Economics

To what extent has introducing

the metro system affected the
development of Delhi?
Word Count: 3668

Session: May 2014

School Code: 002227
Candidate Name: Gottumukkala Sanjit Varma
Candidate Number: 002227-0011
IB Subject of Essay: Economics
Supervisor Name: Ms. Anjali Sharma

Gottumukkala Sanjit Varma

2014 Page 1

The Shri Ram School

002227-0011

May

Abstract
When I moved to Delhi with my family from Singapore there was one thing that
made me think a lot. The metro in Singapore was such a normal thing in our lives
back there so it was difficult for me to realize why so much importance was given
to it in Delhi. I did realize that the metro has helped the development of Delhi. But
I never understood to what extent it did. With a desire to address this I decided my
research question- To what extent has introducing the metro system affected the
development of Delhi?
Means of Primary and Secondary research were carried out for analysis. I
interviewed several stake holders as part of my primary research. Commuters
could give personalized opinions of the metro. Questions were asked to
shopkeepers, asking them if the level of footfalls had increased since the metros
introduction. Taxi and bus drivers were interviewed to learn about how the metro
had impacted their income. Environmentalists and policemen were interviewed to
learn about the metros social impact.
As secondary sources, I referred to the IB Economics Course Companion (which
was used to keep the discussion relevant to the syllabus) as well as editorial articles
online, which were used for collecting statistical data as well to learn from the
arguments of somebody who expresses an opinion.
Summary of Conclusion
From my research I found that the metro didnt just help Delhiites convenience of
transport, but it also helped create several jobs, save money and time, improve
incomes and much more. But with these benefits came some costs: the high capital
expenditure of developing a metro system and the social impact on the project
affected (displaced) people that negate some of the benefits.

[287 words]

Gottumukkala Sanjit Varma

2014 Page 2

The Shri Ram School

002227-0011

May

CONTENTS PAGE
Page Description

Page Number

Title Page

Abstract

Contents Page

Introduction

Research

Conclusion

18

Bibliography

20

Appendix

21

Gottumukkala Sanjit Varma

2014 Page 3

The Shri Ram School

002227-0011

May

Introduction
India as a country has been experiencing rapid growth in the 21st century. Such
future growth is likely to come from the industrial and service sectors. Because
most economics activities of these sectors are carried out in urban cities like Delhi,
the state of the urban region is crucial to the future growth of India. Indias urban
population is said to be around 30% of the total population. Many are predicting
that Indias urban population could grow to about 473 million in 2021 and 820
million by 2051, as against only 285 million in 2001 . Therefore, it is imperative
that cities rapidly develop and modernize to cope with the increasing urban
population.
The Indian Government launched the Jawaharlal Nehru National Urban Renewal
Mission (JnNURM) in 2005 in order to bring about comprehensive improvements
in urban infrastructure.1 The aim was to fast track development of cities
(particularly Delhi). The focus was to be on improvements in efficiency in urban
infrastructure and service delivery mechanisms.2
Delhi is a metropolitan region that includes the national capital city, New Delhi. It
India's second-most-populous city after Mumbai, and is also the biggest city areawise. With a population of over 16 million as of 2013,3 Delhi has grown
significantly due in part to the rapid urbanization and evolution of industries like
the textile, Information Technology and jewelry industries. But one of the key
factors of development which has been overlooked by many is the introduction of
the metro system in 2002 which acted as a catalyst in the development of Delhi in
the last decade. Introducing the metro was a significant step to help the city cope
with the movement of ever-increasing population driven by economic growth.

1 Page 1; http://urbanindia.nic.in/policies/TransportPolicy.pdf
2 Page 5; http://jnnurm.nic.in/wp-content/uploads/2011/01/PMSpeechOverviewE.pdf
3 http://articles.economictimes.indiatimes.com/2013-06-11/news/39899448_1_population-literacyrate-cent-growth

Gottumukkala Sanjit Varma

2014 Page 4

The Shri Ram School

002227-0011

May

After many years of research and investigation of issues related to technology,

route alignment and government jurisdiction, the Delhi Development Authority
and Urban Arts Commission, in 1984 proposed for a modern transportation system 4
that would help appease the commuting crisis within the capital city. After
problems were beginning to reach their peak in the transport industry, the
government decided to set up a company called the Delhi Metro Rail Corporation
(DMRC) in 1995.5 And finally the inception of the Delhi Metro began on the
Christmas Eve of 2002.6
Apart from the improvements in the quality and availability of urban
transportation, the Delhi Metro has helped in developing the economy of the city
as a whole. Some obvious improvements include a significant rise in the Gross
Domestic Product (GDP), a reduction in traffic congestion and a drop in the
pollution levels caused by gas emissions from private vehicles. But there are many
more improvements that the metro has brought to Delhi that have helped
development.
As such, this investigation To what extent has introducing the metro system
affected the development of Delhi? developed out of my interest in exploring
how significant the metro has been to improving living conditions and other
aspects of development within the capital city.

4 Delhi Metro Rail Corporation Limited, Annual Report 2011-12

5 http://www.delhimetrorail.com/about_us.aspx
6 http://www.siliconindia.com/shownews/Vajpayee_flags_off_Delhi_metro_rail-nid-18026-cid-Top.html
Gottumukkala Sanjit Varma
2014 Page 5

The Shri Ram School

002227-0011

May

Research
THE EFFECT OF THE METRO ON ECONOMIC
DEVELOPMENT IN DELHI
What is Economic Development?
Economic Development is a branch of economics that focuses on improving the
economies of developing countries.7 Unlike Economic Growth- which is a
narrower concept focusing mainly on the increase in the economys GDP,
Economic Development is much broader as it considers several other aspects that
include the development of environmental sustainability, health, safety, literacy and
human capital. In his 1983 journal Development: Which way now? famous
economist, Amartya Sen implied that Economic Growth is one aspect of Economic
Development.8 Hence, Economic Growth shall also be discussed further on in this
essay.

The Benefits
Introducing the metro had several immediate benefits such as:7 http://www.investopedia.com/terms/d/development-economics.asp
8 The Economic Journal Volume 93, December 1983
Gottumukkala Sanjit Varma
2014 Page 6

The Shri Ram School

002227-0011

May

Provides a relief from the heavy traffic congestion

Saving in travel time
Reduction in Pollution
More jobs created directly and indirectly

However it is important to realize that there are many other beneficial impacts.
Each of which will be discussed in detail. The benefits of the metros introduction
are important to consider because the significance of it in the bigger picture is yet
to be recognized.

Reduction in Pollution
Over the last decade since the metros introduction, air pollution levels were
recorded to have dropped significantly according to a HUDA (Haryana Urban
Development Authority) official who was interviewed personally. When plans
were made to install the metro, improvement in environmental conditions was one
of the key objectives. Despite the reduction in Air pollution, Land Pollution has
increasingly become a greater concern as crowded areas such as the metro stations
tend to get polluted to a great extent. However the reduction of air pollution
outweighs the increase in Land Pollution (though it should be cut down as well).
Hence, according to the Genuine Progress Indicator (An indicator that measures if
growth has led to an increase in social welfare) 9, the reduction in pollution is an
aspect of economic development as it is a means of measuring social welfare. So
the metro has contributed to development in the city through reduction in air
pollution.

Creation of Jobs
The metros introduction directly helped create several jobs such as operating the
systems and providing customer care for the long run. In the short run, those
involved in construction of the tracks and stations were also benefited by the
income from their jobs. Today as many as 7000 people are directly employed by
9 http://rprogress.org/sustainability_indicators/genuine_progress_indicator.htm
Gottumukkala Sanjit Varma
2014 Page 7

The Shri Ram School

002227-0011

May

the Delhi Metro.10 This has helped increase GDP and hence led to economic
growth. However, the growth does not just stop there. With increasing convenience
of transport, several firms have begun to set up more offices closer to the metro
stations. With the convenience of transport ameliorating commuters transport
problems, jobs in these offices closer to the metro stations have become more
appealing. So setting up offices close to the metro system has increased
employment as well.
During a visit to the Sikanderpur metro station (located in Gurgaon), I observed
that after getting out of the metro station several commuters were looking for
secondary means of transport for last mile connectivity. Some means include- autorickshaws, cycle-rickshaws, taxis and buses. Auto-rickshaw drivers were
interviewed in order to learn about how the metro had affected people of their
occupation. Several of them suggested that finding work here was the easiest
during the rush hours, when there would be an abundance of customers willing to
pay high prices. When asked if price discrimination11 was possible, the Autorickshaw drivers suggested that it is not easy with so many other drivers as
competition. But the taxi drivers felt that first degree priced discrimination is
common among taxi-drivers.
I had learnt that the major employers also provide a free shuttle bus to and from the
Sikanderpur metro station and a business district (called Cyber City) where
majority of commuters to Sikanderpur station work.
By the introduction of the metro, we can see that several jobs are being created and
the economy indirectly benefits as a whole.

The Multiplier Effect

Jobs would be created by the metro not only directly but also indirectly via the
multiplier effect. The governments expenditure in building the metro (Phase 1 cost
103,500 million; Phase 2 cost 86,760 Million; Gurgaon extension cost 16,010
10 Delhi Metro Rail Corporation Limited, Annual Report 2011-12

11 Price Discrimination is the action of selling the same product at different prices to different buyers,
in order to maximize sales and profits.

Gottumukkala Sanjit Varma

2014 Page 8

The Shri Ram School

002227-0011

May

Million; Noida Extension cost 8,400 Million; Badarpur extension cost 40,120
Million and the Airport line cost 30,760 Million) has helped kick start a positive
multiplier effect. The total amount of money invested was 285,550 million.12 The
incomes of people directly involved in the construction of the metro would
increase. And then when they spend part of their income on other goods and
services, the income levels of those producing these goods and services would
increase. If the MPC (i.e. Marginal Propensity to Consume) of people living in
Delhi is 0.9, the metro workers would increase their spending by 0.9 times. Their
spending would then go on to become the income of those providing other goods
and services. The provider of these goods and services would again save a part of
their income (10%) and their expenditure would go on to help create jobs and raise
income levels of some other industry/sector. The multiplier process would keep on
raising income levels and jobs till the economy reaches equilibrium- which is when
the injections become equal to the leakages. An eventual increase in income levels
would amount to 10 times the initial government expenditure.
Table 1
Builders
Industry 1
Industry 2
Industry 3
Industry 4
Industry 5
* The figures above are given in

Income
285.5500
256.9950
231.2955
208.1660
187.3494

Spending
285.55
256.9950
231.2955
208.1660
187.3494
168.6144

Saving
28.5550
25.6995
23.1295
20.8166
18.7350

billions.

*the amount of savings and expenditure may vary from person to person. The table above is just to serve as an example.

12 http://urbanindia.nic.in/programme/ut/Delhi_MRTS.pdf
Gottumukkala Sanjit Varma
2014 Page 9

The Shri Ram School

002227-0011

May

Figure 1: Multiplier Effect

As seen in the diagram above, the government is shown to be adding to its initial
expenditure. The additional investment into the economy is for the building of the
metro. As a result, the savings curve extends to the right until it reaches the line of
Initial Govt. Expenditure+ Expenditure on metro. At this point, it can be seen that
with an increase in government expenditure (shown on the Y-axis), the income
levels (shown on the X-axis) in the economy have increased much more
significantly.

Stakeholders - Commuters
During a visit to a busy metro station, several commuters were interviewed and
were given questionnaires. The questionnaire form is given in Appendix.
A total of 58 commuters were kind enough to answer the questionnaire above. The
results of the questionnaire are given below:

Q.1.What was your means to commute before the metro started?

Gottumukkala Sanjit Varma
2014 Page 10

The Shri Ram School

002227-0011

May

Chart 1

28

10

The commuter responses to this question indicate a vast majority (approximately

50%) of the metro commuters shifted from public buses to the metro. The
remaining 50% of the metro commuters are drawn from a good mix of other modes
of private transport. The response to this question indicates a good measure of how
the traffic congestion would have eased on the roads by prompting commuters to
shift from private vehicles (bikes, cars) to metro. It is interesting to note that the
key component of this end is that every other commuter would like to take

Q.2.How often do you travel by the metro?

Gottumukkala Sanjit Varma

2014 Page 11

The Shri Ram School

002227-0011

May

Chart 2

13
Daily
8

Weekly
37

Irregularly

From this sample survey it is evident that more than 60% of the commuters use the
metro everyday while approximately a third of the commuters use the system
irregularly.

Q.3.Where all do you travel?

This question had qualitative responses and the data could not be compiled as a set
of numbers. Since the Gurgaon line connects Delhi to Gurgaon and is the only
metro line along this corridor all the respondents originated from several locations
of Delhi with some taking the system from Noida

Q.4. How much time do you save on average (per day) by travelling by the
metro?

Gottumukkala Sanjit Varma

2014 Page 12

The Shri Ram School

002227-0011

May

Chart 3

18

19

Less Than 30
min
30 min to 60
min
More than 60
min

15

No Difference

The responses to this survey questions shows that nearly two-thirds of the
respondents saved time by using the metro although the saving differed across the
participants. While nearly 57% of the respondents saved less than an hour about
10% of the respondents saved more than hour each day by taking the metro.
Q.5. How much money are you saving by using the metro per day?
Chart 4

20

19

19

This question is a direct measure of the financial benefits the commuters are
realizing by using the metro against other modes of transport to commute.
Although a third of the respondents indicate no cost savings, the remaining twothirds are able to save a significant sum of money each day which enhances their
monthly disposable income.
Gottumukkala Sanjit Varma
2014 Page 13

The Shri Ram School

002227-0011

May

Q.6.What is your annual income?

Chart 5

4 2
<2 lakhs
2-10 lakhs

52

>10 lakhs

Vast majority of the respondents who participated in this survey (90%) belong to
the lower-middle income group who are required to pay income tax. It is important
also to note that only about 7% of the upper-middle income group forms the
commuter mix using the metro.
The Question 7 has four parts and was designed to gauge what intangibles drive
the commuter choice that lead them to choose the metro as opposed to other modes
of transport.
Q.7a. To what extent do you find the metro affordable?
Chart 6

2
22

Highly
Moderately

34

Gottumukkala Sanjit Varma

2014 Page 14

Lowly

The Shri Ram School

002227-0011

May

This question is a measure of whether price is a factor that could have affected the
number of commuters using the metro. It is interesting to learn from this survey
that only 2% of the respondents find that the metro is unaffordable. On close
scrutiny it was revealed that both these respondents belong to a low income group.

Q.7b. To what extent do you find the metro comfortable?

Chart 7

11
19

Highly
Moderately
Lowly

28

Apart from the time and economic benefits, a major driver for commuters to
choose the metro is its comfort. About 80% of the respondents find the metro
comfortable.

Gottumukkala Sanjit Varma

2014 Page 15

The Shri Ram School

002227-0011

May

Q.7c. To what extent do you find the metro reliable?

Chart 8

3
Always

19

Often
Rarely

36

One of the key factors in the success of the metro systems is the reliability and ontime performance so that people can plan their time effectively. The responses to
this question clearly indicate that about 95% of the respondents find the metro
system reliable.
Q.7d. To what extent do you find the metro Safe?
Chart 9

4
22

32

High
Moderate
Low

Gottumukkala Sanjit Varma

2014 Page 16

The Shri Ram School

002227-0011

May

With Indian roads regarded as one of the most unsafe in the world, a strong factor
that drives commuters from road travel to metro is the safety of this mode of travel.
The survey findings indicate that more than 90% of the respondents feel the metro
system is safe.

Stakeholders - Residents and Shopkeepers

The other group of people who are affected by the metro are the shopkeepers in the
vicinity of a metro station. I spoke to about 10 shop keepers in the vicinity of the
Sikanderpur and Guru Dronacharya metro stations to elicit their views on the
impact of the metro. All of them have experienced enhanced business activity after
the metro operations began. They attribute the spurt in business due to greater
visibility and the convenience of access of the business premises from the metro.
Some shopkeepers who own their premises also reported that the capital values of
the shop spaces have gone manifold since the metro started. While some
shopkeepers who are leasing the premises did say that they pay more rentals due to
the demand.
Some residents of the locality near the metro station I spoke to also confirmed that
both the demand and the rental values of the residential properties have also gone
up substantially with the inception of the metro.

Reduction in Death toll caused by Road Accidents

According to the World Health Organization, the death rate for road accidents is
18.9 per 100000 people and India accounts for 10% of the total road crash fatalities
worldwide (Delhi has the most accidents in India).13 As per the NCRB (National
Crime Records Bureau), 136834 people died in India in the year 2011. This
translates into 1 death every five minutes on Indian roads. It has been reported that
more deaths occur on road in India than in any other country in the world. With the
construction of the metro, the number of road accidents is likely to reduce as many
13 http://www.livemint.com/Opinion/D8iIIQDQkx8RGRdzros9tI/Taking-note-of-road-deaths-in-India.html
Gottumukkala Sanjit Varma
2014 Page 17

The Shri Ram School

002227-0011

May

would travel by metro. This theory was further enhanced when interviewing a
senior traffic-policeman who suggested that the number of road accidents has
decreased significantly due to a decrease in the number of vehicles on road.

External Costs of the project

The metro project in Delhi involved a huge amount of expenditure. Hence, there
was a massive opportunity cost involved. One may wonder if that amount of
money could have been more effectively spent on building/widening of roads and
building new flyovers.
The construction of the metro project also led to cutting down of a myriad of trees.
Delhi has witnessed a massive destruction of the green cover majorly due to the
construction/expansion of the metro. For the third phase of the metro project, 6000
trees have already been felled out of the 11556 allowed. The 65 km long Phase-1
involved a felling of 13000 trees while the 125 km long Phase-2 involved the
felling of 21000 trees.14 The permission for the felling of trees was granted on the
condition that 10 saplings would have to be planted for each tree felled. But as of
now, the compensatory plantation is yet to be done. Mr. Raj Mohan, a resident of
Sarvapriya Vihar, New Delhi revealed that almost an entire park of the colony was
demolished for the construction of the metro project and around 60-70 trees were
cut down as a result.
Another negative effect of the building of the metro, which can be said to be
transitory, was that the traffic was diverted and led to high congestion and chaos. A
local traffic police officer in charge of a major road in the Gurgaon region that is
experiencing the metro construction was interviewed. He revealed that the
congestion had more than doubled the time to cross the particular stretch. So it can
be seen that in the short run, there could be a loss of productivity as valuable time
of commuters on the road would be lost due to increased traffic caused by the
metro construction. However, in the long run this may be compensated with the
metro finally functioning in these lines.
14 http://www.hindustantimes.com/india-news/newdelhi/delhi-losing-greens-forest-dept-clueless-overrecovery/article1-1034456.aspx

Gottumukkala Sanjit Varma

2014 Page 18

The Shri Ram School

002227-0011

May

Conclusion
From the foregoing research and survey investigations, I found that the inception
of the metro didnt just help Delhiites with greater convenience of transport, but it
also imparted a host of economic benefits by creating several jobs, saving money
and time, improved incomes and much more. From my research investigation I
conclude that a metro system is:
Sustainable - Requires 1/5th energy per passenger km compared to road-based
system
Eco Friendly - Mitigates air pollution in the city and diminishes the traffic noise
level
Eases Congestion - Occupies no road space if underground and only about 2 meter
width of the road if elevated
Economic activity Leads to better land use planning, attracts investments and
creates jobs directly and indirectly
From the sample survey results and interviews with the project affected
stakeholders, I conclude the following:
- The inception of metro helped in commuters migrating from private
transport to more efficient metro (public transport) thereby easing traffic
congestion
- Two-thirds of the commuters save significant time by taking the metro for
their travel
- Two-thirds of the commuters also reported substantial cost saving each day
by using the metro
- Ninety percent of the metro commuters in the sample survey are in the 2-10
lakhs annual income bracket. This indicates that high-income groups are still
not making the switch to public transport

Gottumukkala Sanjit Varma

2014 Page 19

The Shri Ram School

002227-0011

May

- The commuters who participated in the survey rated metro very highly as
being affordable, reliable, safe and very comfortable. The above findings
help in showing the positive impacts of the metro.
However, as the research question suggests To what extent has introducing the
metro system affected the development of Delhi? it is essential that we look at
the impact of the metro with a holistic approach. Therefore, some negative effects
were also found.
The amount of resources used to construct the metro was humongous. It is
estimated that approximately 285,550 million was spent on the construction of
the Delhi metro. For the first three phases, it was found that around 40,000 trees
were cut down to enable the construction of the metro system. Government
inefficiency meant that they have mostly failed to live up to the condition of
planting 10 trees for every tree cut. One also needs to bear in mind that
alternatively, a high capacity bus corridor system could have built at one tenth the
cost of a metro. It can be argued that the economic resources could have been more
effectively used. Again it is debatable whether a high capacity bus system would
have matched the standards and the effectiveness of the metro. When interviewing
commuters in a crowded metro station, several of them voiced their frustration of
having to find a secondary means of transport after disembarking from the metro in
order to reach their destination.
Therefore, looking at the metro project holistically, it can be seen that it aided the
economic development of the region but there was a massive opportunity cost
involved in its construction.
[Word Count: 3396]

Gottumukkala Sanjit Varma

2014 Page 20

The Shri Ram School

002227-0011

May

Bibliography
Websites:
1. "Taking Note of Road Deaths in India." Http://www.livemint.com/. N.p., n.d.

2.

3.
4.

5.
6.

7.

8.

Web. 21 Dec. 2013.

<http://www.livemint.com/Opinion/D8iIIQDQkx8RGRdzros9tI/Taking-note-ofroad-deaths-in-India.html>.
"Taking Note of Road Deaths in India." Http://www.livemint.com/. N.p., n.d.
Web. 12 Dec. 2013.
<http://www.livemint.com/Opinion/D8iIIQDQkx8RGRdzros9tI/Taking-note-ofroad-deaths-in-India.html>.
"Delhi MRTS Projects." Urbanindia.nic.in. N.p., n.d. Web. 4 Nov. 2013.
<http://urbanindia.nic.in/programme/ut/Delhi_MRTS.pdf>.
Genuine Progress Indicator." Redefining Progress -. N.p., n.d. Web. 05 Nov.
2013.
<http://rprogress.org/sustainability_indicators/genuine_progress_indicator.ht
m>.
"Development Economics." Investopedia. N.p., n.d. Web. 9 Dec. 2013.
<http://www.investopedia.com/terms/d/development-economics.asp>.
Joshi, Varsha. "21% Increase in Delhi Population." The Economic Times. N.p.,
11 June 2013. Web. 17 Nov. 2013.
<http://articles.economictimes.indiatimes.com/2013-0611/news/39899448_1_population-literacy-rate-cent-growth>.
Page5;
http://jnnurm.nic.in/wpcontent/uploads/2011/01/PMSpeechOverviewE.pdf
Vajpayee Flags off Delhi Metro Rail." Vajpayee Flags off Delhi Metro Rail.
N.p., 24 Dec. 2002. Web. 23 Nov. 2013.
<http://www.siliconindia.com/shownews/Vajpayee_flags_off_Delhi_metro_railnid-18026-cid-Top.html>.

Books/ Documents:
1. Delhi Metro Rail Corporation Limited, Annual Report 2011-12
2. The Economic Journal Volume 93, December 1983

Gottumukkala Sanjit Varma

2014 Page 21

The Shri Ram School

002227-0011

May

Appendix

Gottumukkala Sanjit Varma

2014 Page 22

The Shri Ram School

002227-0011

May

Gottumukkala Sanjit Varma

2014 Page 23

The Shri Ram School

002227-0011

May

Gottumukkala Sanjit Varma

2014 Page 24

The Shri Ram School

002227-0011

May

Gottumukkala Sanjit Varma

2014 Page 25

The Shri Ram School

002227-0011

May

Gottumukkala Sanjit Varma

2014 Page 26

The Shri Ram School

002227-0011

May

A
popular metro station in the Gurgaon region
Auto Rickshaws

Gottumukkala Sanjit Varma

2014 Page 27

parked outside a metro station

The Shri Ram School

002227-0011

May

Amardeep was kind enough to share his thoughts on the effects the metro had on
the lives of auto drivers.

Gottumukkala Sanjit Varma

2014 Page 28

The Shri Ram School

002227-0011

May

Several offices are now being built close to metro stations

Gottumukkala Sanjit Varma

2014 Page 29

The Shri Ram School

002227-0011

May

Gottumukkala Sanjit Varma

2014 Page 30

The Shri Ram School

002227-0011

May

Gottumukkala Sanjit Varma

2014 Page 31

The Shri Ram School

002227-0011

May

Gottumukkala Sanjit Varma

2014 Page 32

The Shri Ram School

002227-0011

May