Value Capture Financing

  • India’s first VCF policy has been framed by the centre, as directed by the Prime Minister’s Office. This policy would help the government recover some value generated by public infrastructure investments for private landowners.
  • The principle behind VCF is that the government makes large investments in developing public infrastructure in an area, which leads to rapid economic development there, increasing the prices of the land. It was in July this year that the National Value Capture Policy Frameworkwas first reported, and it has now been framed so that it helps government make use of this increment through additional taxes. The funds would then be used for future infrastructure projects in the same area.
  • A committee, which was headed by additional secretary (urban development) Sameer Sharma, has identified target agencies that could be asked to adopt VCF as a financing tool. These include state governments, central ministries of urban development, railways, road transport, department of industrial policy and promotion, power and shipping.
  • As per the committee recommendations, the framework would be different for urban and non-urban areas, recommending that for infrastructure projects in non-urban areas, governments use a challenge method for project and site selection. It means that different areas in a state could compete against each other so that there are options for finalising SEZ project.
  • “The multiplicity of investment partners, the difference in the types of projects and the constraining resources the projects need, the difference in state and local regulations, the location of the projects and the implementation capacity all add to the complexity of devising a standard VCF policy that can anticipate the effect of these variables.

Source: Businessinsider

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