metadata: authors: 0: author: Cropper, Maureen
1: author: Bhattacharya, Soma
count: India
docna: 0: docna: Public transport subsidies and affordability
            in Mumbai, India
docty: Policy Research Working Paper
subtopic: City to City Alliances,Disability,National Urban Development Policies & Strategies,Transport in Urban Areas,Regional Urban Development,Urban Economics,Services & Transfers to Poor,Railways Transport,Urban Transport,Economic Assistance,Access of Poor to Social Services,Urban Economic Development,Transport Services,Urban Communities
teratopic: Urban Development,Transport
abstracts: cdata!: This paper describes the role of public
            transport and the nature and incidence of transport
            subsidies in Mumbai, India.  Mumbai has an extensive rail
            and bus network, and public transport is used for over 75
            percent of all motorized trips in Greater Mumbai.  Both rail
            and bus fares in Mumbai are subsidized:  BEST, which
            operates public buses in Mumbai, is also an electric
            utility, and subsidizes bus fares from electricity revenues.
            We analyze the incidence of these subsidies, and their
            effect on mode choice, using data from a survey of
            households in Greater Mumbai.  In Mumbai, as in many cities,
            the middle class is more likely to use public transport for
            travel than the poor.  The poor, however, also use public
            transit, and their expenditure on public transit
            constitutes, on average, a larger share of their income than
            it does for the middle class.  It is, therefore, the case
            that the poor benefit from transit subsidies in Mumbai, as
            well as the middle and upper-middle classes; however, the
            poorest 27 percent of the population receives only 19
            percent of bus subsidies and 15.5 percent of rail subsidies.
            Indeed, 26 percent of the lowest income households surveyed
            do not use rail, while 10 percent do not use bus, implying
            that they receive no transit subsidies. Expenditure on
            transport accounts for 16 percent of income in the lowest
            income category (<5000 Rs./month), with 10 percent of
            income, on average, spent on bus and rail fares. This
            percentage, however, is not evenly distributed: it is much
            higher than 10 percent for households in which workers take
            the bus or train to work, and lower for households in which
            the main earner walks to work.  Even in these households,
            however, 12.5 percent of income is spent on transportation.
            Expenditure on public transport would be even higher if bus
            fares in Mumbai were not subsidized.  In 2005-2006,
            transport revenues of BEST fell below total costs by 30
            percent and below operating costs by 20 percent. Rail fares,
            which are much lower than bus fares per km traveled,
            officially covered operating costs and almost covered
            depreciation expenses.
geo_reg_key: 80475,80451,80470
repnme: repnme: Public transport subsidies and
            affordability in Mumbai, India
display_title: Public transport subsidies and
            affordability in Mumbai, India
listing_relative_url: /research/2007/11/8683737/public-transport-subsidies-affordability-mumbai-india
topicv3: Transport Subsidies m1326050 1630,Transport m1326661 135,Urban Development m1327371 699,Mass Transit m1327372 1726,Railways m1327400 166
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Urban Development,Transport
no_of_pages: 28
author_keys: 0: author_key: NA
1: author_key: NA
model_extractions: WPS4395 Policy ReseaRch WoRking PaPeR 4395 Public Transport Subsidies and Affordability in Mumbai, India _Maureen Cropper Soma Bhattacharya_ The World Bank Development Research Group Sustainable Rural and Urban Development Team November 2007
Policy ReseaRch WoRking PaPeR 4395

# **Abstract**

This paper describes the role of public transport and the nature and incidence of transport subsidies in Mumbai, India. Mumbai has an extensive rail and bus network, and public transport is used for over 75 percent of all motorized trips in Greater Mumbai. Both rail and bus fares in Mumbai are subsidized: BEST, which operates public buses in Mumbai, is also an electric utility, and subsidizes bus fares from electricity revenues. We analyze the incidence of these subsidies, and their effect on mode choice, using data from a survey of households in Greater Mumbai. In Mumbai, as in many cities, the middle class is more likely to use public transport for travel than the poor. The poor, however, also use public transit, and their expenditure on public transit constitutes, on average, a larger share of their income than it does for the middle class. It is, therefore, the case that the poor benefit from transit subsidies in Mumbai, as well as the middle and upper-middle classes; however, the poorest 27 percent of the population receives only 19 percent of bus subsidies and 15.5 percent of rail subsidies. Indeed, 26 percent of the lowest income households surveyed do not use rail, while 10 percent do not use bus, implying that they receive no transit subsidies.

Expenditure on transport accounts for 16 percent of income in the lowest income category (<5000 Rs./ month), with 10 percent of income, on average, spent on bus and rail fares. This percentage, however, is not evenly distributed: it is much higher than 10 percent for households in which workers take the bus or train to work, and lower for households in which the main earner walks to work. Even in these households, however, 12.5 percent of income is spent on transportation.

Expenditure on public transport would be even higher if bus fares in Mumbai were not subsidized. In 20052006, transport revenues of BEST fell below total costs by 30 percent and below operating costs by 20 percent. Rail fares, which are much lower than bus fares per km traveled, officially covered operating costs and almost covered depreciation expenses.

This paper—a product of the Sustainable Rural and Urban Development Team, Development Research Group—is part of a larger effort in the department to examine the consequences of economic and social policies. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The author may be contacted at mcropper@worldbank. org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **PUBLIC TRANSPORT SUBSIDIES AND AFFORDABILITY IN MUMBAI, INDIA**

## **Maureen Cropper**<sup>∗</sup> **Soma Bhattacharya**

> ∗ The findings, interpretations, and views expressed in this paper are entirely those of the authors.  They do not necessarily represent the views of the World Bank, its Executive Directors or the countries they represent.
# **PUBLIC TRANSPORT SUBSIDIES AND AFFORDABILITY IN MUMBAI, INDIA**

## **I. Introduction**

This paper describes the role of public transport and the nature and incidence of transport subsidies in Mumbai, India. Mumbai has an extensive rail and bus system, and public transport is used for over 75% of all motorized trips in Greater Mumbai. Both rail and bus fares in Mumbai are subsidized: BEST, which operates public buses in Mumbai, also is also an electric utility, and subsidizes bus fares from electricity revenues. The Central and Western railways (part of Indian Railways) operate rail services in suburban Mumbai. Although rail fares cover operating costs, they do not fully cover capital costs; hence there is an implicit supply-side subsidy to rail fares in Mumbai.

We analyze the incidence of these subsidies, and their effect on mode choice, using data from a survey of households in Greater Mumbai conducted in the winter of 2003-2004 (Baker et al., 2005). In Mumbai, as in many other cities, the middle class is more likely to use public transport for travel than the poor. The poor, however, also use public transit, and their expenditure on public transit constitutes, on average, a larger share of their income than it does for the middle class. It is, therefore, the case that the poor benefit from transit subsidies in Mumbai, as well as the middle and upper-middle classes; however, the poorest 27% of the population receives only 19% of bus subsidies and 15.5% of rail subsidies.<sup>1</sup> Indeed, 26% of the lowest income households surveyed do not use rail, while 10% do not use bus, implying that they receive no transit subsidies.

The remainder of the paper is organized as follows. The second section presents an overview of Greater Mumbai and its rail and bus services. Section 3 describes the travel patterns of households in Greater Mumbai. In section 4 we present information on household expenditure on transport and discuss the structure of rail and bus fares. Section 5 discusses the magnitude of transit subsidies and section 6 their incidence and the impact on mode choice. Section VII concludes.

## **II. Background**

Greater Mumbai, the focus of this study, constitutes the core of the Mumbai Metropolitan Region (MMR). Greater Mumbai, with a population of 11.9 million people in 2001, occupies 468 sq. km. This makes Mumbai one of the most densely populated cities in the world. During the decade 1991-2001 the population of Greater Mumbai grew at a rate of approximately 1.8 percent annually—less than the national average. This reflects a declining rate of migration into the city and the more rapid growth of the Mumbai Metropolitan Region (MMR), one of the world’s largest with a population in 2001 of 18 million. The city faces enormous challenges with shortages of land, housing,

> 1 In Baker et al. (2005) the lowest income group studied consists of households earning less than Rs. 5,000 per month.  They constitute 26.6% of the sample of 5,000 households surveyed.

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Mumbai (the Western Railway (WR) and Central Railway (CR))<sup>3</sup> that provide suburban commuter rail services. The suburban rail network carries about 6.4 million passengers every day. Public buses, which are operated by the Brihanmumbai Electric Supply and Transport Undertaking (BEST), carry over 4 million passengers each day.

# **A. Bus Service in Mumbai**

Public buses in Mumbai are run by BEST, which also supplies electricity to parts of the city.<sup>4</sup> In 2005-06, BEST’s fleet of 3,400 buses carried approximately 4.1 million passengers per day over 354 separate routes.<sup>5</sup> BEST buses run every 5 to 30 minutes. The average speed of buses on ordinary routes is 12 km/hr, but is 16 km/hr on limited routes, with fewer stops. Bus capacity varies from 74 to 90 passengers. Heavy delays, especially on feeder routes to suburban railway stations, result in waiting times up to 30 minutes, and force many commuters to walk 1.5 to 2 km to their destinations (Shrivastava and Dhingra, 2006).

As part of the Mumbai Urban Transportation Project, BEST replaced 644 used or over-aged buses with newer EURO III compliant, single decker buses<sup>6</sup> . Older buses were upgraded to EURO II standards. BEST also procured 600 CNG buses and 30 low floor buses to accommodate the disabled. These procurements were part of BEST’s response to a Bombay High Court order, issued in December 2003, to phase out buses that were 15 years or older by January 2006. This meant that BEST had to replace 1,300 buses by retro-fitting 250 buses with Euro-II engines during 2004-05, 300 buses in 2005-06, 350 during 2006-07 and 400 buses in 2007-08, incurring an additional cost of about Rs. 3 billion. A contactless prepaid smart card system for paying fares was introduced in 694 buses. New bus terminals, stations and depots as well as some dedicated bus lanes were also introduced.

Details of BEST’s operations, for selected years, appear in Table 1. With fleet strength increasing by half over the last fifteen years, the occupancy ratio has decreased from 97 percent in 1990-91 to 58 percent in 2005-06. Fleet utilization has increased by about 10 percent over the same period. As a result of phasing out of buses older than 15 years and replacing older buses with CNG or Euro II and Euro III compliant ones, depreciation costs have more than doubled in the last five years.

It is clear from Table 1 that BEST buses operate at a loss: total revenues fall short of operating costs plus depreciation (total costs). In fact, revenues fall short of operating

> 3 The Harbor Line which connects Greater Mumbai to the Navi Mumbai area is considered a part of the Central Railway.

> 4 BEST is a state undertaking that is overseen by the Municipal Corporation of Greater Mumbai (MCGM) but operates autonomously.

> 5 Recently, BEST has introduced air-conditioned buses and low floor buses that are equipped with facilities to accommodate the disabled.  A complete fare schedule appears in the Appendix.

> 6 These buses were funded by a World Bank loan of Rs. 1.18 billion and a Rs. 70 million BEST counterpart fund.

4
costs. The shortfall is made up in part from electricity revenues.<sup>7</sup> In 2005-2006 fares would have had to be raised by 29.6% for BEST transport operations to break even.

**Table 1. Operating Characteristics, Revenues and Costs of BEST Buses**

||**1990-91**|**1995-96**|**2000-01**|**2005-06**|
|---|---|---|---|---|
|Fleet Strength|2,143|3,057|3,432|3,391|
|Annual Bus Km (Million)|163.4|230.1|244.1|240.3|
|Km/Bus/Day|208.9|206.2|212.0|214.1|
|Fleet Utilisation (%)|82.0|94.1|91.9|90.7|
|Occupancy Ratio (%)|97.1|87.2|55.1|58.3|
|Employees/Bus|14.1|12.6|12.0|11.2|
|Accidents Per 1,000 Km|214|67|45|35|
|Km per Liter (HSD)|3.1|3.0|3.0|3.3|
|Buses Purchased|270|89|185|-|
|Total Earnings (Rs. Million)|1,792.2|4,142.5|6,961.0|8,476.6|
|Earnings/km. (Rs.)|11.0|18.0|28.5|35.3|
|Total Cost (Rs. Million)|2,280.7|4,910.7|8,697.7|10,982.3|
|Cost per km (Rs.)|14.0|21.3|35.6|45.7|
|Profit/Loss (Rs. Million)|-488.6|-768.3|-1,736.7|-2,505.7|
|Depreciation (Rs. Million)|235.4|237.0|313.5|768.5|

Source: Ramasaamy (2006)

# **B. Rail Service in Mumbai**

The suburban railway system in Mumbai is one of the most intensively utilized rail networks in the world. It carries over 6 million passengers daily in five corridors that are managed by two different subdivisions of Indian Railways—the Western Railway and the Central Railway. The services are spread over 303 km of tracks—149 km of mass transit tracks and 154 km of tracks that are shared with long distance trains.

Two of these corridors, operated by the Western Railway, run north from Churchgate terminus parallel to the west coast of the city and cover a route of about 60 km. These corridors, shown in orange and red in Figure 1, are popularly known as the Western Line. Two of the corridors operated by the Central Railway and popularly 7 In 2003-2004, 2004-2005 and 2005-2006, BEST earned a profit from electricity supply; however, the profit fell short of transport operating losses. See Table A.4 in the Appendix.

5
known as the Central Line are shown in green in Figure 1. The fifth corridor, also operated by the Central Railway, and known as the Harbor Line, appears in blue.

Train service runs from 4:00 am to 1:00 am at intervals of 3 minutes during peak hours and between 5 to 10 minutes during other hours of operation (except late at night, when the headway is about 20-30 minutes). There are also fast trains that do not stop at all stations. The suburban services are currently run by electrical multiple units (EMUs) which are operated using a 1500 Volt DC power supply using overhead centenary. The Western and Central Railways together operate about 2,067 daily one-way trips using 184 rakes (train sets) of 9-cars and 12-cars. The 12-car EMU rakes are utilized mostly during peak rush hours.

Passengers have an option of traveling in first-class or second-class compartments. Women and men travel in separate carriages. Due to high demand, there is serious overcrowding in second-class compartments, with as many as 5,000 passengers traveling per 9-car train during peak rush hours.<sup>8</sup> This can result in 14-16 standing passengers per square meter of floor space.

The two corridors of the Western Railway and three corridors of the Central Railway carried approximately 6.5 million passengers each day in 2004-2005 and 6.2 million in 2003-2004 (see Table 8).<sup>9</sup> Revenues and costs for suburban rail operations in Mumbai in 2005-2006 (the same period used for computing bus subsidies), appear in Table 3. According to official figures, suburban rail operations posted a loss of Rs. 123.8 million, implying a subsidy of 1.2% of fares.

**<u>Table 2.  Annual Passenger Volumes and Revenues on Mumbai Suburban Railways</u>**

|||**Wes**<br>|**tern R**<br>|Mum<br>**ailway**<br>|baiSuburb<br>**s**<br>|an Railway<br>|**Cent**<br>|**ral Rai**<br>|**lway**<br>||
|---|---|---|---|---|---|---|---|---|---|---|
|**Year**|**No. o**<br>_(i_|**f Passen**<br>_n Million_|**gers**<br>_s)_|**Lead**<br>_(in_|**Earnings**<br>_(Rs._|**No. of**<br>_(in _|**Passenge**<br>_Million)_|**rs**|**Lead**<br>_(in_|**Earnings**<br>_(Rs._|
||**Ist**<br>**Class**|**IInd**<br>**Class**|**Total**|_Km.)_|_Million)_|**Ist Class**|**IInd**<br>**Class**|**Total**|_Km.)_|_Million)_|
|2003-04|109|1,037|1,146|27.1|4,140|80|1,020|1,100|30|4,790|
|2004-05|112|1,043|1,155|29.1|4,270|80|1,080|1,160|30|5,070|

Source: Vivek Sahai (2006)

> 8 The peak rush hours are 7:00 AM –11:00 AM and 4:00 PM- 9:00 PM. http://www.mrvc.indianrail.gov.in/intr.htm

> 9 The figures in Table 2 apply to all the rail lines pictured in Figure 1.  These extend beyond Greater Mumbai to cover the entire Mumbai Metropolitan Region (MMR).

6
|**Table 3. Revenues And Costs, Mum**<br>(Million Rs.)|**bai Suburban Railways**<br>**2005-06**|
|---|---|
|Passenger Revenues|9936.7|
|Operational Expenses|8949.6|
|Depreciation|701.7|
|Interest onCapital|409.2|
|TotalCost (Million Rs.)|10060.5|

Source: S.K. Singh, Executive Director, Economics & Statistics, Ministry of Railways, India (personal communication).

# **III. Travel Patterns in Mumbai**

In Mumbai, as in other developing country cities, the journey to work constitutes the largest fraction of household trips in terms of distance traveled, accounting for approximately two-thirds of miles traveled (Takeuchi, Cropper and Bento, 2007). Table 4 describes the modal shares of workers in Mumbai, based on data in Baker et al. (2005). These data come from a random sample of 5,000 households in Greater Mumbai who were surveyed in the winter of 2003-2004. Commuting patterns are based on the usual commutes of the first and second principal earners in the household.<sup>10</sup> Table 4 describes the ‘main mode’ used on a typical commute trip. The main mode is defined to be the mode that takes the longest time, with the exception of “on foot” and “bicycle,” which are counted as the main mode only if they are the only mode used on the trip. Table 4 indicates that 45% of commuters walk to work, 22% rely on rail or rail+bus as their main mode, while 22% ride a bus to work—either as a main mode (14%) or to connect with rail.<sup>11</sup> The modal shares for private vehicles are much smaller—approximately 3% each for bicycle and car and 8.4% for two-wheelers.<sup>12</sup> Of commuters who take motorized transport to work, 70% take either rail or bus or both.

The respective modal shares are somewhat different for the poorest income group in the survey, defined as households with a monthly income below Rs. 5,000: 63% of the workers in these households walk to work, 6% ride a bicycle, 15% take the train (or train+bus) and 16% ride the bus (either alone or in conjunction with the train). However, of those workers who use motorized transport, 84% take either rail or bus or both.

As household income goes up, the modal shares of bus and motorcycle increase for short to medium commutes, while the share of trips made on foot declines. (See

> 10 For details on the sampling protocols and questionnaire used in the survey, see Baker et al. (2005).

> 11 In Table 6, these shares, based on travel diaries are, respectively, 46% walking, 21% rail and 15% bus. 12 The shares based on the travel diaries are 3.5% for bicycle, 3.2% for own car and 8.6% for own twowheeler.

7
Table 5.<sup>13</sup> ) Rail remains the choice for long distance commutes, especially for households with incomes between Rs. 7,500 and 20,000 per month: One-quarter of commuters in this income range report rail as their main commute mode. Indeed, it is commuters in the Rs. 7,500-20,000 income range who are the largest users of public transit. In the highest income category (Rs. 20,000 or more), the share of walking declines to 15% and is replaced by motorcycles and cars. For commuters in the highest income category, the modal shares are 20% for two-wheeler and 24% for car.

The modal share for bus is highest for commutes between 3 and 10 km. For motorcycles, the share is highest for trips of 5 km or less. The relationship between income and mode choice is what one would expect: The poor rely heavily on walking (61% for commuters in households earning less than Rs. 5000) but take rail for long distances (5 km or more) and bus for intermediate distances (3-10 km). Overall, the modal shares for rail and bus are 16% and 15% for the poor; however, these shares are higher in the suburbs than in zones 1-3 (see Annex Table A.1).

**Table 4.  Main Mode to** **<u>Work</u>**

|<br>**Transport Mode**|**T**<br>|**otal**<br>|**Incom**<br>|**e <Rs. 5k**<br>|
|---|---|---|---|---|
|<br>|**Freq.**|**Percent**|**Freq.**|**Percent**|
|On foot|2649|45.32|796|62.68|
|Bicycle|175|2.99|76|5.98|
|Rail|832|14.23|127|10.00|
|Public Bus|813|13.91|143|11.26|
|Rail + Bus|462|7.90|63|4.96|
|Auto-Rickshaw|101|1.73|16|1.26|
|Taxi|8|0.14|0|0.00|
|Own Two-Wheeler|488|8.35|10|0.79|
|Own Car|153|2.62|1|0.08|
|Other’s car|12|0.21|2|0.16|
|Other|152|2.60|36|2.83|
|**Total**|**5845**|**100.00**|**1270**|**100.00**|

Source: Authors’ calculations

> 13 In Table 5, “rail” refers to “rail” and “rail+bus.”  The samples used to construct Tables 4 and 5 differ slightly; hence modal shares differ slightly between the two tables.

8
**Table 5.  Main Mode to Work by Commute Distance and Income** <u>(% within distance/income category who take each mode)</u>

||**Distance**|**<5k**|**5k-7.5k**|**7.5k-10k**|**10k-20k**|**>20k**|**HH Avg.**|
|---|---|---|---|---|---|---|---|
||0-1km|84.6|80.1|83.2|61.1|40.6|77.4|
||1-2km|84.6|80.3|68.1|60.2|36.7|72.2|
|**lk**|2-3km|72.4|68.1|60.0|36.0|26.9|58.3|
|**Wa**|3-5km|36.6|29.8|20.5|15.1|6.0|24.0|
||5-10km|9.9|6.3|1.7|0.0|1.7|4.0|
||10-15km|0.0|0.0|5.1|0.9|0.0|1.5|
||Dist. Avg.|60.8|50.2|40.7|30.5|15.2|43.8|
||0-1km|0.7|0.9|0.5|1.7|0.0|0.9|
||1-2km|0.3|0.5|3.6|2.2|1.3|1.6|
||2-3km|1.6|3.0|5.6|5.0|3.8|3.6|
||3-5km|9.0|13.5|8.1|7.2|8.0|9.5|
|**ail**|5-10km|51.4|42.2|41.6|41.0|11.7|40.6|
|**R**|10-15km|69.6|82.4|72.0|61.5|26.0|66.8|
||15-20km|96.9|89.6|91.8|87.3|50.0|86.0|
||20-30km|95.3|96.2|98.4|96.1|81.3|94.9|
||>30km|100.0|100.0|100.0|96.0|100.0|98.9|
||Dist. Avg.|16.1|22.8|26.4|26.0|20.8|22.7|
||0-1km|5.7|7.5|4.7|6.3|3.1|6.1|
||1-2km|7.2|6.8|10.5|9.7|6.3|8.3|
||2-3km|17.2|15.9|20.0|21.1|15.4|18.1|
|**s**|3-5km|37.3|42.7|46.0|30.9|14.0|37.8|
|**Bu**|5-10km|30.6|40.6|38.7|35.3|26.7|36.1|
||10-15km|23.2|12.6|12.7|18.3|22.0|16.4|
||15-20km|3.1|6.3|4.1|3.6|3.6|4.2|
||20-30km|2.3|0.0|0.0|1.3|0.0|0.7|
||Dist. Avg.|14.5|16.5|18.3|16.3|12.4|16.2|
||0-1km|0.4|2.8|7.4|21.7|28.1|7.1|
||1-2km|0.6|3.7|11.7|19.3|26.6|9.1|
|**le**|2-3km|0.0|4.7|10.0|26.7|21.2|10.2|
|**Cyc**|3-5km|1.5|4.5|15.5|28.8|36.0|14.0|
|**or**|5-10km|1.8|3.6|13.3|12.2|20.0|9.0|
|**ot**|10-15km|1.8|3.4|5.1|11.0|8.0|6.0|
|**M**|15-20km|0.0|2.1|4.1|3.6|7.1|3.4|
||20-30km|0.0|2.5|0.0|2.6|12.5|2.7|
||Dist. Avg.|0.7|3.6|9.8|17.9|20.4|8.5|
||0-1km|0.0|0.6|0.5|1.7|15.6|1.1|
||1-2km|0.0|0.0|0.3|3.3|21.5|1.9|
||2-3km|0.0|0.0|0.0|3.7|25.0|2.4|
||3-5km|0.0|0.6|0.0|9.4|26.0|4.1|
|**ar**|5-10km|0.0|0.0|0.0|7.2|35.0|4.6|
|**C**|10-15km|0.0|0.0|0.0|1.8|32.0|4.0|
||15-20km|0.0|0.0|0.0|3.6|35.7|5.1|
||20-30km|0.0|0.0|0.0|0.0|6.3|0.7|
||>30km|0.0|0.0|0.0|4.0|0.0|1.1|
||Dist. Avg.|0.0|0.2|0.2|4.0|24.4|2.6|

Source: Baker et al. (2005) 9
Table 6 provides modal splits for all adult trips, by trip purpose.<sup>14</sup> The modal shares of work trips differ slightly from Table 4, as they reflect the work trips of all adults in the household, based on travel diaries.<sup>15</sup> The modal shares for other trips reflect the travel behavior of adults 16 years of age and older.

# **Table** **<u>6.  Percentage Distribution of Trips by Mode, for Each Trip Purpose</u>**

||**Work**|**Shopping**|**School**|**Social**<br>**Visit**|**Entertain-**<br>**ment**|**Health**<br>**Care**|**Personal**<br>**Business**|**HH**<br>**Avg. **|
|---|---|---|---|---|---|---|---|---|
|On foot|45.1|82.2|55.5|52.4|51.6|66.9|47.9|52.5|
|Bicycle|3.5|0.4|0.4|0.4|0.0|0.8|1.2|2.2|
|Rail|20.9|1.5|15.3|13.8|3.5|1.2|13.2|15.4|
|Public Bus|15.1|6.2|22.3|13.1|16.0|12.8|18.3|14.6|
|Auto-Rickshaw|2.1|5.4|3.3|7.6|7.0|13.2|6.7|4.3|
|Taxi|0.3|1.4|0.1|6.3|3.5|3.1|0.8|1.1|
|Two-Wheeler|8.6|2.5|2.3|3.1|8.0|1.2|8.3|6.4|
|Own Car|3.2|0.4|0.3|1.6|4.3|0.4|3.3|2.4|
|Other’s car|0.4|0.2|0.1|1.5|6.2|0.4|0.4|0.6|
|Other|0.8|0.0|0.3|0.3|0.0|0.0|0.0|0.5|
|Total|100|100|100|100|100|100|100|100|

Source: Baker et al. (2005) The shares of rail and bus in total trips remain high. Train is used for 15% of school trips (for students 16 years of age and older) and also for social visits. Public bus has a significant modal share for school trips and also for personal business, entertainment and social visits.

# **IV. Affordability of Transport**

# **A.  Household Expenditure on Transport**

The fact that a high percent of trips—including work trips—are made on foot does not imply that expenditures on transport are low, even for households where the primary earner walks to work (see Table 7). As Table 7 indicates, in poor households where the principal wage earner walks to work, 12.5% of family income is spent of transport. The figure is even higher in households where the main earner takes the bus or train to work: in households where the main earner takes the train to work 16.8% of household income is spent on transportation; the percent spent on transport is 19.4% for households where the main earner takes the bus to work.

> 14 As in Table 5, in Table 6 “rail” refers to “rail” and “rail+bus.”

> 15 Baker et al. (2005) administered travel diaries to the principal earner in each household, a randomly chosen adult over 21 and a randomly chosen person between 16 and 21.

10
**Table 7. Share of Household Expenditure on Transportation** **<u>by Income and Commute Mode of Principal Earner</u>**

||**Walk**|**Train**|**Bus**|**MTW**|**Car**|
|---|---|---|---|---|---|
|<5k|12.5%|16.8%|19.4%|28.5%|NA|
|5-7.5k|8.6%|9.3%|9.9%|19.8%|NA|
|7.5-10k|7.8%|8.3%|8.7%|16.0%|NA|
|10-20k|7.6%|9.0%|8.4%|14.4%|20.0%|
|>20k|7.8%|6.8%|5.8%|11.6%|14.2%|

Source: Baker et al. (2005)

**Table 8.  Mean Monthly Household Expenditure (Rs.) on Transportation and its** **<u>Share in Income, by Income Group</u>**

||**<5k**|**5k-7.5k**|**7.5k-10k**|**10k-20k**|**>20k**|**HH Avg**|
|---|---|---|---|---|---|---|
|Bus|151|195|221|286|275|210|
|Rail|89|124|165|227|296|152|
|Taxi|91|121|165|287|397|169|
|School Bus|3|5|13|50|59|18|
|Fuel|59|160|200|589|1545|301|
|Bicycle Repair|1|2|2|2|7|2|
|Vehicle Repair|6|31|39|96|300|54|
|Transportation<br>expenditure (fare & fuel<br>only)|393|605|764|1439|2572|850|
|Total transportation<br>expenditure (incl.<br>maintenance)|400|638|805|1537|2879|906|
|Share in Income (fare &<br>fuel only)|15.7%|9.7%|8.7%|9.6%|10.3%|10.0%|
|Share in Income (total<br>transportation<br>expenditure incl.<br>maintenance)|16.0%|10.2%|9.2%|10.2%|11.5%|10.7%|

Source: Authors’ calculations Table 8 shows mean total household expenditure on transport, by category of expenditure. Average household expenditure on rail increases with income; as does average expenditures on buses—until the highest income category, when it decreases slightly. The percent of income spent on public transport is, however, highest for the lowest income group.

The figures in Table 8 foreshadow some results regarding the incidence of transit subsidies. As long as the transit subsidy is a constant percentage of the fare for all income groups, the subsidy in Rs. will increase with household expenditure on transit. Hence, transit subsidies will increase with income for rail and also for bus (up to the 11
highest income group). The transit subsidy as a percent of income will, however, be highest for the lowest income group, which spends the highest proportion of income on transit.

# **B. Fare Structure**

The fact that all but the highest income households spend more per month on bus than on rail (see Table 8) reflects the fact that bus fares are higher, per kilometer traveled, than rail fares. Table 9 shows the current bus fares in Mumbai.<sup>16</sup> A person commuting 15 km each way to work paid a fare of Rs. 18 per day or Rs. 450 per month, assuming 25 workdays per month. Although BEST has recently introduced monthly passes, they did not exist at the time of the Baker et al. survey or during the period 2005-2006, for which we compute transit subsidies.

Monthly and quarterly passes are available for rail. Table 9 shows the cost of a second-class monthly rail pass as well as the cost of one-way fares, by distance traveled. The cost of travel by rail, per kilometer, is lower than the cost by bus, even if no monthly pass is purchased. The availability of monthly passes makes calculating the marginal cost of travel by rail difficult; however, the average cost of rail travel, computed from information on revenues and passenger kilometers traveled (see Table 2) is approximately 13 paise per kilometer, or Rs. 4.1 for a 30 km trip.

**Table 9. Cost of Rail (Second Class) and Bus (Regular Service)**

||||**Ra**<br>|**il Fare**<br>|**Bus**|**Fare**<br>|
|---|---|---|---|---|---|---|
|**Di**<br>|**stan**<br>**(km)**|**ce**<br>|**Monthly**<br>**Pass**<br>**(Rs.)**|<sup>**One Way**</sup><br>**(Rs.)**|**Monthly**<br>**Pass**<br>**(Rs.)**|**One Way**<br>**(Rs.)**|
|1|-|3|60|4|180|3|
|3|-|5|60|4|210|4|
|5|-|7|60|4|240|5|
|7|-|10|60|4|390|6|
|11|-|15|75|5|480|9|
|16|-|20|90|6|-|10|
|21|-|25|105|7|-|11|
|26|-|30|105|7|-|12|
|31|-|35|120|8|-|13|
|36|-|40|135|9|-|15|
|41|-|45|150|10|-|17|
|46|-|50|165|11|-|19|
|51|-|55|180|11|-|21|
|56|-|60|195|12|-|23|

Source: Indian Railways and BEST Undertaking.

> 16 A more complete listing of fares appears in Appendix Tables A.2 and A.3.

12
# **V. Transit Subsidies**

# **A.  Public Buses**

As suggested in Table 1, the Transport division of BEST has historically operated at a loss. In fact, as illustrated in Figure 2, revenues have not covered operating costs for any of the years pictured. The fare subsidy shown in Figure 2 ranges from 12 to 30 percent for the last fifteen years. Parts of BEST’s transport losses are covered by the profits made by its electricity supply division. However, borrowing and government subsidies have been needed since, as Appendix Table A.4 indicates, the undertaking has operated at a net loss for the past three years. In computing bus subsidies we use figures from 2005-2006, which imply that fares would have to rise 29.6% to cover costs.

**<u>Figure 2.  Costs, Revenues and Subsidies, BEST, Selected Years</u>**

<!-- Start of picture text --> 12000 40<br>35<br>10000<br>30<br>8000<br>25<br>6000 20<br>15<br>4000<br>10<br>2000<br>5<br>0 0<br>Depreciation (Rs. Million)<br>Operating Expenses Not Covered by Earnings (Rs. Million)<br>Operating Expenses Covered by Earnings (Rs. Million)<br>Subsidy (%)<br>1989-901990-911991-921992-931993-941994-951995-961996-971997-981998-991999-002000-012005-06<br>Percent<br>Rs. Million<br><!-- End of picture text --> 13
# **B.  Suburban Railways**

Table 3, which shows revenues and costs for Mumbai suburban rail, suggests a loss of Rs. 123.8 million for the year 2005-06, implying that fares would have to be raised 1.2 percent to cover costs. The ratio of depreciation to operating costs (0.078) is, however, much lower than the ratio for other rail services around the world, including 0.105 for VIA Rail Canada to 0.194 for Amtrak.

The calculations below also suggest that the depreciation allowed in Table 3 may understate economic depreciation and hence the subsidy implicit in rail fares. Indian Railways currently uses 2 to 4 percent of the value of fixed assets at the beginning of the year to calculate depreciation (Indian Railways, 2006; ADB, 2002). The fixed assets of Mumbai Suburban rail include the 184 EMU rakes (train sets), the rails, buildings, etc. The official value for the life of an EMU for the purpose of calculating depreciation is 25 years, indicating a depreciation rate of 4% using the straight line method. The old rakes cost Rs. 120 million per 9-car rake. At this price, the total value of the 184 rakes is Rs. 22.08 billion. Straight line depreciation on the rakes alone is Rs. 883.2 million each year, which is greater than the depreciation quoted in Table 3. If one also accounts for the value of other fixed assets, then depreciation should be even larger. Thus, if Mumbai suburban rail were to calculate depreciation values based on the guidelines provided in Indian railways documents, its losses from current operations would increase, implying a greater level of actual subsidy to passengers.

# **VI. Incidence of Subsidies and Impact on Mode Choice**

# **A. Incidence of Bus and Rail Subsidies**

In 2005-2006, bus riders in Mumbai received a subsidy equal to 30% of bus fares. According to official figures the subsidy to rail fares was only 1.2%; however, it is possible that this understates the actual subsidy received by train passengers. This section examines the incidence of these subsidies. Table 10 shows average monthly household expenditure on bus and rail, as well as the average monthly household subsidy for bus and rail, by income group.

Table 11 and Figures 3 and 4 show the percentage of total subsidy benefits going to each income group, as well as the percent of households in each income group who receive any subsidy. Because the bus and rail subsidies are a percent of fares, the share of each subsidy going to income group _i_ equals the share of income group _i_ ’s expenditure on bus (rail) in total expenditure on bus (rail) and is thus independent of the percent of the fare that is subsidized. Formally, <!-- Start of picture text --> x ⋅ n<br>ij i<br>S =<br>ij x ⋅ n<br>∑ ij i<br>i<br><!-- End of picture text --> 14
where S<sup>is the share of total subsidy accruing to income group</sup><sup>_i_from travel mode</sup><sup>_j_, xis</sup> ij ij the average monthly expenditure by a household belonging to income group _i_ for travel mode _j_ and ni<sup>= fraction of households in income group</sup><sup>_i._The incidence figures in Table</sup> 11 thus apply to any level of bus and rail subsidies that are a percent of the fare.

**<u>Table 10.  Bus and Rail Expenditures and Subsidies, by Income Group</u>**

|**Income Group**|**Percent of**<br>**Sample**|**Monthl**<br>**Household**<br>**(R**|**y Average**<br>**Expenditure**<br>**s.)**|**Monthly**<br>**Household S**|**Average**<br>**ubsidy (Rs.)**|
|---|---|---|---|---|---|
|||**Bus**|**Rail**|<br>**Bus (29.6%) **|<br> **Rail (1.23%)**|
|<5K|26.6|151.4|89.2|44.8|1.1|
|5001-7500|27.8|195.2|123.6|57.7|1.5|
|7501-10000|21.9|221.5|165.2|65.5|2.0|
|10001-20000|17.8|285.8|226.6|84.5|2.8|
|>20K|5.9|274.6|295.7|81.2|3.6|

**<u>Table 11.  Incidence of Bus and Rail Subsidies, by Income Group</u>**

|**Income Group**|**Percent of**<br>**Sample**|**Percent of T**<br>**Ben**|**otal Subsidy**<br>**efits**|<br>**Percent of H**<br>**Who Receive**|**ouseholds**<br>**Subsidy**|
|---|---|---|---|---|---|
|||**Bus**|**Rail**|**Bus**|**Rail**|
|<5K|26.6|19.1|15.5|90.0|73.9|
|5001-7500|27.8|25.8|22.5|93.6|83.2|
|7501-10000|21.9|23.1|23.8|94.3|90.8|
|10001-20000|17.8|24.2|26.5|92.3|87.6|
|>20K|5.9|7.8|11.6|81.8|79.4|

**<u>Table 12.  Errors of Inclusion and Exclusion of Subsidy</u>**

|**Percentage of Households.....**|**Poor (< 5K)**|**Non-Poor**|
|---|---|---|
|ReceivingBus Subsidy|90.00|92.55|
|Not ReceivingBus Subsidy|10.00|7.45|
|ReceivingRail Subsidy|73.94|86.23|
|Not ReceivingRail Subsidy|26.06|13.77|

An equal distribution of subsidy benefits implies that the percentage of subsidy benefit received by an income category equals its share in the population. Our findings indicate that while the poorest households constitute 27 percent of total households in the sample, they receive only 19 and 15.5 percent, respectively, of bus and rail subsidies. The wealthiest households, who constitute less than 6 percent of the total sample, receive 15
**Figure 3: Distributional Incidence of Public Bus Subsidy in Mumbai**

<!-- Start of picture text --> 100 90<br>90 80<br>80<br>70<br>70<br>60<br>60<br>50<br>50<br>40<br>40<br>30<br>30<br>20<br>20<br>10 10<br>0 0<br><5K 5001-7500 7501-10000 10001-20000 >20K<br>Household Income (Rs. per month)<br>% of Total Subsidy<br>% of Households who are Beneficiaries of the Subsidy<br>Monthly Average Household Subsidy (Rs.)<br>Percent<br>Rs. per month<br><!-- End of picture text -->

**Figure 4: Distributional Incidence of Rail Subsidy in Mumbai**

<!-- Start of picture text --> 100 4<br>90<br>4<br>80<br>3<br>70<br>3<br>60<br>50 2<br>40<br>2<br>30<br>1<br>20<br>1<br>10<br>0 0<br><5K 5001-7500 7501-10000 10001- >20K<br>20000<br>Household Income (Rs. per month)<br>% of Total Subsidy<br>% of Households who are Beneficiaries of the Subsidy<br>Monthly Average Household Subsidy (Rs.)<br>Percent<br>Rs. per month<br><!-- End of picture text --> 16
bus subsidies that are about 30 percent larger than their equal share, and about twice the rail subsidy benefits than they would receive under a uniform distribution of the subsidy across income groups. The middle income group, earning 7,500-10,000 Rs. per month receives subsidy benefits from both bus and rail in roughly equal proportion to their share in the population.

If subsidy benefits should be targeted at the poor, then the percentage of the poor not receiving subsidy benefits is an error of exclusion (Foster, 2004) and the percentage of non-poor receiving subsidy benefits would constitute errors of inclusion. For simplicity of calculation, we assume here that all users of public bus and rail receive subsidy benefits. Table 12 shows the errors of inclusion and exclusion for both the rail and bus subsidies. Errors of exclusion are 10 and 26 percent for bus and rail respectively, while errors of inclusion are 93 and 86 percent for bus and rail respectively. In our case, the errors of exclusion for the poor are higher for rail than bus. This reflects the fact that a larger fraction of persons in the lowest income group do not use rail (as opposed to bus) in spite of lower fares for rail.

The low usage of rail by the poorest income group may be attributed to the fact that households in the lowest income group live farther away from rail stations than persons in the higher income groups. However, this in turn reflects the decisions made by households regarding where to live and work. The distribution of commute distances for workers in the < 5K income group lies to the left of the distribution of commute distances for workers in all households (see Figure 3). This may reflect the fact that it is

**Figure 5.  Distribution of One-Way Commute Distances**

<!-- Start of picture text --> All HHs Poor HHs<br>35<br>30<br>25<br>20<br>15<br>10<br>5<br>0<br>0-1 1-2 2-3 3-5 5-10 10-15 15-20 20-30 >30<br>km<br>%<br><!-- End of picture text --> Source: Baker et al. (2005) 17
easier for these workers to find jobs close to home and/or to the fact that it is more expensive to live near railway stations; i.e., that proximity to rail is capitalized into land values.

# **B. Impact of Subsidies on Mode Choice**

A bus subsidy equal to 30% of fares, if removed, would likely have a significant effect on mode choice. In this section we evaluate the impact of an increase in bus and rail fares on ridership based on the commute mode choice models reported in Takeuchi, Cropper and Bento (2007).TPF<sup>17</sup> FPT Table 13 presents own and cross-price elasticities for bus and rail from the commute mode choice models estimated by Takeuchi, Cropper and Bento (2007) using data collected by Baker et al. (2005). In these models rail+bus is distinguished as a separate mode choice from taking rail or bus alone. Price elasticities differ slightly depending on the form of the mode choice model estimated. However, own price elasticities are always higher for bus than for rail, and an increase in bus fares reduces ridership more for bus-only users as opposed to users of rail+bus.

If the elasticities in Table 13 are weighted by the share of bus commuters taking bus-only (64%) v. rail+bus (36%), the elasticity of bus commuters with respect to the bus fare ranges from -0.36 to -0.32. This implies that removal of the bus subsidy (i.e., a 30% increase in fares) would reduce bus commuters by 10-11%. To which modes would these commuters switch? Most would switch to rail only; however, some would switch to walk only, and some would switch to a car or two-wheeler.TPF<sup>18</sup> FPT

**Table 13: Own and Cross-Price Elasticities of Rail and Bus Use for Journey to Work**

||**Incre**<br>|**ase in Rail Fa**<br>|**re on**<br>|**Incr**<br>|**ease in Bus Fa**<br>|**re on**<br>|
|---|---|---|---|---|---|---|
|**Estimation Model**|**Rail**<br>**Users**|**Rail+Bus**<br>**Users**|**Bus**<br>**Users**|**Rail**<br>**Users**|**Rail+Bus**<br>**Users**|**Bus**<br>**Users**|
|Multinomial Logit<br>(Cost/Wage)|-0.08|-0.07|0.06|0.26|-0.19|-0.45|
|Multinomial Logit<br>ln(Hicksian bundle)|-0.07|-0.07|0.05|0.25|-0.17|-0.42|
|Mixed Logit<br>ln(Hicksian bundle)|-0.07|-0.07|0.04|0.25|-0.26|-0.35|

Source: Takeuchi, Cropper and Bento (2007)

> <sup>17</sup> The money cost used in this analysis is based on the lowest fares, i.e. second-class rail fares and ordinary bus fares.

> <sup>18</sup> Specifically, the elasticity of walking with respect to bus fare ranges from 0.06 to 0.08, of rail, from 0.25 to 0.26, of two-wheeler, from 0.03-0.04.  The elasticity of car usage with respect to bus fare is 0.03.

18
In contrast, the impact of an increase in rail fares is much smaller. An increase of 1 percent in rail fares causes a loss in workers who commute by rail ranging from 0.07 to 0.08 percent, the majority of whom switch to bus. It should also be noted that raising rail fares by one percent reduces the numbers of workers who commute by rail+bus by 0.07 percent.

If one is willing to assume that the elasticities computed in Table 13 for commute mode choice apply to all trips, then Table 13 can be used to estimate the impact of fare increases on passenger volumes and revenues. This is done for separate increases in bus and rail fares in Table 14 and for joint increases in bus and rail fares in Table A.5 of the Appendix, using the elasticities for the Multinomial Logit (Cost/Wage) model in Table 13.

**Table 14: Impact of Fare Increases on Passenger volume and Revenue**

|**Impact**<br>**f**|**Cha**|**nge in Pa**|**ssenger Vol**|**ume**||**C**|**hange in R**|**evenue**||
|---|---|---|---|---|---|---|---|---|---|
|**o...**|**Bus**|**Rail**|**Bus**|**Rail**|**Bus**|**Rail**|**Bus**|**Rail**|**Bus+ Rail**|
||**(Per**|**cent)**|**(Mill**|**ion)**|**(Per**|**cent)**||**(Rs. Millio**|**n)**|
|**Bus fare**||||||||||
|**increase**||||||||||
|1%|-0.36|0.10|-5.37|2.30|0.64|0.10|54.44|9.87|64.32|
|2%|-0.71|0.20|-10.75|4.60|1.27|0.20|108.28|19.74|128.03|
|3%|-0.71|0.30|-10.75|6.90|2.27|0.30|192.67|29.62|222.29|
|4%|-1.42|0.40|-21.50|9.20|2.52|0.40|214.14|39.49|253.63|
|5%|-1.78|0.50|-26.87|11.50|3.13|0.50|266.17|49.36|315.53|
|10%|-3.56|0.99|-53.74|23.00|6.09|0.99|517.21|98.72|615.93|
|15%|-5.34|1.49|-80.62|34.50|8.86|1.49|753.13|148.08|901.21|
|20%|-7.12|1.99|-107.49|46.00|11.46|1.99|973.92|197.44|1171.37|
|25%|-8.90|2.48|-134.36|57.50|13.88|2.48|1179.60|246.80|1426.40|
|30%|-10.68|2.98|-161.23|69.00|16.12|2.98|1370.14|296.16|1666.31|
|**Rail fare**||||||||||
|**increase**||||||||||
|1%|0.01|-0.08|0.20|-1.77|0.01|0.92|1.10|91.70|92.80|
|2%|0.03|-0.15|0.39|-3.54|0.03|1.84|2.20|183.24|185.44|
|3%|0.04|-0.23|0.59|-5.31|0.04|2.76|3.30|274.63|277.93|
|4%|0.05|-0.31|0.78|-7.08|0.05|3.68|4.40|365.87|370.27|
|5%|0.06|-0.38|0.98|-8.85|0.06|4.60|5.50|456.96|462.46|
|10%|0.13|-0.76|1.95|-17.69|0.13|9.16|11.00|910.13|921.13|
|15%|0.19|-1.15|2.93|-26.54|0.19|13.68|16.50|1359.50|1375.99|
|20%|0.26|-1.53|3.91|-35.39|0.26|18.17|22.00|1805.07|1827.07|
|25%|3.24|-1.91|48.85|-44.23|3.24|22.61|274.95|2246.84|2521.80|
|30%|0.39|-2.29|5.86|-53.08|0.39|27.02|32.99|2684.82|2717.81|

Source: Authors’ calculations 19
In Table 14 it is clear that raising bus fares by 30% would not be sufficient to cover BEST’s 2005-2006 loss, given the associated drop in ridership. A 30% increase in fares raises revenues by slightly over 16%. Assuming that the elasticities in Table 13 remain constant, fares would have to rise by over 50% to make up the 2005-2006 loss of Rs. 2.5 billion and by over 40% just to make up operating losses. Clearly, given the impact on household budgets and the political repercussions, such a drastic increase in bus fares is unlikely.

Rail fares in Mumbai would need to rise by less than 2 percent to cover the official 2005-2006 loss on suburban railways of Rs. 123.8 million.TPF<sup>19</sup> FPT Raising rail fares in excess of this would provide a surplus for future capital investment. The impact of possible fare increases are shown in Table 14. Due to low price elasticities of rail service, a 10% increase in rail fares raises revenues by over 9%. This increase would, however, result in only a modest increase in bus revenues: although an increase in rail fares increases bus-only riders, it reduces bus-plus rail riders.

The impact of simultaneously increasing bus fares and rail fares is shown in Table A.5. Results differ only slightly from those in Table 14.

# **VII. Conclusions**

According to Carruthers, Dick and Saurkar (2005), Mumbai ranks sixth among 27 cities for which indices of public transport affordability have been calculated. That is, Mumbai is the sixth most expensive city. The figures presented in this paper bear this out. Expenditure on transport accounts for 16% of income in the lowest income category (<5000 Rs./month), with 10% of income, on average, spent on bus and rail fares. This percentage, however, is not evenly distributed: it is much higher than 10% for households in which workers take the bus or train to work, and lower for households in which the main earner walks to work. Even in these households, however, 12.5% of income is spent on transportation.

Expenditure on public transport would be even higher if bus fares in Mumbai were not subsidized. In 2005-2006, transport revenues of BEST fell below total costs by 30% and below operating costs by 20%. Rail fares, which are much lower than bus fares per km traveled, officially covered operating costs and almost covered depreciation expenses.

If one asks who benefits from bus subsidies in Mumbai, the answer is clear: Households with incomes below Rs. 5,000 per month, who constitute 27% of the population, receive 19% of bus subsidies while households with incomes above Rs. 10,000 per month, who constitute 24% of the population, receive 31% of bus subsidies. Ten percent of households in the below-Rs. 5,000 group do not use bus services and thus receive no subsidy.

> <sup>19</sup> It is interesting to note that, due to cross-price elasticities, raising bus fares by 15% would increase rail revenues enough to make up the loss of Rs. 123.8 million.

20
Although the magnitude of current rail subsidies is low, the incidence of a rail subsidy that is a constant percent of fares is less pro-poor than the bus subsidy. This is because 26% of households in the below Rs. 5,000 group do not use rail services at all. In the case of rail, households in the below Rs. 5,000 group receive only 15.5% of total rail subsidies.

An important issue for the poor is not only how current transport subsidies are distributed, but whether they will continue. Transport losses for BEST have been increasing over time and are no longer covered by profits from electricity supply. In the medium to long term BEST will have to find other sources to cover transport losses, reduce costs or increase bus fares.

21
# **VIII.   References**

ADB (2002), Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to India for the Railway Sector Improvement Project, Asian Development Bank, Manila.

Baker, Judy, Rakhi Basu, Maureen Cropper, Somik Lall and Akie Takeuchi, (2005), “Urban Poverty and Transport: The Case of Mumbai,” _Policy Research Working Paper Series_ 3693, The World Bank, Washington, DC.

BEST (2006): <u>http://www.bestundertaking.com/finance0506.pdf</u> (2005-06) BEST (2005): <u>http://www.bestundertaking.com/finance.asp</u> (2003-05) Carruthers, Robin, Malise Dick and Anuja Saurkar, (2005), “Affordability of Public Transport in Developing Countries,” _Transport Paper 3_ , Transport Sector Board, World Bank, Washington, DC.

Foster, Vivien (2004), “Toward a Social Policy for Argentina’s Infrastructure Sectors. Evaluating the Past, Exploring the Future,” _Policy Research Working Paper Series 3422_ , The World Bank, Washington, DC.

Gomez-Lobo, A. (2007), “Public Transport Affordability and subsidy Policies; A Case study of Santaigo, Chile,’ World Bank Indian Railways (2006), Railway Production Units, Workshops and Maintenance of Rolling Stock, Seventeenth Report, Standing Committee on Railways 2005-06, Ministry of Railways, India.

Ramasaamy, N. (2006), “A Quick Review of STUs (2005-06),” _Indian Journal of Transport Management_ , April-June 2006.

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