Funds for Growth: Increasing role of multilateral financing in urban rail projects

Increasing role of multilateral financing in urban rail projects

The need for planned urban transport has been growing with India’s rapid rate of urbanisation and the government’s aim of a “smarter” future. In line with this, the Ministry of Urban Development (MoUD) announced plans to offer financial support to all cities with a population of over a million for implementing metro projects. Several cities have announced plans to develop urban rail projects since.

The journey so far

At present, urban rail projects are operational in seven cities and together cover a network of over 308 km – a significant growth from around 81 km in 2006. Further, metro lines are under implementation in 13 cities and planned for 20 new cities. In addition, several cities have plans to deploy light rail and monorail lines by 2021.

As of November 2016, on the basis of projects tracked by India Infrastructure Research, an investment of more than Rs 6 trillion is expected in 67 under-construction, approved and planned rail-based projects. Traditionally, urban rail projects have been funded through various government sources such as budgetary allowances and viability gap funding. However, given the level of investments needed, traditional funding sources will not suffice and other funding sources including private, bilateral and multilateral agency funding are being encouraged.

Most of the cost of operational urban rail projects has been borne by various levels of government. However, multilateral funding through agencies – the Japan International Cooperation Agency (JICA), Asian Development Bank (ADB), Agence Française de Développement (AFD) and Kreditanstalt für Wiederaufbau (KfW) Development Bank – has also seen a rise in recent years. JICA has provided funds for the Delhi, Chennai, Mumbai, Kolkata, Bengaluru (Namma) and Ahmedabad metro projects; the Lucknow metro project is being part-funded by the European Investment Bank (EIB), etc.

Government funding

Government funds remain the primary source of financing urban rail projects. With the exception of the Gurgaon metro project, which was developed by IL&FS Transportation Networks Limited on a fully private basis, all the other operational projects have been funded by the government, both at the central and state level.

  • Delhi: Of the total project cost (Phases I, II and III) of Rs 704.33 billion, the central and state governments contributed Rs 86.83 billion each, representing about 25 per cent share.
  • Kolkata: The Kolkata metro, Phase I, was the first metro project to be operationalised in the country and the entire project cost of
  • Rs 18.3 billion was funded by Indian Railways. However, upcoming corridors of the system will receive multilateral funding.
  • Chennai: For the Chennai metro, Phase I, the central and state governments will contribute 20 per cent and 21 per cent, respectively, of the total project cost of Rs 190.05 billion. Over 50 per cent of the project will be funded through multilateral sources.
  • Bengaluru (Namma): Of the total project cost for Phase I (Rs 138 billion), the central government is contributing Rs 30.7 billion (22.2 per cent) and the state is contributing Rs 50.8 billion (36.7 per cent). The remaining funds will come through multilateral agencies.
  • Jaipur: Phase IA of the project, which is currently operational, has been fully funded by the Rajasthan government and its agencies, namely, the Jaipur Development Authority, the Rajasthan Housing Board and Rajasthan State Industrial Development and Investment Corporation Limited. Further, for the planned Phase IB, the state government will contribute Rs 3.6 billion of the total project cost of Rs 11.26 billion.
  • Mumbai: The currently operational Versova-Andheri-Ghatkopar corridor of the Mumbai metro was developed through a public-private partnership. Of the total project cost of Rs 23.56 billion, the central government and the Maharashtra government together funded 28 per cent, while the remainder was financed by the private operator Mumbai Metro One Private Limited through debt and equity.

Going forward, although the trend of multilateral funding for urban rail projects is on the upswing, government funding will remain crucial. Governments at both the central and state levels have already committed funding for several planned/under-implementation projects. For example, for the Ahmedabad metro project, which will require investments of Rs 107.73 billion, the central government will contribute around Rs 1.99 billion (equity) and the Gujarat government will contribute around Rs 2.72 billion (equity and debt).

For the Mumbai metro, Line 3, of the total project cost of Rs 231.36 billion, the central and state governments have announced plans to contribute Rs 34.28 billion (14.8 per cent) and Rs 40.18 billion (17.4 per cent), respectively, in the form of debt and equity. Besides, the Hyderabad metro rail project will secure Rs 14.58 billion from the central government, accounting for about 12 per cent of the total cost, while the Nagpur metro rail project has also secured funding of Rs 49.3 billion from the central and state governments. Moreover, of the total project cost of Rs 51.82 billion for the Kochi metro project, the centre allocated funds of Rs 4.5 billion in Union Budget 2016-17.

Of the total cost of the Lucknow metro project (Rs 69.28 billion), the central and state governments will allocate Rs 13.48 billion and Rs 18.33 billion respectively, while for the Noida-Greater Noida metro project (being developed at an estimated cost of Rs 55.26 billion), the central and state governments will allocate Rs 11.05 billion each.

Multilateral funding

Among multilateral agencies funding urban rail projects in India, so far JICA has the largest presence, and is involved in six projects. In addition, agencies such as ADB, AFD, KfW and EIB are also increasing their investment portfolio in the country.


Currently, India is JICA’s largest funding recipient in the world. So far, the cumulative loan amount provided by JICA for metro projects (Chennai, Delhi, Namma, Kolkata, Mumbai and Ahmedabad) has exceeded Rs 590.71 billion.

The agency has been supporting the Delhi metro project since its inception in 1997. It allocated Rs 63.43 billion for Phase I in six tranches, Rs 102.31 billion for Phase II and Rs 199.52 billion for Phase III of the project. The loan for Phase III has an interest rate of 1.4 per cent and a repayment period of 30 years, with a grace period of 10 years. Further, in 2016, JICA announced its interest in funding the planned Phase IV of the project.

Over 50 per cent of the Chennai metro project is also being funded by JICA. Currently, its cumulative loan amount for the Chennai metro stands at about Rs 110 billion. In 2008, Chennai Metro Rail Limited (CMRL) and JICA signed an agreement for a Rs 76.97 billion official development assistance (ODA) loan, to be disbursed in three tranches, for the development of Corridor 1. Further, in 2016, JICA extended a loan of Rs 11.8 billion to CMRL for the construction of underground tunnels and rail tracks; the deployment of electrical, telecommunication and signalling systems; and procurement of rolling stock for Corridor 1 and Corridor 2. Moreover, in March 2017, JICA extended a Rs 20 billion ODA loan for the extension of Corridor 1. The conditions for the second and third loan are easier, at a 1.4 per cent interest rate over a 30-year repayment period (including a 10-year grace period).

Phase I of the Bengaluru metro project received a loan worth Rs 30 billion from the agency, which has also expressed interest in funding the upcoming Phase II of the project.

For the Kolkata metro project (East-West Corridor), it sanctioned a soft loan worth

Rs 22.53 billion (45 per cent of the total cost), with a payment moratorium of 18 years.

The agency has also sanctioned Rs 132.35 billion for the Mumbai metro, Line 3 (57.2 per cent of the total cost) and Rs 38.7 billion for the Ahmedabad metro rail project.


ADB has invested in two Indian metro projects so far. Of these, the Namma metro was the agency’s first investment in the mass rapid public transport sector in South Asia.

In 2012, ADB and Bangalore Metro Rail Corporation Limited (BMRCL) signed an agreement for a $250 million loan through ADB’s non-sovereign lending window, to assist in the development of a 42.3 km corridor, along with deploying signaling and electromechanical systems, and ancillary facilities such as rolling stock. Further, ADB announced the provision of Rs 9.69 billion for the Jaipur metro, Phase IB. The loan will also help finance studies for the 23 km North-South line (Line 2).


So far, AFD has invested in three metro projects. The Namma project is the agency’s largest lending in India so far. It extended around Rs 23.25 billion as a sovereign loan to the project for the development of Phases I and II.

Further, in 2016, AFD announced the release of a loan worth Rs 13.5 billion for the Kochi metro project, with a tenure of 25 years and an interest rate of 1.35 per cent. The loan is expected to get formal approval by June 2017. Recently, in February 2017, the agency agreed to provide Rs 15 billion for Phase I of the Vijayawada (Amravati) metro project.

KfW Development Bank

The KfW Development Bank has announced plans to invest in two metro projects in India. Besides, the agency has already signed a loan agreement for Rs 37.5 for the development of the Nagpur metro rail project. The amount will be disbursed periodically over three years, as per the progress of the project. Recently, in February 2017, the agency agreed to sanction a Rs 25 billion loan for Phase I of the Vijayawada metro project.


EIB is partly funding the Lucknow metro project, which is its first sovereign loan to India. In March 2016, the agency announced a loan of around Rs 33 billion for the project, which accounts for more than 50 per cent of the total cost.


There are various arguments against taking external loans, including currency risks which have to be borne by developers at a later stage. Also, revenues are earned in the domestic currency, thus giving the developer no natural hedge against risks of such borrowings.

Though the loans can be serviced from fare box and non-fare box revenues (such as real estate development and advertisements), these may not suffice, as there is limited freedom with respect to raising fares and the real estate sector is extremely volatile.

However, the risks notwithstanding, the massive investments required for urban rail projects to be successfully implemented will require not only government and private sector support, but also multilateral funds.