Value Capture Financing 

Traditional resource mobilisation through direct sale of land, the most fundamental asset owned and managed by States and Urban Local Bodies is an inefficient form of resource mobilisation and the Centreal government is keen about land monetization more effectively though value capture. The Ministry of Urban Development is mulling over a policy framework for an innovative resource mobilisation through Value Capture Financing (VCF).

This seeks to enable States and city governments raise resources by tapping a share of increase in value of land and other properties like buildings resulting from public investments and policy initiatives, in the identified area of influence. This innovative mechanism could also be used by central Ministries investing heavily in building national highways, railway projects, power generation and port infrastructure development. Value capture is a type of public financing that recovers some or all of the value that public infrastructure generates for private landowners.

The government is keen on integrating VCF into project feasibility assessment for systematic and large-scale adoption of capturing a part of potential increase in the value of land and other properties resulting from the proposed investment. The different instruments of VCF are: Land Value Tax, Fee for changing land use, Betterment levy, Development charges, Transfer of Development Rights, Premium on relaxation of Floor Space Index and Floor Area Ratio, Vacant Land Tax, Tax Increment Financing, Zoning relaxation for land acquisition and Land Pooling System.

While betterment levy and development charges are being currently used to some extent in States, the other instruments also have substantial scope for resource mobilisation. Some cases of current use of VCF tools are: The Mumbai Metropolitan Region Development Authority (MMRDA) and City and Industrial Development Corporation Limited (CIDCO) have used different Value Capture methods including Betterment levy to finance infrastructure development in the urbanizing areas.

Tamil Nadu and Maharashtra have made Land Value Tax applicable to urban areas too. West Bengal has formulated a system to capture gains from land use conversion. Area based Development charges are being resorted to in Andhra Pradesh, Gujarat, Maharashtra, Tamil Nadu and Madhya Pradesh. Andhra Pradesh has resorted to Land Pooling for acquiring land for its Amaravati Capital Project under which farmers have given land in return for developed land parcels. Gujarat and Haryana also used this tool for some projects.