How Efficient Are Transferable Development Rights?

As much of the public infrastructure in India is built by the centre, the state or local authorities, land acquisition has been the predominant mode used to build these projects. But, over the past one decade, protests against land acquisition has been so intense that the government had to revise the laws. The previous United Progressive Alliance (UPA) government's land acquisition Bill, according to many experts, has made land acquisition extremely difficult. The current National Democratic Front (NDA) government's revised Bill was also opposed so vigorously that the government decided to give in, allowing state governments to make laws more flexible.

The Telangana way

In Telangana, the government decided that the people whose land is acquired for the “Master Plan” road projects will be given incentives through transferable development rights (TDR). This means that the people who have given up a certain portion of their land will be given right to build taller buildings in the rest of the land that they own. Even if land owners do not wish to develop their remaining land constructing greater floor space, they will have the right to transfer it to private developers or someone else. The government also lowered the impact fee for a higher FSI. This is to encourage construction of taller buildings in Telangana.

The logic behind this is simple. Giving twice the value of the land in urban areas while acquiring another parcel in rural areas, it is not feasible. The compensation set by the Land Acquisition Act 2013 is believed to be too high.

But, is this a good way to find land for building public infrastructure?

The truth is that Indian cities are badly in need of infrastructure. Most Indian cities are served by such poor infrastructure that land values will significantly rise, if certain areas are served by better. Wealthier nations recognised this long ago, and have tried to allow land owners to benefit from the rise of land values because of recently constructed infrastructure. Recently, developing countries, especially Latin American nations, have been following the same path.

Of course, there are some good arguments against transferable development rights. One argument is that land owners benefit from transferable development rights because existing FSI is too low. When FSI rises, this will cease being profitable. But, as FSI is too low and because there is a growing need for better infrastructure and floor space, this seems to be a good move.

This would also reduce the dependency of governments and local authorities on external debt. As the government grants transferable development rights to farmers and other owners, they no longer need to borrow money to fund infrastructure projects. There are other proposals for allowing land owners to profit from the rise in the value of land when new infrastructure projects come into being. One is to link property taxes to real estate values. The money for building infrastructure projects will come from the rise in property tax revenues. This would also give greater incentives for the government to build infrastructure, where it is most needed.