Offbeat funding methods gain traction for city infra projects

Realty Zone / Jul 15 2012

With various state governments planning mass rapid transit (MRTS) projects across major metros in the country, the implementing agencies are considering innovative financing methods to meet the investment requirement of such projects.

A case in point is the Mumbai Metropolitan Region Development Authority (MMRDA) which aims to garner funds for the upcoming metro and mono rail projects in the city by imposing an initial one-time 10 percent development tax on the ready-reckoner value.

However, property developers and property owners may resist such a move as indicated by a poll conducted by Project Reporter. Seventy percent of respondents of the poll are against the imposition of such a tax, while the remaining favour it.

This tax will have to be paid while registering the property in new developments or existing structures. Of the total tax collection from this avenue, 70 percent may go to MMRDA and the balance may lie with the civic body.
Reports suggest that Maharashtra Chief minister Prithviraj Chavan has asked MMRDA to enumerate details of such a tax to the state planning commission and a final decision would be taken based on the details.

The move by MMRDA marks a significant change in the way government and quasi-government agencies raise funds for public projects without depending entirely on plan and budgetary allocations, which are a drag on fiscal resources.

According to guidelines from central government, state government and urban local bodies must consider innovative ways of raising resources to fund infrastructure projects thereby reducing their reliance on government resources.
Central government suggested that urban development plans and projects need to be placed on a commercial format by designing commercially viable urban infrastructure services and area development projects.

The proposal to impose development tax can be justified by the fact that property owners in prime locations of such infrastructure projects stand to gain immensely from the future appreciation in the value of their property owing to its strategic location.

Other innovative resource mobilisation measures advocated by central government include increase in the non-property taxes and using Public-Private Partnership (PPP) in service delivery.