NEWS – The Karnataka administration is exploring innovative ways to mobilize resources from land assets by studying “value capture” models used in other Indian states and countries

HIGHLIGHTS

Monetisation of Land

• Preliminary Report: Based on a report by Boston Consulting Group (BCG), the government is considering monetizing 25,000 acres of land around Bengaluru.
• Finance Department’s Stance:
  • Denied outright monetization but acknowledged recommendations for limited monetization of non-strategic assets.
  • Emphasis on optimizing resource mobilization without burdening citizens.
  • Focus on equitable economic growth to benefit poorer sections of society.

Development of Idle Land Parcels

• Strategy: Developing idle government land to generate continuous revenue without selling these lands.
• Value Capture Financing (VCF):
  • Adoption of innovative VCF methods to generate revenue.
  • Studying successful VCF methods from other states and countries to adopt the best practices.

Unlocking Private Land Value

• Mechanism: Orderly town planning and infrastructure development (e.g., roads, civic amenities, metro lines) to enhance the value of private lands.

Non-Tax Revenues

• Potential Sectors: Mining, advertisements in urban areas, and naming rights.
• Tax Compliance: Exploring measures to improve tax compliance.

WHAT IS VALUE CAPTURE FINANCING (VCF)?

Definition

• Public financing method that recovers some or all of the value generated by public infrastructure for private landowners.
• Enables states and city governments to raise resources by capturing a share of the increased value of land and properties resulting from public investments and policy initiatives.

Working Mechanism

1. Value Creation : Public regulations, policies, and investments lead to the creation of value.
2. Value Realization by Private Owners: Example: A developer gains higher value when selling housing units along a government-planned metro corridor.
3. Value Capture: Agreement between government and private owners on sharing the captured value.
4. Value Recycle: Resources collected are reinvested in other parts of the city to create new value.

Instruments of VCF

• Land Value Tax
• Fee for changing land use
• Betterment levy
• Development charges
• Transfer of Development Rights
• Premium on relaxation of Floor Space Index (FSI) and Floor Area Ratio (FAR)
• Vacant Land Tax
• Tax Increment Financing
• Zoning relaxation for land acquisition
• Land Pooling System

Traditional vs. Innovative Resource Mobilization

• Traditional: Direct sale of land by states and urban local bodies is considered inefficient.
• Innovative: VCF can be utilized for substantial investments in national highways, railway projects, power generation, and port infrastructure development.