China has embarked on a massive construction drive of underground metro rail systems in many of its largest cities. At least 15 cities are building subway lines and a dozen more are planning them, as Beijing is pushing local and provincial governments to step up their infrastructure spending to offset lost revenue from slumping exports. Much the same is being contemplated in India, as metros have become the latest fad in urban mass transit. Therefore China's experience carries important lessons for India.
The dramatic urbanization and ballooning population of vehicles has placed severe strains on Chinese cities, necessitating the development of an effective network of high volume public transit system. The relative ease and cheap cost of land acquisition in urban areas (both expensive and legally difficult in cities in other countries) for stations and ventilation shafts, low labor costs, and economies of scale from large construction distances makes metro development in China easier when compared to others.
While subways have major environmental externalities and social benefits, their ultimate success depends on having in place an attendant set of policies, more so given their high construction and O&M costs. But China, and many other developing countries, including India, may be falling short on this, thereby failing to optimize on the usage and benefits of such modern mass transit systems. For example, even as it is constructing a large metro rail network, China is also constructing large integrated townships and encouraging the development of sprawling new suburbs, which in turn spreads the population out further and increases commute distances, thereby reducing the benefits from any new mass transit system.
Subways can be effective, especially given the price-sensitive nature of commuter base in developing countries, only if both its ticket prices are affordable and also if the cost of using other alternative modes of transport are higher. The former demands that (and experience of cities bears it out), atleast in the initial years, subsidizing a major share of the sunk capital costs will be inevitable. However, alternate revenues streams from the development of associated real estate, especially in stations, can cover up a considerable part of the capital costs.
The latter requires having in place policies that discourage the use of private cars - stricter and costlier licensing, high parking fees, toll bridges, private car free areas, congestion pricing, stronger regulation of private carriers like taxis and auto-rickshaws, etc - besides higher usage cost for other mass transit systems. It also requires seamless cross-modal integration with other transit facilties and provision of other logisitics like adequate parking facilities at metro stations. In the absence of these requirements (and most of them are absent in China and India), metro systems can remain as expensive and under-utilized white elephants bleeding tax payer money.
Superb series of posts by Edward Glaeser which finds that the benefits - economic, social and environmental - are not even remotely as large as was thought of. He also examines the economic and environmental case for high speed rail, and finds that it may not match up. See also this classic study on the full cost of high speed rail.