Within two months of BJP government coming to power in Uttar Pradesh, the state has gone from being a laggard on all urban development initiatives to being the front runner in urban reforms agenda. Uttar Pradesh has taken the lead among all states with 61 cities opting for value capture financing to fund infrastructure projects.
In less than two months of finance ministry directing all central ministries and state governments to tap into the value that infrastructure creation generates for land owners, 163 cities across 17 states and two union territories have decided to opt for the initiative.
Leading the pack is Uttar Pradesh where 61 cities have decided to frame value capture financing policies. Andhra Pradesh follows Uttar Pradesh with 33 cities planning to frame VCF policies and Gujarat with 32 cities.
The financing tool, 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.
Uttar Pradesh, which under Samajwadi Party government had shown little enthusiasm for Modi government's flagship programmes, has taken the lead with even mofussil towns jumping on the urban reforms bandwagon.
All 61 cities have appointed consultants to guide them in framing VCF policies. These include Amroha, Banda, Baraut, Chandausi, Kasganj, Maunath Bhanjan, Sitapur and Varanasi.
According to urban development ministry sources, most cities would be using the financing tool for the first time. “This way a city would also get to know which new areas it can plan projects in and how it would rake in the funds. The consultants would also help in identifying the best-suited VCF tool. So far only a few states like Andhra Pradesh and Maharashtra had been using VCF tools sporadically on case-to-case basis but never as a policy,“ an urban development ministry official said. Urban local bodies would commonly increase property tax of an area in case of developmental projects escalating property prices.
However, the local bodies would never use these finances for future urban development projects of a specific area.
The official said, “The main point of a policy would be that whenever there is a new project, an urban local body would know how much it can tap from it and use the additional funds to finance a future project in the same area. The consultants would also help a city in identifying specific zones where these tools can be used.“
The tremendous response from the cities has come as a fillip to Modi government's urban reforms agenda. The finance ministry had notified VCF guidelines in March and made it mandatory for central ministries from April this year.
It had laid down that each project proposal put before the Public Investment Board and the Delegated Investment Board will contain which VCF tool is most feasible.The Centre had not expected state governments to own up the initiative with such enthusiasm.