Worthiness of the bus rapid transit system in Ahmedabad, India: Economic cost benefit analysis perspective

Abstract

This paper analyses whether the Bus Rapid Transit System (BRTS) project in the city of Ahmedabad in the state of Gujarat in India is worth the investments (more than ten thousand million Indian rupees) it swallowed. The viability of transportation project being a public good has to be assessed using the economic cost benefit analysis method. Hence, in this paper, the variant of Kaldor-Hicks compensation criterion is taken for performing the economic cost benefit analysis of the project. The economic costs are derived by using the shadow pricing concept. The conversion factor of 0.90 is used to convert the project cost at market prices to the economic project cost. The vehicle operating costs, the monetary worth of the passenger commuting time, and the monetary worth of the air pollution are calculated for 'with project' case and 'without project' case. These are further used to evaluate the economic benefits. In the said project the economic benefits exceed the economic costs and using the discounted cash flow technique it is found that there is an economic IRR of 20.42 percent which is above the hurdle rate of 12 percent that is used by multilateral agencies for developing countries like India. The economic NPV of 7981.9 million INR and the economic Benefit Cost Ratio of 3.27 as well conveys the sound status of the project. The project also withstand the sensitivity test for the cases (i) increasing the capital expenditure by 25 percent, (ii) decreasing the benefits by 25 percent, and (iii) simultaneously increasing the capital expenditure and decreasing the benefits each by 25 percent. © 2018 Institute for Transport Studies in the European Economic Integration. All right reserved.