NEW DELHI: Planning to cash in on smart city bonanza by buying a property near a new metro line or highspeed rail corridor? It won’t come cheap now. Starting next fiscal, the government will tap into the premium that public investments generate for private landowners.
The government looks set to initiate value capture financing (VCF) for all infrastructure projects in 2017-18. According to sources, the policy will be formally launched by Prime Minister Narendra Modi in February next year.
The public financing tool, which is popular the world over, is based on the logic that the government makes large investments in public infrastructure, leading to rapid economic development in those areas, including higher land prices.
A value capture financing tool would mean tapping into this increment through additional taxes and then using finances to fund future infrastructure projects in the same area. The move will require all infrastructure ministries to first identify the area of influence, which would not only include the actual project area, but also where the project would have an impact.
Then the ministry would make a value impact assessment and understand how much financial value the project would generate over the next decade or two. These studies would be a part of the detailed project report (DPR).
The infrastructure ministry would then need to identify a VCF tool and then initiate consultations with the state government. An MoU would be signed between the Centre and the state government and urban local body (if present).
The MoU would include the ratio in which funds collected from application of VCF tool would be shared. The funds collected would be put aside in an escrow account.