Chennai Metro Phase 2 faces delays amid financial challenges and funding disputes

Chennai Metro Rail Limited (CMRL) has faced ongoing challenges since last year, and this year appears to be no different. As of August, CMRL had allocated ₹2,900 crore of the ₹12,000 crore budget for Phase-II. The funding issues stem from a tug-of-war between the central government and the Tamil Nadu state government regarding financial responsibilities.

Union Finance Minister Nirmala Sitharaman has emphasized that Phase 2 is primarily a state project, placing the onus of funding entirely on Tamil Nadu. However, the state argues that federal support is essential for the project's continuation.

Initially, the Tamil Nadu government committed ₹10,000 crore to the project, but this figure was revised down to ₹9,000 crore last year. The drop in funding is compounded by obligations to repay loans and interest from Phase-I and its extensions, diverting resources away from infrastructure development. Additionally, operational revenue losses are further straining the budget.

The reclassification of Phase 2 as a state project has created a ripple effect on funding. Previously, the project benefited from direct funding from the central government and external agencies, which facilitated smoother progress. The shift in designation has left Tamil Nadu solely responsible for managing external borrowings, which is becoming increasingly challenging.

Under the Fiscal Responsibility and Budget Management (FRBM) Act, Tamil Nadu is permitted to borrow only up to 3% of its Gross State Domestic Product (GSDP). The state government is reluctant to assume the full burden of the borrowing, as this could push it beyond its debt ceiling, limiting its capacity to fund other essential projects.

For CMRL to maintain a healthy debt-equity ratio, it requires equity participation from both the central and state governments. The company has urged the Department of Economic Affairs to reconsider the project’s classification, which would allow for shared borrowing responsibilities and potentially better financing terms from multilateral agencies.

According to Tamil Nadu Finance Minister Thangam Thennarasu, CMRL has so far spent ₹18,564 crore on Phase 2, with ₹11,762 crore sourced from state funds and ₹6,802 crore from loans secured through foreign financial institutions. The central government has yet to release any portion of the ₹7,425 crore recommended by the Public Investment Board (PIB), further complicating financial planning for the project.

As the state grapples with funding challenges and a shifting financial landscape, the future of Chennai Metro Phase 2 remains uncertain. Continued delays may not only affect the project's timeline but could also hinder Chennai's public transport expansion, crucial for alleviating congestion and enhancing urban mobility.