Government looks to capture big gains from infra boom via VCF policy


NEW DELHI: A classic get-rich-quick scheme for the well-connected is picking up land cheaply near a new national highway, a railway line or in a smart city before such plans are widely known, then making a killing as prices inevitably soar. Not for much longer.

The government has decided to implement a value capture financing (VCF) policy for all infrastructure projects starting April to recover the premium that public investments generate for private landowners.

“The government has decided VCF to be an integral part of detailed project report (DPR) of all projects of the central government,” the finance ministry wrote in a note sent to all ministries and departments. ET has reviewed the note.

Government looks to capture big gains from infra boom via VCF policy

The financing tool, which is used the world over, is based on the logic that the government makes large investments in developing public infrastructure leading to rapid economic development in those areas and a spike in land prices. A VCF policy would mean tapping into this increment through additional taxes, government-as-realtor and other tools and then using these finances to fund future infrastructure projects in the same area.

The government has decided to implement such a policy after considering it for six months and conducting intensive stakeholder consultations. Ministries and departments will identify the mode by which the VCF policy can be implemented for every project. Each project proposal put before the Public Investment Board (PIB) and the Delegated Investment Board (DIB) will contain these details.
“It has been decided that the PIB headed by the secretary (expenditure) as well as the DIB chaired by the administrative department concerned while appraising a project of the Central government being implemented in the states, would see whether the ministry/department piloting the proposal relating to the project has examined the option of VCF or not,” said the finance ministry note cited above.

This is the first time a VCF policy has been framed and is being implemented at the Centre. Though the policy details some financing tools–including land value increment tax, fee for changing land use from agricultural to non-agricultural and area-based betterment charges–nothing specific has been recommended. Each project will be gauged and varied tools can be employed on the basis of location–urban or rural.

State governments have been employing the financing tool sporadically. The above policy has been recommended to the states but won’t be mandatory for them to follow.