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Delhi Metro Research Report PDF
Delhi Metro Research Report PDF
Research Report
Abstract
Being the capital city of India, it does not come as a shock that New Delhi is the most populated
city in India in term of people and vehicles. The population of Delhi and vehicles on road are
ever increasing leading to problems like traffic, pollution and high fuel consumption.
Considering all this THE DELHI METRO comes as a huge relief for the people of Delhi.
There are no doubts about the social benefits of the Delhi metro. It will help in reducing traffic
and pollution in the capital and more important save a lot of time for the daily commuters.
As a part of this project, the Delhi Metro has been analyzed from the economic point of view.
Considerable effort has been put into understanding the economic viability of the Delhi Metro. A
lot of analysis is done taking into consideration past and present data, and justified future
assumptions like effect of common wealth games on ridership of Delhi metro, ridership in other
modes of transportation in coming years, ridership on full functioning of two phases of the metro
project, revenue generation from advertising and property development, etc.
The various analysis are SWOT , Demand-supply analysis, Modeling of revenue functions,
Break-even point, Cost-volume profit analysis, effect of Delhi metro on other transport systems,
effect of common wealth games on Delhi metro.
This research paper concludes with justified results that the Delhi Metro is an economically
feasible and time saving venture of DMRC (Delhi Metro Rail Corporation). The success of the
Delhi Metro has already triggered similar ventures in other Indian cities like Mumbai and
Bangalore.
Objective
To analyze the strength and weakness of the Delhi Metro from socio-economic perspective
To model the demand-supply curve and various revenue functions
To estimate the break-even for Delhi Metro
To understand the effect of Delhi Metro on other modes of transportation
To study the effects of common wealth games on revenues
Page | 1
Table of Contents
About Delhi Metro .......................................................................................................................... 3
Need for Metro ................................................................................................................................ 3
SWOT Analysis .............................................................................................................................. 4
Literature Review............................................................................................................................ 5
Demand Supply Curves ............................................................................................................... 6
Modeling of Revenue functions ...................................................................................................... 7
Break-Even Point ............................................................................................................................ 9
Using Cost-Volume Profit Analysis method ............................................................................ 10
Effect of Delhi Metro on other modes of transport....................................................................... 11
Savings in fuel consumption ..................................................................................................... 11
Saving of Passenger time with Metro and without Metro ........................................................ 11
Effect of Commonwealth Games on MRTS ................................................................................. 12
Conclusion .................................................................................................................................... 15
References ..................................................................................................................................... 15
Page | 2
SWOT Analysis
Strengths
Weakness
Opportunity
Threats
A struggle on the part of those being displaced, and protests, petitions, hunger strikes,
negotiations and legal action have all been initiated.
Security threat.
Risk of cost overruns and ridership shortfalls.
Increase in cost of the parts.
Page | 4
Literature Review
The social cost-benefit analysis of Delhi Metro has been already done by the people of institute
of economic growth. They tried to measure all the benefits provided by Delhi Metro such as
reduction in air pollution, time saving to passengers, reduction in accidents, reduction in traffic
congestion and fuel savings in terms of monetary term. Also they made an attempt to measure
the 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 projects were obtained using the recently
estimated shadow prices of investment, foreign exchange and unskilled labor 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 findings
were:
The financial cost-benefit ratio of the Metro was estimated at 2.30 and 1.92 at 8% and
10% discount rates respectively.
Its financial internal rate of return was estimated as 17% while the economic rate of
return is 24%.
The estimated net present social benefit (NPSB) of the Metro at 2004-05 prices and the 8
percent social time preference rate for the Indian economy was Rs. 419979.6 million.
The social rate of return on investment in the Metro was calculated as 22.7 percent. This
could be explained by the provision of incremental income to the Delhi public by Delhi
Metro.
Extension of Line 3
The second phase of Delhi metro will be essentially an extension of the 1st phase. For example a
person who had to commute the distance between Qutab Minar and Jahangir puri earlier when
only phase 1 was operational had to go to central secretariat using a different mode of transport
and then catch a metro till Vishwavidyalaya and then again take a different mode of transport to
reach Jahangirpuri.But the same person after the completion of phase 2 will catch the metro
directly from Qutab Minar and reach Jahangirpuri. This explains the fact that the ridership will
not go up steeply when phase 2 is operational because the people who had been using the metro
earlier would still be using it but for a longer distance now and will be paying more money for
the increased distance travelled
% Ridership
100%
90%
75%
50%
*source: M N Murty, Kishore Kumar Dhavala, Meenakshi Ghosh and Rashmi Singh, Social Cost-Benefit Analysis of
Delhi Metro, October 2006.
Assumption #1: Though the above Fare Rates are the base values in the year of 2002, Delhi
metro decided to keep the fare rates same till 2006.
Expected annual ridership in 2006
121.07 Crores
Assumption #2: The services provided by the Delhi Metro can meet this annual ridership and
Delhi Metro will not invest any further on rolling stock unless otherwise it is required.
Assumption #3: The services provided by the Delhi Metro remains same throughout the year.
Page | 6
Individual demand curve can be obtained by plotting Fare Rate/Passenger trip versus the
ridership in a particular year.
Rs.
Rs.
8
6
Demand
4
3
2010
D2006
Supply
Supply
2
1
2006
D2014
2014
Supply
0
50
100
150
200
50
100
150
200
In the above figures, point A, B & C indicates the fare rate/trip at 100% ridership for a particular
year. Also these points are the equilibrium points for a particular year and are the minimum fare
rate that the Delhi Metro would like to charge. With reference to the demand-supply curve in
2006, an individual will be willing to pay on an average Rs. 3/trip if the ridership is 100%. At the
same time, one will be willing to pay Rs.6/trip if the ridership is 50% and Delhi Metro also will
charge the same so as to maximize the revenue per year. Why because, as the ridership per year
comes down, advertising revenue and property development revenue per passenger also will
decrease. It implies that Delhi Metro acts like a Monopoly since there is no metro rail service
provider and it is managed by the government.
Figure 2 shows the change in demand across the year. This can be explained by the increase in
ridership (majorly due to re-distribution of ridership between various transports). It was assumed
that the change in demand is proportionate to the increase in ridership.
On the other hand, change along the supply curve indicates that Delhi Metro follows the
incremental pricing strategy to overcome mainly the maintenance cost incurred. But in real time,
it may decide to change the price after a span of years. So, the excess expenses incurred due to
the increase in ridership can be overcome by the other revenues (advertising and property
development revenues).
traffic earnings and the revenues from advertisement and property development, as reported by
RITES. Revenue streams for Phases I and II, as reported by RITES (1995b, 2005b) have been
taken.
Table 2: Estimated Total Revenue
Year
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Revenue
1505.2
1715.2
1940.7
2182.6
2442.1
3376.2
3711.2
4105.7
4451.1
4963.3
5084.7
5627
6220.9
Year
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Revenue
6772.2
7428.2
8280.6
9234.2
9912.6
10624.2
11555.7
11606.7
11912.7
11971.7
12322.7
12389.7
12792.7
Year
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
Revenue
12868.7
13330.7
13417.7
13947.7
14047.7
14654.7
14768.7
15465.7
15594.7
16394.7
16543.7
Year
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
O & M cost
312.3
325.3
338.7
352.7
367.4
782.2
800.6
836.6
874.5
914.5
956.8
1001.3
Year
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
O & M cost
1048.4
1098.1
1150.7
1212.7
1376.3
1437.4
1503.2
1573.8
1649.8
1731.6
1819.5
1914.1
Year
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
O & M cost
2014.9
2125.5
2462.8
2604.2
2756.2
2919.8
3095.8
3285.2
3489.1
3708.6
3944.9
4199.3
*source: M N Murty, Kishore Kumar Dhavala, Meenakshi Ghosh and Rashmi Singh, Social Cost-Benefit Analysis of
Delhi Metro, October 2006.
Annual
Ridership,
in Crores
Fare per
passenger
trip, in Rs.
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
121.07
126.11
131.29
136.73
142.39
148.30
152.61
157.06
161.66
166.37
171.22
176.22
181.37
186.66
192.10
197.72
3.00
3.12
3.25
3.39
3.53
3.67
3.78
3.89
4.01
4.12
4.24
4.37
4.49
4.63
4.76
4.90
Traffic
363.21
394.06
427.12
463.24
502.37
544.96
577.07
611.24
647.56
685.83
726.44
769.49
815.09
863.36
914.40
968.69
Property
Advertise
developm
ment
nt
668.93
735.82
809.40
890.34
979.38
1077.32
1185.05
1303.55
1433.91
1577.30
1735.03
1908.53
2099.38
2309.32
2540.25
2794.28
683.06
810.82
946.08
1088.52
1894.46
2088.93
2343.58
2536.31
2881.83
2821.57
3165.53
3542.88
3857.73
4255.52
4825.95
5471.23
Total
1715.20
1940.70
2182.60
2442.10
3376.20
3711.20
4105.70
4451.10
4963.30
5084.70
5627.00
6220.90
6772.20
7428.20
8280.60
9234.20
Using the above data, by plotting Annual Ridership versus the various revenues, one can
formulate the revenue equations for the two scenarios mentioned above.
Page | 8
RT 2E 09 N 2
RP&D 3E 12 * N 2.352
R Advt 1E 25 * N 3.831
RT 2E 09 N 2
RP&D 1E 20 * N 3.258
R Advt 4E 19 * N 3.133
TR RT RP&D R Advt
Break-Even Point
In economics, specifically cost accounting, the break-even point (BEP) is the point at which cost
or expenses and revenue are equal: there is no net loss or gain, and one has "broken even".
Therefore has not made an economic profit or a loss. The break-even point is one of the simplest
yet least used analytical tools in management. It helps to provide a dynamic view of the
relationships between sales, costs and profits. A better understanding of break-evenfor
example in this case, expressing break-even ridership as a percentage of actual revenuescan
give us a chance to understand when to expect to break even.
Total Cost = Fixed Cost + Variable Cost
Fixed Cost: Capital Cost (land cost, construction cost, rolling stock, etc)
Variable Cost: Operation & Maintenance cost
Page | 9
Annual
Ridership,
in Crores
152.63
157.09
161.67
166.39
171.25
176.25
181.40
186.70
192.15
197.76
203.53
209.48
215.59
221.89
228.37
235.04
241.90
248.96
256.23
263.72
271.42
279.34
287.50
295.89
304.53
313.43
322.58
332.00
341.69
351.67
361.94
TR,
in Crores
3666.40
3999.30
4362.97
4760.28
5194.39
5668.73
6187.09
6753.58
7372.73
8049.47
8789.23
9597.91
10482.00
11448.60
12505.47
13661.11
14924.84
16306.83
17818.25
19471.30
21279.35
23257.04
25420.40
27786.96
30375.94
33208.38
36307.30
39697.92
43407.86
47467.37
51909.54
O&M
cost,
in Crores
701.84
743.43
787.49
834.15
883.58
935.94
991.41
1050.16
1112.39
1178.31
1248.13
1322.09
1400.44
1483.43
1571.33
1664.45
1763.08
1867.56
1978.23
2095.46
2219.63
2351.16
2490.49
2638.07
2794.40
2960.00
3135.40
3321.20
3518.01
3726.49
3947.31
TC,
in Crores
15133.84
15175.43
15219.49
15266.15
15315.58
15367.94
15423.41
15482.16
15544.39
15610.31
15680.13
15754.09
15832.44
15915.43
16003.33
16096.45
16195.08
16299.56
16410.23
16527.46
16651.63
16783.16
16922.49
17070.07
17226.40
17392.00
17567.40
17753.20
17950.01
18158.49
18379.31
Economic
Profit,
in Crores
-11467.44
-11176.13
-10856.52
-10505.87
-10121.20
-9699.21
-9236.32
-8728.57
-8171.66
-7560.83
-6890.91
-6156.19
-5350.44
-4466.83
-3497.87
-2435.34
-1270.24
7.27
1408.02
2943.84
4627.72
6473.88
8497.91
10716.89
13149.54
15816.38
18739.90
21944.72
25457.85
29308.88
33530.22
Normal
Profit,
in Crores
2964.56
3255.87
3575.48
3926.13
4310.80
4732.79
5195.68
5703.43
6260.34
6871.17
7541.09
8275.81
9081.56
9965.17
10934.13
11996.66
13161.76
14439.27
15840.02
17375.84
19059.72
20905.88
22929.91
25148.89
27581.54
30248.38
33171.90
36376.72
39889.85
43740.88
47962.22
60000
50000
40000
30000
20000
10000
0
2000
2010
2020
2030
2040
2050
Implicit Costs:
Normal Profit: The yearly profit earned after the adjustment made towards the variable costs.
Though Delhi Metro makes the profit every year, it will break-even in the year of 2028.
Using Cost-Volume Profit Analysis method
The basic limitation when we do a cost-volume profit analysis, the fare rate per passenger trip
should remain constant.
Let us assume, the fare rate per passenger trip is to be Rs. PT
Total Revenue :
:
Page | 10
Total Cost
Setting N = 248.96 Crores, the calculated fare rate per passenger trip to achieve the break-even
(where, Total Revenue = Total Cost) would be ~ Rs. 5.2. If Delhi Metro decides to maintain its
fare rate per passenger trip till it is broken even, then it should charge Rs. 5.2/passenger trip.
On the other hand, if Delhi Metro decides to charge Rs. 3/passenger trip till break-even, then it
breaks even in the year of 2029 instead of 2028. And break-even annual ridership would be 252
Crores.
without metro
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
50
45
40
35
30
25
20
15
10
5
0
with metro
Figure 4
Table 7: Daily Time Taken by a bus
Daily time taken by the passenger travelled by
auto, in hrs
45
40
35
30
25
20
15
10
5
0
without metro
with metro
Figure 5
The above chart shows the comparison for time saved for the bus and auto travel. D/S c shows
time saved in case of congestion i.e. without Metro and D/Sd shows time saved in case of Metro.
The time saved in the later case in more because of reduced congestion on the roads. Also as the
no of vehicles on the road reduces the average speed will also increase. The difference between
the D/Sd and D/Sc curve shows the time saved because of introduction of MRTS. Overall this
shows that one of the main objectives of MRTS to decongest the Delhi roads will be achieved in
the due course of time.
Page | 12
city. To prepare itself for this, the city is planning a major overhaul of its urban infrastructure as
well as its sporting facilities.
Will the event lead to rampant and unchecked development, possibly unplanned?
Is the amount spent on such events worth it?
There are very good reasons for why developing nations are more adversely impacted by such
events. They can be listed as:
1. High infrastructural development costs.
2. Under-utilization of facilities post event.
3. High opportunity cost of capital.
4. Unable to attract large numbers of spectators.
The emphasis of the present Rapid Transport system is now on the Metro. However more
importantly, Phase II, aimed at extending the network much further in the city, is already under
construction, and is set to be ready before 2010. This phase is going to require massive
investment, over Rs 8000 Crores. The second phase is going to provide a vital transport link to
East Delhi, with a dedicated Games Village station. The metro, which is already beginning to
have an impact on the citys congested roads, will be able to make a much larger impact as its
network and reach grows. The second phase, originally planned to be ready by 2010-2011 is now
going to be operational by 2009, due to the 2010 Games.
The Total Revenue for the metro for the year 2007-2008 and the forecasted revenue for the year
2010.
expected to earn nearly Rs7bn and about Rs6bn from space allocations to corporate
advertisers.
Figure 7: The Ridership impact taking the Commonwealth games into consideration.
The red line gives the ridership revenue taking the commonwealth games into account
And the blue line gives the revenue generated without taking commonwealth games in
consideration.
The revenue created in the year 2010 has increased drastically in the year 2010 as the
price of the ticket increases considerably pertaining to the commonwealth games.
Ridership increases due to the increase in the foreign tourists. But the increase is not that
drastic as not many foreign tourists turn to developing countries to watch the matches
because of the state of infrastructure.
The ridership dips in the year 2011 and the infrastructure created is underutilized.
DMRC should keep the cost of the project under control as it might not even earn the
fixed cost. Planning in future must be done keeping a realistic view.
The advertisement revenue forms the major portion of the revenue earned by the metro as
the ridership is not up to the mark.
The advertisement revenue earned increases as many corporate houses pay high prices for
the advertisements as India will be in spotlight at that point of time.
Page | 14
We can infer that the DMRC would suitably allocate rental and advertisement space to
higher bidders after it has accomplished the metro projects in early 2010 especially
before the commencement of forthcoming Commonwealth Games.
The rate at which revenue increase will decrease subsequently after the commonwealth
games.
Conclusion
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 labor. Delhi Metro which is part of MRTS (Mass Rapid Transport
System) is an economically viable, time saving, environment friendly mode of transport for the
most populous city of India.
The demand supply analysis shows that in the future Delhi Metro will be a monopoly.
The analysis shows that the break even will be achieved in the year 2028.
The commuter travel time saved over the period will increase in comparison with other
modes of transport.
The common wealth games scheduled in 2010 will increase the ridership thus giving a
boost to the total revenue.
References
http://economictimes.indiatimes.com/articleshowarchive.cms?msid=2929040
http://delhiplanning.nic.in
http://www.delhigovt.nic.in
http://www.delhimetrorail.com
http://www.niua.org
http://web.iitd.ac.in
http://www.nctr.usf.edu
http://mpra.ub.uni-muenchen.de
Page | 15