Index

1. About Metro rail in Delhi

2.Financial costs and benefits of the Metro

3.Identification of economic benefits and costs of Metro

4.Measurement of economic benefits and ccosts of Metro

5.Economic evaluation of Metro

6. Equity and social benefits of Metro

7.Conclusion
Summary
The growing demand for public transport in mega cities has serious effects on urban
ecosystems, especially due to the increased atmospheric pollution and changes in land use
patterns. An ecologically sustainable urban transport system could be obtained by an
appropriate mix of alternative modes of transport resulting in the use of environmentally
friendly fuels and land use patterns. The introduction of CNG in certain vehicles and
switching of some portion of the transport demand to the metro rail have resulted in a
significant reduction of atmospheric pollution in Delhi. The Delhi Metro provides multiple
benefits: reduction in air pollution, time saving to passengers, reduction in accidents,
reduction in traffic congestion and fuel savings. There are incremental benefits and costs to a
number of economic agents: government, private transporters, passengers, general public and
unskilled labour. The social cost-benefit analysis of Delhi Metro done in this paper tries to
measure all these 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 for a study
commissioned by the Planning Commission, Government of India and done at the Institute of
Economic Growth. The financial 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.
I. About Metro Rail in Delhi
Delhi, the capital city of India, is one of the fastest growing cities in the world with a
population of 13 million as reported in the Census of India Report for the year 2000. Until
recently, it was perhaps the only city of its size in the world depending almost entirely on
roads as the sole mode of mass transport. The total length of the road network in Delhi has
increased from a mere 652 km in 1981 to 1122 km in 2001 and it is expected to grow to 1340
km in the year 2021. This increase in road length is not at par with the phenomenal growth in
the number of vehicles on these roads in Delhi. The cumulative figure of registered private
and government buses, the main means of public transport, is 41,872 in 1990 and it is
expected to increase to 81,603 by the year 2011. The number of personal motor vehicles has
increased from 5.4 lakhs in 1981 to 30 lakhs in 1998 and is projected to go up to 35 lakhs by
2011. With gradual horizontal expansion of the city, the average trip length of buses has gone
up to 13 km and the increased congestion on roads has made the corresponding journey time
of about one hour. Delhi has now become the fourth most polluted city in the world, with
automobiles contributing more than two thirds of the total atmospheric pollution. In this
context, the decision of the Government of India to develop a mass transport system for Delhi
providing alternative modes of transport to the passengers was most appropriate.
The first concrete step in the launching of an Integrated Multi Mode Mass Rapid Transport
System (MRTS) for Delhi was taken when a feasibility study for developing a multi-modal
MRTS system was commissioned by the Government of the National Capital Territory of
Delhi (GNCTD) at the instance of the Government of India in 1989 and completed by Rail
India Technical and Economic Services Limited in 1995 (RITES, 1995a, 1995b). The Delhi
Metro (DM) planned in four phases is part of the MRTS. The work of Phase I and part of
Phase II is now complete while that of phase III is in progress. The first phase of DM consists
of 3 corridors divided in to eight sections with a total route of 65.1 kms, of which 13.17 kms
has been planned as an underground corridor, 47.43 kms as elevated corridors and 4.5 kms as
a grade rail corridor. The second phase covers 53.02 kilometers of which the underground
portion, grade and elevated section are expected to be 8.93 kilometers, 1.85 kilometers and
42.24 kilometers respectively. The construction of the first phase of DM was spread over 10
years during 1995-96 to 2004-05 while that of the second phase, which started in 2005-2006
is expected to be complete by 2010-11. The total capital cost of DM at 2004 prices for Phase
I and Phase II are estimated as Rs. 64,060 and Rs. 80,260 million, respectively. Phases III and
IV of DM will cover most of the remaining parts of Delhi and even extend its services to
some areas such as Noida and Gurgaon belonging to theneighbouring states of Delhi

Table will come here

This study attempts the social cost-benefit analysis of Phases I and II of DM. The Delhi Metro
provides a number of benefits. It reduces the travel time of people using the road and metro, number
of accidents on the roads and the atmospheric pollution in Delhi. The remaining part of this study is
planned as follows. Section II provides a financial evaluation of DM. Section III attempts the
description of economic benefits and costs and various stakeholders of DM and the methods of
economic evaluation used. Section IV presents an analysis of economic benefits and costs of the
project. Section V describes the income distributional effects of DM, while Section VI provides
conclusions.
II. Financial Costs and Benefits of the Metro

It is important to examine the financial feasibility of DM before actually taking up its

economic appraisal. The financial evaluation of a project requires the analysis of its annual
cash flows of revenue and costs considering it as a commercial organization operating with
the objective of maximizing private profits. The financial capital cost of DM represents the
time stream of investment made by it during its lifetime. The investment expenditures made
by the project in one of the years during its life time constitutes the purchase of capital goods,
cost of acquisition of land and payments made to skilled and unskilled labour and material
inputs for project construction. The operation and maintenance cost of the project constitutes
the annual expenditure incurred on energy, material inputs for maintenance and payments
made to skilled and unskilled labour. The investment goods and material inputs used by the
project are evaluated at market prices, given the definition of market price of a commodity as
producer price plus commodity tax minus commodity subsidy. If the government gives some
commodity tax concessions to DM, they are reflected in the prices paid by DM for such
commodities. If the financial capital cost of the project is worked out as the time flow of
annualized capital cost, the annual cost of capital has to be calculated at the actual interest
paid by it. This could be done using information about the sources of funds for investment by
DM and the actual interest paid by it to each source. For example, if part of the investment of
DM is financed out of loans provided by the government at the subsidized interest rate, the
annual cost of this investment has to be calculated at the subsidized interest rate.

Table 2 provides the sources of funding investments of DM (phases I and II). More than 60
percent of the funds required for investment are raised as debt capital. Around 30 percent of
total investments of DM are raised through equity capital with the Government of India
(GOI) and GNCTD having equal shares in it. The remaining 10 percent of the investments of
DM will be covered out of the revenues it earns. As reported in RITES (1995a), the DM had
been provided with the following concessions by GOI to make the project viable, namely (a)
The cost of land equivalent to Rs. 2180 million has been provided as an interest free
subordinate loan by GOI/GNCTD to be repaid by the DM within 5 years after the senior debt
is repaid fully by the twentieth year of taking the loan (b) The risk associated with the
exchange rate fluctuations is borne by government in case of foreign debt, (c) The DM is
exempted from payment of income tax, capital gains tax, property tax and customs duty on
imports, (d) The DM is permitted to generate resources through property development over a
period of 6-20 years and (e) No dividend is paid on GOI share of equity till the senior debt is
repaid fully by the twentieth year.

Table 2- Sources of funding

Table 3 provides information about various components of capital cost for Phase I of DM.
The total project cost of Rs. 64,060 million at 2004 prices for Phase I consists of the foreign
exchange cost of Rs. 7720 million and the domestic material and labour cost of Rs. 56,340
million. The corresponding figure for the Phase II of DM is Rs. 80,260 million at 2004 prices.

Table 3- Cost of estimate phase 1

4- table of financial flow of estimates

5. table of financial flow of ops and maintainence

6. estimates of passenger journeys

7.estimates of flow of revenues

III. Identification of Economic Benefits and Costs of Metro
Description of economic benefits and costs of the Delhi Metro requires the identification of
the changes brought out by it in the transport sector of the economy. Most importantly, DM
contributes to the diversion of a very high proportion of current passenger traffic from road to
Metro and serves part of the growing passenger traffic demand in Delhi. As a result, there
will be a reduction in the number of buses, passenger cars and other vehicles carrying
passengers on Delhi roads with the introduction of the Metro. There will be savings in travel
time for passengers still traveling on roads due to reduced congestion and obviously also for
those traveling by Metro. The Metro also brings about a reduction in air pollution in Delhi
because of the substitution of electricity for petrol and diesel and reduced congestion on the
roads. There will also be a reduction in the number of accidents on the roads.
Investment in the Metro could result in the reduction of government investments on road
developments and buses as also in the private sector investment on buses, passenger cars and
other vehicles carrying passengers. There will be reductions in motor vehicles’ operation and
maintenance charges to both the government and the private sector. There could be cost
savings to passenger car owners in terms of capital cost and operation and maintenance costs
of cars if they switch over from road to Metro for travel in Delhi. The fare box revenue
collections by Metro will be at the cost of the revenue, accruing earlier to private and the
government bus operators and hence constitutes a loss in income.
The Delhi public will gain substantially with the introduction of the Metro service. It saves
travel time due to a reduction of congestion on the roads and lower travel time of the Metro.
There will be health and other environmental benefits to the public due to reduced pollution
from the transport sector of Delhi. Land and house property owners gain from the increased
valuation of house property prices due to the Metro. The Metro has the effect of increasing
the income of the regional economy of Delhi vis a vis the rest of the Indian economy. Given
that the per capita income of Delhi is far higher than the national per capita income, the
redistribution of income in favour of Delhi may not be desirable from the point of view of
income distribution in the Indian economy. The Metro provides employment benefits to the
unskilled labour especially during its
construction period. This labour is otherwise unemployed or under employed in the Indian
economy.
IV. Measurement of Economic Costs and Benefits of Metro
The economic costs of the Metro are calculated after excluding the tax component from the
financial costs. In a recent study, Murty and Goldar (2006) have estimated the effective state
VAT and MODVAT rates on durable commodities in India as 3.8 percent and 6.36 percent,
respectively. Since these taxes are levied on the same base, the total effective tax rate
applicable for durable commodities in India is roughly 10 percent. The effective tax could be
interpreted as the revenue the Indian Government (central and states) gets if there is an
increased demand for a commodity by one unit at margin (Ahmad and Stern 1984; Murty and
Ray 1989). If the taxes are ad valorem, it implies an increase in the revenue of the
government if there is an increase in a rupee worth of expenditure on that commodity. These
taxes are also interpreted as shadow taxes. No tax payments are considered on the
expenditures incurred by the DM for the employment of unskilled labour. Table 10 provides
estimates of the economic cost of DM for some select years during its lifetime.

Table- Component of economic capital and o&m cost

Reduction in the number of vehicles on road

The growth rates of registered cars, two-wheelers, three wheelers, taxis and buses in Delhi
are calculated as 9.8, 11, 8, 5 and 7 percent, respectively using data for these vehicles for the
period 1971-2002. To calculate the number of vehicles going off the road due to the
introduction of MRTS the following exercise is conducted. The registered number of vehicles
for each category of these vehicles in Delhi for the period 2002-42 is estimated using the
above mentioned growth rates. RITES (1995a) has reported that out of the total registered
vehicles, only 28 percent of cars, 40 percent of two-wheelers and 65 percent of taxis and
three wheelers are on the roads. It is also reported, depending upon the area and the density of
population through which the Metro line passes, that only 30 percent of vehicles on road are
influenced by Phase I of the Metro. It is further mentioned that 45 percent of cars, 70 percent
of two-wheelers, and 25 percent of buses out of the influenced traffic are diverted to Metro. It
is assumed that modes of transport like taxis and three wheelers are on the road by choice and
hence they will not be diverted due to the Metro. Table 11 reports estimates of diverted traffic
to Metro (Phases I and II) for some selected years during 2005-06 to 2042-43.

Table-Reduction in vehicles due to metro

The economic benefits from the reduced number of vehicles on Delhi roads due to the Metro
could be identified as the following:
• Savings in Foreign Exchange due to reduced Fuel Consumption
• Reduction in Pollution
• Savings in Time for all passengers using Metro and Roads
• Savings in Accidents
• Savings in Vehicle Operating Cost (VOC) due to decongestion for residual traffic
• Savings in Capital and Operating cost of diverted vehicles
• Savings in the cost of Road Infrastructure
Savings in fuel consumption
There are savings in fuel consumption (inclusive of both CNG and petrol) due to the
diversion of a part of the Delhi road traffic to Metro and reduced congestion to vehicles still
operating on the roads. There is an inter-fuel substitution of petrol and CNG to electricity that
could result in savings of foreign exchange and a reduction of air pollution. Fuel saved due to
traffic diverted to the Metro is estimated given the estimates of diverted traffic described
above and the annual run and fuel consumption norms of different vehicles. Table 12
provides information about the annual run and fuel consumption norms of different vehicles
in Delhi. RITES (2005a) has estimated the total reduction in CNG due to the traffic of buses
diverted to the Metro (Phases I & II) during the year 2011-12 as 39.65 million kg. Similarly,
the fuel saved due to the diverted traffic of cars and two-wheelers is estimated as 138.35 and
25.70 million litres respectively. When these fuel savings are valued at 2004 prices (Rs.
18/kg for CNG and Rs. 38/litre for petrol) the corresponding fuel savings for cars, two-
wheelers and buses are Rs. 5260, 9770 and 710 million, respectively.

Table – Annual run and fuel consumption norms

RITES (1995a) has used the following formula which is also used in a study by the Central
Road Research Institute (CRRI) for estimating the fuel savings by residual vehicles due to the
reduced congestion on Delhi roads after Metro.

Equation to be placed
The estimates of savings in fuel consumption for cars and buses calculated by using the
above formula are 28.73 cc/km and 91.19 cc/km, respectively. The residual traffic on Delhi
roads, in terms of number of cars and buses, for the year 2011-12 are 200752 and 28351
respectively. The total savings in fuel due to decongestion is the product of residual traffic,
fuel savings norms given by the above formula, annual run and a conversion factor (cc to
litre). The fuel savings during the year 2011-12 due to the decongestion effect for cars and
buses are 20714391 ltr and 38510952 ltr, respectively. The RITES study has assumed that the
fuel savings of two-wheelers are roughly one-third of cars, which becomes 6835749 ltr.
These savings are valued at 2004 prices as Rs. 390, 130 and 350 million for cars, two-
wheelers and buses, respectively.

Fuel savings arising out of the Metro could result in the savings of foreign exchange for the
Indian economy given that a very large proportion of domestic demand for petroleum
products in India has been met out of imports. A recent study (Murty and Goldar, 2006) on
investment planning in India provides an estimate of the shadow price of foreign exchange,
which is 10 percent higher than the market exchange rate. Given that there are Rs. 16610
million worth of fuel savings from the Metro in the year 2011-12 valued at market prices or
by the dollars spent on the imports of fuels valued at the market exchange rate, the social
value of fuels saved at the shadow price of foreign exchange is estimated as Rs. 18271
million.

Reduction in air pollution

Fewer vehicles and the decongestion for the residual traffic on Delhi roads due to Metro
could lead to reduced air pollution. The distance saved due to decongestion is estimated by
multiplying the time saved with the speed of a vehicle in a decongested situation. An estimate
of the pollution reduction by a vehicle in this context could be obtained by multiplying the
distance saved by the relevant emission coefficient for different pollutants for each category
of vehicle. The emission coefficients for different vehicles as per the Euro II norms are given
in Table 13. Estimates of reduction in distance traveled every day due to the decongestion
effect are obtained for cars, two-wheelers and buses as 9.18 kms, 7.65 kms and 69.72 kms,
respectively. Table 14 reports the estimates of air pollution loads due to decongestion avoided
due to Metro. The monetary value of these pollution loads are estimated using the estimates
of shadow prices of pollutants made in some recent studies in India (Murty and Gulati, 2005;
Murty, Surender Kumar and Dhavala, 2006) which are reported in the same table.

Table- 14
The vehicular technology complying with Euro II norms or using CNG as a fuel could have
similar effects on the air pollution in Delhi as estimated for the Metro. Table above provides
estimates of the diverted traffic to the Metro. A major component of the monetary value of
reduction in air pollution due to the Metro could be obtained as the savings in the cost of
pollution abatement due to the diverted traffic. A recent study by Chatterjee, Dhavala and
Murty (2006) provides estimates of the annual cost of Euro II technology for different
vehicles.

Table- estimated monetary value reduction of pollution

Savings in passenger time

The savings of travel time of passengers traveling by the Metro instead of by road are
calculated as the product of the number of passengers traveled daily and the time saved on the
average passenger lead in Delhi. In the case of residual passenger traffic on road, RITES
(1995a) has estimated the daily time saving by the passengers due to decongestion using the
following formula:

Equation

Savings due to fewer accidents

The Road User Cost Study (CRRI, 1982) later updated by Dr. L. R. Kadiyali et. al. in
association with the Loss Prevention Association of India provides estimates of the cost of
various accidents on road. Components like gross loss of future output due to death/major
injury, medical treatment expenses, legal expenses, administrative expenses on police,
insurance companies and the intangible psychosomatic cost of pain were included in the
estimation. In the case of buses and other public vehicles, the loss due to lay off period and
unproductive wages paid to the crew are also included

Savings in vehicular operating costs due to the decongestion effect

Annual vehicle operating cost is substantially reduced due to the higher speed of vehicles and
consequently lesser hours on road. It is estimated as the product of the residual traffic, time
saved on average lead per vehicle annually and the vehicle operating cost per hour.
According to RITES (2005b), the value of this component for the year 2011-12 is Rs. 15040
million.

Savings in Capital and Operating Cost of Diverted vehicles

Reduction in the capital and operating cost of vehicles due to the introduction of the MRTS is
given by the product of the diverted traffic stream, the annual run and the VOC/V-km. The
estimated value of this component for the year 2011-12 is Rs. 17677 million.

V. Economic Evaluation of Metro

The methodology described in Section III is used for the economic evaluation of the Metro.
Two approaches are used for the analysis. One approach maintains that there is a sub-optimal
level of savings in the Indian economy and therefore the social time preference rate is lower
than the rate of return on investment and there is a social premium on investment. This
approach is similar to the standard UNIDO method (Dasgupta, Sen and Marglin, 1972) for
investment project evaluation. Another approach assumes that the level of savings in the
Indian economy is optimal and there are no distortions in the capital market so that the rate of
return on investment or the market rate of interest could be taken as the social time preference
rate. Both the approaches recognize that distortions still exist in the markets for unskilled
labour and foreign exchange so that their market prices are different from the shadow prices.
However, in the case of unskilled labour, its shadow price consists of the direct and indirect
opportunity cost of unskilled labour employment on investment projects in the first approach
while it constitutes only the direct opportunity cost in the case of the second approach. The
direct opportunity cost constitutes the marginal productivity of unskilled labour in the
alternative employment say in agriculture while the indirect opportunity cost is due to the
social value of loss in savings or investment due to labour employment. A recent study
commissioned by the Planning Commission, Government of India (Murty and Goldar, 2006)
has obtained estimates of the social time preference rate and the rate of return on investment
for the Indian economy as 8 and 10 percent, respectively. It has also made the estimates of 36
percent and 10 percent social premium on investment and foreign exchange respectively. It
provides an estimate of the marginal productivity of unskilled labour in agriculture as Rs. 48
per day and an estimate of the shadow wage rate consisting of the direct and indirect cost of
unskilled labour employment as Rs. 60 for the Indian economy. This study also provides
some estimates of the income distributional weights pertaining to incomes of people
belonging to different income groups in the Indian economy. These estimates of national
parameters for the investment project evaluation in India are used for the economic
evaluation of the Metro.

The economic agents affected by having the Metro operational in Delhi could be identified as
government, passengers, general public, private transporters and unskilled labour. As
explained in Section III these agents get incremental benefits and incur incremental costs due
to Metro.

The Government gets fare box revenues, revenues from property development and
advertisements and tax revenue on the goods and services bought for the investments and
operation and maintenance of the Metro while it suffers revenue losses due to the displaced
public buses. It incurs the investment and operation and maintenance cost of the Metro while
it saves the cost on road infrastructure and the capital and operating cost of displaced public
buses. The net benefits for the government during the year 2011-12 are estimated as Rs.
31760 million at 2004 prices.

The Passengers gain to the extent of the difference between the fares paid to buses in the
absence of the Metro and the fares charged by the Metro. For instance, during the year 2011-
12, the fare box revenue to the displaced buses should have been Rs. 10460 million while that
of the Metro is estimated at Rs. 35280 million. Therefore, passengers have incurred an
additional cost of Rs. 24830 million due to these fare differences. However, there is a time
saving for the passengers due to the Metro. As explained in Section IV, there is both time
saving travelling on the Metro as also time saving to the residual traffic on the roads due to
the reduced congestion. During the year 2011-12, these savings are together estimated as Rs.
22090 million. There are also benefits due to a reduction in accidents to the passengers due to
the functioning of the Metro, which are estimated as Rs 448 million during the year 2011-12.
The net benefits to the passengers from the Metro are estimated as Rs.22440 million during
the year 2011-12.

The Private transporters lose the revenue from displaced private buses but at the same time
save on their capital and operating costs. These are estimated as Rs. 9410 and Rs. 6550
million, respectively resulting in a net loss of Rs. 2860 million to the private transporters
during the year 2011-12.

The Unskilled labour employed on the construction and maintenance of Metro gain to the
extent of the difference between the project wage rate and the wage rate in an alternative
employment in India. Murty and Goldar (2006) provide an estimate of the marginal
productivity of unskilled labour in agriculture as Rs. 48 while on the average, the industrial
wage for unskilled labour in India is Rs. 120 per day at 2004-05 prices. Assuming that the
unskilled labour cost constitutes 10 percent of investment cost and 5 percent of operation and
maintenance cost of the Metro, the benefit to unskilled labour is estimated as Rs. 316.4
million during the year 2011-12.

The General public representing the Indian society receives the benefits of social premium on
investment and foreign exchange and the environmental benefits of reduced pollution due to
the Metro. There are foreign exchange costs and foreign exchange benefits from the Metro.
Foreign exchange cost accounts for 60 percent of the investment cost of the Metro. There are
foreign exchange benefits to the extent of reduced fossil fuel consumption due to a change in
the mode of transport. Murty and Goldar (2006) have estimated a 10 percent social premium
on foreign exchange for the Indian economy. The net benefits to the general public from the
Metro arising out of the social premium on foreign exchange is estimated as Rs. 1203.3
crores during the year 2011-12. There could be incremental benefits or losses of savings due
to the Metro in the Indian economy depending upon the propensity to save of different agents
affected by the project. Without accounting for the social premium on savings, the
government, passengers, private transporters and the public get total net benefits worth Rs.
52550 million in the year 2011-12. Assuming a savings rate of 29.10 percent on an aggregate
in the Indian economy in 2011-12, the incremental savings due to the Metro in the Indian
economy works out to be Rs. 15290 million in the same year. Given an estimate of the social
premium on investment as 36 percent (Murty and Goldar, 2006), the public receives benefits
worth Rs. 5500 million on this account. It is assumed that the propensity to save of unskilled
labour is zero in this estimation. Also the public receives benefits from the reduced air
pollution due to the Metro. Section IV describes a method of estimating these benefits and
provides an estimate of these as Rs. 6883 million in the year 2011-12. Therefore, public
receives net benefits worth of Rs. 14260 million in the year 2011-12 due to Metro.
VI. Equity and Social Benefits of Metro

The Metro in Delhi has resulted in significant income distribution among various economic
agents affected by it. As shown in Table 20, while on the one hand, the government, unskilled
labour, public and the passengers have gained, on the other private transporters have suffered
substantial losses. The social benefits of the Metro could be estimated by assigning the
appropriate income distributional weights to the incremental changes in incomes of these
agents due to the project. Murty and Goldar (2006) describe a method of estimating these
weights and provide their estimates for the incomes of people belonging to different income
classes in the economy.
VII Conclusion
The Delhi Metro planned in four phases is part of an Integrated Multi Mode Mass Rapid
Transport System (MRTS) planned for dealing with the fast growing passenger traffic
demand in Delhi. It provides an alternative safe and comfortable mode of transport by rail to
a large fraction of passengers using the road transport in Delhi. It reduces the travel time of
people using the road and Metro, number of accidents on roads and the atmospheric
pollution.
The financial cost-benefit ratio of the Metro is estimated as 2.30 and 1.92 at 8 percent and 10
percent discount rates respectively while its financial internal rate of return is estimated as 17
percent. The financial evaluation of the Metro is done considering the financial flows of the
project comprising the annual revenue earned and flows of investments and operation and
maintenance costs. The shares of debt, equity and internal resource mobilization in
investments made on Metro are 60, 30 and 10 percent, respectively.
The social cost-benefit analysis of the Metro requires the identification of benefits and the
economic agents affected by it. The incremental changes in the incomes of various economic
agents: passengers, transporters, public and government and unskilled labour due to the
Metro could be estimated by considering the Delhi economy with and without the Metro. It is
found that there are income gains to the government, public, passengers and unskilled labour
while there are substantial income losses to the transporters because of the Metro.
The estimated NPSB of the Metro at 2004-05 prices and the 8 percent social time preference
rate for the Indian economy is Rs. 419979.6 million. The social rate of return on investment
in the Metro is as high as 22.7 percent.
The economic rate of return on investments in the Metro is 21.5 percent at market prices
while the financial rate of return is only 17 percent. These rates are much higher than the
recommended social time preference rate of 8 percent and 10 percent cut of rate of return for
the investment in the Indian economy by a recent study commissioned by the Planning
Commission, Government of India. There is a one percent increase in the economic rate of
return on investment in the Metro, pegged at 22.5 percent after accounting for the differences
between shadow prices and market prices of unskilled labour, foreign exchange and
investment in the Indian economy in the measurement of economic benefits and cost of the
Metro. Accounting for the benefits from the reduction in urban air pollution in Delhi due to
the Metro has further increased the economic rate of return to 23.9 percent. This means that
the benefits to the Delhi public from reduced air pollution due to the Metro increases its
economic rate of return by 1.4 percent.
Delhi Metro provides incremental income to the Delhi public which has a per capita income
more than two times the national per capita income. Therefore, accounting for income
distributional effects of the Metro has resulted in the reduction of the social rate of return to
22.7 percent.