How Would Govt Fund PM Modi's Infrastructure Plans?

India is among the fastest growing economies in the world. According to Central Government estimates, India needs to spend $1 trillion on infrastructure by 2017 to maintain this pace of growth. Even though India is the second-most populous country in the world, the quality of infrastructure is poor by global standards. A common argument is that a dense population would exert great pressure on existing infrastructure. If this is true, this means that a country as populated as India deserves much better infrastructure.

Given this, Prime Minister Narendra Modi wants every major infrastructure project in India to be completed as quickly and efficiently as possible. A look at how the Government may go about this:

The cost of building infrastructure is often overestimated, in the context of needs of people. Illegal squatters in cities often feel that their property rights are not secure. But, much of the land in urban India is occupied by various government agencies and organisations. This is not necessarily wasteful, given the fact that the Government, currently, performs various essential services. But, in most cases, the value of the services government agencies perform is lower than the market value of the land. In such cases, it makes sense for the Government to declare such land as underused, and liquidate such assets. This would be enough to fund many important infrastructure projects in India.

Even though a significant fraction of the urban land is owned by the Government, data on this are not public. For instance, a survey done over two decades ago estimated that more than 30 per cent of the land in urban India is owned by various government agencies. This excludes land owned by various residential project boards and development authorities. The Government could do an inventory of urban institutional land holdings to estimate how much land it may unlock for various infrastructure projects. If the Government estimates the value of its assets at market value, it is easier to decide whether to sell it and use the proceedings to fund major projects.

Much of the land owned by private individuals and organisations is not properly utilised. For example, the Mumbai Draft Development Plan, 2034, is expected to unlock 16,764.74 acres of land for development. Recently, newspapers reported a land parcel of 106 acres owned by the Sahara Group here is worth Rs 20,000 crore. This means that the value of under-developed private land in Indian cities is incomparably higher than even the most- expensive infrastructure projects in India's history.

When the Government builds a superior infrastructure, value of the real estate would rise. But that is not all. Many areas that are not fit for habitation would become pleasant, vibrant urban areas. For instance, cities like Gurgaon have more professionals per square inch than any other Indian city, but have a weak infrastructure and transportation networks. Like Gurgaon, cities like Mumbai, too, contribute more to India's economy than the cost of the infrastructure state governments have built in these cities.

State Governments could also easily raise funds for infrastructure development by charging a premium for a higher FSI (floor space index) around transit corridors and CBDs (central business districts) of cities. Moreover, a high FSI would free up much of India's urban spaces. With a high FSI, parking space required near transit stations would be less, too. In other words, a high FSI would not only generate funds, it is also possible that it may lead to infrastructural needs declining.