India’s Smart Cities Mission signals a shift towards strategic planning in urban development. Transit-oriented development (TOD) is promoted under smart cities as an urban growth strategy as mobility is critical in rapidly expanding cities. Mass Rapid Transit Systems (MRTS) are an important factor in the development of urban mobility.
Considering the huge capital expenditure involved in MRTS and TOD projects coupled with limited budgetary support and grants and limited return through user charges, innovative methods of financing such as land value capture financing (VCF) instruments have become increasingly popular.
VCF is founded on the principle that private land and buildings benefit from public investments in infrastructure. Investment in MRTS projects, increase in floor area ratio and provision for mixed use development would in turn increase the value of land within the influence zone. Accordingly, VCF instruments such as levy of additional stamp duty on property sales, conversion of land use charges, sale of additional floor area ratio, cess and various other instruments can be implemented to capture a part of the increment in value of land to finance the required upgrading of infrastructure and expansion of the public transport systems.
However, there are various legal challenges regarding implementation of VCF instruments, such as sharing of amounts between various stakeholders, such as the project implementing agency (PIA) and the state or urban local bodies (ULBs), fund flows and final disbursement within specified timelines.
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Soumya Kanti De Mallik is a partner, Prithviraj Chauhan and Kshitij Gupta are associates at HSA Advocates.
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