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Social cost benefit analysis of Delhi Metro. By: Rahul Kumar. Social cost benefit analysis. Cost-benefit analysis is a process for evaluating the merits of a particular project or course of action in a systematic and rigorous way.
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Social cost benefit analysisof Delhi Metro By: Rahul Kumar
Social cost benefit analysis Cost-benefit analysis is a process for evaluating the merits of a particular project or course of action in a systematic and rigorous way. Social cost-benefit analysis refers to cases where the project has a broad impact across society and, is usually carried out by the government. Social-cost-benefit analysis are not limited to easily quant able changes in material goods, but should be construed in their widest sense, measuring changes in individual `utility' and total `social welfare.
Example: Delhi Metro • Helps the society: • Use of environmentally friendly fuels and land use patterns: The introduction of CNG in certain vehicles and switching of some portion of the transport demand to the metro rail have resulted in a significant reduction of atmospheric pollution in Delhi. • Time saving to passengers, • Reduction in accidents, • Reduction in traffic congestion and fuel savings.
Contd.. • The financial internal rate of return on investments in the Metro is estimated as 17 percent while the economic rate of return is 24 percent. Accounting for benefits from the reduction of urban air pollution due to the Metro has increased the economic rate of return by 1.4 percent.
Savings in vehicular operating costs due to the decongestion effect • Annual vehicle operating cost is substantially reduced due to the higher speed of vehicles and consequently lesser hours on road. It is estimated as the product of the residual traffic, time saved on average lead per vehicle annually and the vehicle operating cost per hour. According to RITES (2005), the value of this component for the year 2011-12 is Rs. 15040 million.
Extra cost to Passengers • The Passengers gain to the extent of the difference between the fares paid to buses in the absence of the Metro and the fares charged by the Metro. For example: During the year 2011-12, the revenue to the displaced buses should have been Rs. 10460 million while that of the Metro is estimated at Rs. 35280 million. Therefore, passengers have incurred an additional cost of Rs. 24830 million due to these fare differences.
Benefits to passengers • There is a time saving for the passengers due to the Metro along with reduced traffic in the roads due to the reduced congestion. • During the year 2011-12, these savings are together estimated as Rs. 22090 million. • There are also benefits due to a reduction in accidents to the passengers due to the functioning of the Metro, which are estimated as Rs 448 million during the year 2011-12. • The net benefits to the passengers from the Metro are estimated as Rs.22440 million during the year 2011-12.
Effect on private transporters • They will lose the revenue from displaced private buses but at the same time save on their capital and operating costs. • The capital that will be saved is estimated as Rs. 9410 million in the year 2011-2012. • The operating cost that will be saved is estimated to be Rs. 2860 million in the year 2011-2012.
Labor • The benefit to unskilled labour is estimated as Rs. 316.4 million during the year 2011-12. • The marginal productivity of unskilled labour in agriculture as Rs. 48 while on the average, the industrial wage for unskilled labour in India is Rs. 120 per day at 2004-05 prices.
For General public • The General public representing the Indian society receives the benefits of social premium on investment and foreign exchange and the environmental benefits of reduced pollution due to the Metro. • There are foreign exchange costs and foreign exchange benefits from the Metro. Foreign exchange cost accounts for 60 percent of the investment cost of the Metro. • There are foreign exchange benefits to the extent of reduced fossil fuel consumption due to a change in the mode of transport. • The net benefits to the general public from the Metro arising out of the social premium on foreign exchange is estimated as Rs. 1203.3 crores during the year 2011-12.
Contd.. • Accounting for the social premium on savings, the government, passengers, private transporters and the public get total net benefits worth Rs. 52550 million in the year 2011-12. • Assuming a savings rate of 29.10 percent on an aggregate in the Indian economy in 2011-12, the incremental savings due to the Metro in the Indian economy works out to be Rs. 15290 million in the same year. • Given an estimate of the social premium on investment as 36 percent the public receives benefits worth Rs. 5500 million on this account.
