The government approved a new metro rail policy which opens a big window for private investments across a range of operations, making PPP component mandatory for availing central assistance.

The policy, approved by the Union Cabinet at a meeting chaired by Prime Minister Narendra Modi, also empowers states to make rules and set up a permanent Fare Fixation Authority for timely revision of fares.

The policy also provides for a rigorous assessment of new proposals by independent third-party to be identified by the government, said Housing & Urban Affairs Secretary D S Mishra.

It outlines three models of metro projects for central assistance. In one of them, the Centre will provide a lump sum grant of 10 per cent of the cost, Union Finance Minister Arun Jaitley said briefing reporters on Cabinet decisions.

The second one envisages 50:50 equity sharing model between central and state governments. The third is PPP model with central assistance under the Viability Gap Funding scheme of the Finance Ministry.

Under all these options private participation is mandatory, said Mishra, who was also present during the briefing.

Private participation could be either for complete provision of metro rail or for some unbundled components like automatic fare collection, operation or maintenance.

Such a provision is made compulsory to meet huge resource demand for capital-intensive and high capacity metro projects, Mishra added.

Under the policy, Mishra said, states need to adopt innovative financing mechanisms like Value Capture Financing (VCF) and issue of bonds.

VCF seeks imposition of new taxes or 'Betterment Levy' to capture a share of increase in the assets value in the vicinity of state-sponsored infrastructure projects like metro rail project.

Besides Delhi, metro services with a total length of 370 kms are currently operational in seven cities -- Bengaluru, Kolkata, Chennai, Kochi, Mumbai, Jaipur and Gurugram.

Metro projects of 537 kms are under construction.

Projects about 600 kms in length are under the consideration of the government and will require to follow the the new policy, an official said.

Meanwhile, Mishra said the policy also seeks to ensure last mile-connectivity, requiring state to give commitment regarding feeder bus services and ensuring infrastructure like walking and cycling pathways.

To ensure that least-cost mode of public transport is selected, the new policy also mandates that alternate analysis is carried out before proposing the metro rail projects.

The policy requires state to compulsorily set up Urban Metropolitan Transport Authority (UMTA) which will prepare comprehensive mobility plans for cities to ensure complete multi-modal integration.

It also stipulates shift from the present 'Financial Internal Rate of Return' of 8 per cent to 'Economic Internal Rate of Return' of 14 per cent for approving metro projects.

Economic rate takes into consideration, apart from financial aspect, other benefits of the projects like employment generation and reduction in pollution.

The new policy also mandates Transit Oriented Development (TOD), which envisages setting up projects like housing and offices within walkable distance from the metro corridor.