 100

Table 6: Summary of Economic Benefits of Hyderabad Metro

Metro Benefits Amount(Crores) Percentage
Rail user time 2932.46 15.97
Rail user comfort 910.7 4.99
Other time savings 3132.81 17.22
Bus cost savings 9817.35 53.9
Accident savings 764.98 3.99
Air quality 364.28 2
Flyover benefits 72.856 0.43
Flood mitigation 236.78 1.5
Total 18232.22 100

It can therefore be inferred clearly that the economic benefits of Hyderabad metro rail project outweigh the economic costs. The
cost-benefit ratio of 1.065 of the project implies that benefits are marginally higher than costs.

REFERENCES:
1 Abelson, P (1996), ‘Chapter 8: Valuing Mass Transit and Environment in Lagos, Nigeria’, Project Appraisal and Valuation of Environment,
Macmillan Publishers, London
2 ASSOCHAM (2011), Study on Urbanizing India and Mega Metro Network Vision for the Emerging Cities of India-2030, Assocham India
2011,
3 Foster, V. and C. Briceno-Garmendia (2010), Africa’s Infrastructure: A Time for Transformation, Agence Francaise de Developpement and
World Bank, Washington DC.
4 Limao N. and A. J. Venables (2001), Infrastructure, Geographical Disadvantage and Transportation Costs, Policy Research Working Paper
2257, The World Bank, Washington DC.
5 Murty, M N, Dhavala, K., Ghosh, M. and R. Singh (2006), Social Cost-Benefit Analysis of Delhi Metro, Working Paper 273, Institute of
Economic Growth, New Delhi
6 Nallathiga, R. (2006), Public-Private Partnerships in the delivery of urban services: Need, potential and principles’, Proceedings of the
International Conference on Public Private Partnerships in Water Sector, Narosa Publishing House, Nagpur
7 Tiwari, G. (2011), Metro systems in India: Case study DMRC, Promoting Low Carbon Transport in India, National Workshop held during
19-20 October, 2011.

Received on 09.11.2015 Accepted on 08.12.2015

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Int. J. Tech. 5(2): July-Dec., 2015; Page 297-303
DOI: 10.5958/2231-3915.2015.00039.5

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