The National Highways Authority of India (NHAI) is working on a mechanism to share gains in land value on account of upgradation of highways as it looks to part-finance urban projects amid increasing costs of land acquisition, said people with knowledge of the matter.
The move will help the authority raise extra budgetary resources for urban highway projects and ring roads, they said.
“Basically, the central government builds the roads and funds them. We are trying to capture the value enhancement, especially in urban projects, so that we are able to part-finance the projects and meet the viability gap funding,” said a government official, who did not wish to be identified.
Through value capital financing (VCF), the Centre will partner state governments and development authorities to share betterment levy, land value taxes and development charges.Betterment levy is a tax that a state collects on a plot of land that it has made better by building roads, metros, airports, etc.
The appreciation in land value on account of development of highways is generally captured by real estate brokers, who essentially benefit at the cost of taxpayers’ money. With betterment levy, or VCF, the government may get sellers of land around highways to pay a cess in tandem with the appreciated value of the land, to be shared between the Centre and states.
“The costs of land acquisition have gone too high, so we are trying to find a way to be able to at least part-finance land acquisition costs,” said the official. “There are many issues in urban projects. The idea is to take state governments on board as partner to get additional funds.”
To begin with, the model will be feasible only for urban projects, both greenfield and brownfield, according to the official.
“There is increasing pressure on all executing ministries to look at extra budgetary resources. Value capture financing is one such practical option and should be encouraged as unearned benefit accruing on account of public expenditure should be captured for the greater good of the public,” said Vinayak Chatterjee, chairman, Feedback Infra.
