Chapter 3Resource Mobilization for Plan Implementation

3.1 Introduction

Land, finance and manpower are the three main resources for planning and development of urban and regional centres. As a basic principle, allocation of these resources among various competing land uses must be such that it helps in achieving an optimal level of economic efficiency with inclusion and equity $^{1}$ .

In case of spatial development and various development programmes, the government has been normally considered as the sole source for finance and ownership. However, in the recent years the role of private sector in the development process has been duly recognized. As a general policy on resource mobilization, it would be desirable to have a proper mix of public and private sectors participation, both playing a symbiotic role in such a way that the public infrastructure programmes are implemented with the strength of public authority and efficiency of the private entrepreneur. This should be the framework for PPP. The role of people is also being recognized, leading to development of the PPPP model.

This chapter focuses on the fiscal resource mobilization, land resource mobilization, good governance and manpower resources mobilization strategies for development. The local authorities, chief town planners, city commissioners could select the most appropriate model and combination depending upon the contextual possibilities.

3.2.1 Land as a Resource

Land is the medium on which the entire superstructure of human settlement is created and under which a lot of infrastructure find their place. Planning for the use of land leads to socio-economic and physical development of urban and rural areas. However, it is a scarce commodity as its supply is limited and it cannot be mass created. The (Draft) National Land Utilization Policy, 2013 states that land is required for development of essential infrastructure and for urbanization, while at the same time there is also a need to protect land under environmentally sensitive zones and land which provides ecosystem services. Farmers' livelihood options and food security issues make it imperative to protect land for agriculture. Further, the need to preserve natural, cultural and historical areas requires land protection. It is, therefore, most essential to ensure

$^{1}$ Technology and capacity to handle the various resources can also be defined as a resource.

that utilization of the available land is judicious and in the best interest of the community through the instrument of development plans.

Land value depends on demand and supply of land. The value increases as the demand exceeds the supply, which is the general case, owing to limited supply of land against it growing demand in the wake of urban growth and development. The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013(RFCTLARR Act, 2013), defines “land” so as to include the benefits that arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth $^{2}$ . The Act also requires that the market value of land be calculated as the minimum land value specified under the Indian Stamp Act, 1899 for the registration of sale deeds in the area, where the land is located, or the average of the sale price for similar type of land located in the immediate areas adjoining the land being acquired. It is to be ascertained from fifty per cent of the sale deeds registered during the preceding three years, where higher price has been paid. This approach is suggested for determining the market value of land for acquisition.

The Land Acquisition Act of 1894 was made mainly to facilitate the government to procure privately held land for the purpose of developing public infrastructure and also for companies. After 120 years, this Act was replaced by the RFCTLARR Act, 2013. The Act has provided for fair compensation to those whose land is acquired permanently or temporarily, while bringing in enhanced transparency to the process of acquisition of land.

Land assembly and development mechanism are undertaken for achieving optimum social use of urban land and to ensure adequate availability of land to public authority and individuals. Public private participation is achieved in land development through various techniques. Mainly, land assembly techniques prevent concentration of land in few hands and promote its efficient social and economic allocation. Some of the land assembly techniques also promote flexibility in land utilization in response to changes resulting from growing city. The various mechanisms to assemble and/or develop land are enlisted below:

■ Land Acquisition: bulk land acquisition by State and by private initiatives.

- Land Pooling: land pooling approach and redistribution scheme, popularly known as Town Planning schemes.

- Land Reservations: the concept of Accommodation Reservation which allows the land owner to develop the sites reserved for an amenity.

$^{2}$ Appendix B of Volume II B provides definition for land and associated terms.

■ Transferable Development Rights: a technique of land development which separates the development potential of a land parcel for use elsewhere.

Guided Land Development: this model uses the provision of infrastructure as an instrument to guide urban development in partnership with landowners without pooling any land.

3.2.3.1 Land acquisition

“Land Acquisition” popularly means the acquisition of land for defined public purpose by a government agency from individual landowners, as authorized by the law, after paying a government-fixed compensation to cover losses incurred by landowners from surrendering their land. The land acquisition process can be undertaken by the State or through private initiatives. As of now, most of the land acquisition is to be processed as per the RFCTLARR, 2013. Some models of land acquisition are as follows:

3.2.3.2 Land pooling

In Town Planning or Plot Reconstitution Scheme, the land is pooled and its development is financed with the involvement of landowners without compulsorily acquiring land. This land assembly technique helps to provide plots for basic services in a planned layout from the original haphazard arrangement. Costs incurred by the developmental authority for development and for infrastructure are recovered from the sale of few of the final land plots reserved by the authority and betterment charges levied on land owners. The reconstituted plots are allotted to the landowners in proportion to their original land holdings.

The scheme was first introduced in the Maharashtra Regional and Town Planning Act, 1966 and later in Gujarat Town Planning & Urban Development Act, 1976 and is now widely appreciated model of land assembly. Another deviation of the land pooling mechanism has been recently introduced by the Delhi Development Authority (DDA), wherein DDA facilitated developers and landowners to pool land for development.

The town planning scheme is referred as ‘land acquisition without tears’ and has the following key advantages:

■ Infrastructure is provided in coordinated way.

■ Partial cost is recovered through betterment charges.

- Land for public and community purposes including green & open spaces is acquired without direct expanses.

■ Community benefits through unified planning.

■ Landowner shares the project cost and benefits by increased property prices.

However, the Land Pooling Scheme suffers from certain difficulties, such as:

- Delay in process of preparation, approval, arbitration and implementation, mainly due to litigations.

There are issues related to cost recovery.

There is also inadequate public participation in such schemes. To overcome the drawbacks of TP scheme, some suggestions are enlisted below:

■ Division of scheme into planning and financial part, which has been done in the Gujarat model.

- Appointment of an arbitrator and a project planner by local authority to modify the plan after initial preparation, who would undertake active consultation with original stakeholders pre and post plan preparation.

The contribution, which is based upon the estimated value of land assuming full development as per the scheme, should be replaced by estimated cost of the scheme.

■ Provision of Transferable Development Rights in lieu of compensation to original plot holders can be considered.

- Land pooling schemes to be prepared only for the areas included in current development plan.

Land development for Schedule-6 areas: Some North-east states have areas covered under the Schedule 6 of the Constitution. In such areas, land development and planning are not directly under the control of the State government but vests with the Autonomous District Councils and mainly under community ownership. Therefore, communities can be involved in development process of the settlements as it may be viable and easier approach.

3.2.3.3 Land reservations

The concept of Accommodation Reservation allows the land owners to develop the sites reserved for an amenity in the development plan using full permissible Floor Space Index (FSI)/ Floor Area Ration (FAR) on the plot, subject to agreeing to entrust and hand over the built-up area of such amenity to the local authority free of all encumbrances and accept full FAR/FSI as compensation in lieu thereof. The area utilized for the amenity would not form part of FAR/FSI calculation.

Reservations such as retail markets, dispensaries, etc. can be implemented in this way wherein local authority is not required to acquire the land by incurring expenditure on payment of compensation. In case of reservations like shopping centres etc., the owner can be allowed to develop these on agreeing to give at least upto 25% of the shops to the local authority for the purpose of rehabilitation of the displaced persons on payment of cost of construction.

In case of road widening/ new construction, the local authority can grant additional FSI on 100% of the area required for the purpose, provided the owner surrenders the land for widening or construction of new roads to the local authority free of all encumbrances and accept the additional FAR/FSI as the compensation in lieu thereof. This mechanism has considerably relieved local authorities from incurring huge expenses for the purpose of acquisition of such lands. The model can be explored for other non-economic activities such as open spaces, public utilities among others.

The concept of accommodation reservation has been incorporated in the Development Control Rules of the Mumbai Municipal Corporation.

3.2.3.4 Transferable Development Rights (TDR)

TDR is a technique of land development, which separates the development potential of a particular parcel of land from it and allows its use elsewhere within the defined zones of the city. It allows the owner to sell the development rights of a particular parcel of land to another. This entitlement is over and above the usual FSI available for receiving plot in accordance with the prevailing laws and regulations, which entitles a landowner to construct additional built-up area on his existing building or vacant land.

TDR is taken away from the zone and it is tradable which makes it different from Accommodation reservation. This is also generally used for redevelopment of inner city zones and for reconstruction/ re-development and has been tried out in numerous cities/ States including Bengaluru, Chennai, Mumbai and Rajasthan. However it has its prospects and consequences as experienced from the implementation in various cities. For instance, unbridled pooling of TDRs could damage the urban form! Hence it should be used carefully. States like Karnataka and Rajasthan have made provisions to mitigate such effects.

3.2.3.5 Guided Land Development

Guided land development model uses the provision of infrastructure as instrument to guide urban development. This is done in partnership with landowners who pay for the cost of providing services to their land and in return donate land for public infrastructure and a payment as betterment levy. This model, also proposed by the United Nations Economic & Social Commission for

Asia & Pacific (UNESCAP), has been for guiding the conversion of privately owned land in the urban periphery. It uses a combination of traditional government role of providing infrastructure and the enforcement of land subdivision regulations. The key advantage of the approach is that it is less costly than outright land acquisition and more equitable than land banking.

The principle behind guided land subdivision is that the government agency proactively selects the direction where it feels urban development should take place and provides infrastructure in those areas. This acts as an incentive to encourage developer to invest in the planned area selected by the government agency. The cost effectiveness of guided land development approach results from the fact that land development is planned, designed and implemented with the landowners of the designated area, who donate land for roads and right of way for infrastructure and public spaces, as well as pay a betterment levy to meet the costs of the project. To finance the scheme, a loan is initially taken to build the infrastructure, which is paid from betterment levies provided by landowners either on annual installments or in lump sum upon sale of land. The infrastructure is provided by the government agency upto the site. Individual landowners are supposed to subdivide their land for various developments and lay the on-site services.

But Guided land is often fraught with difficulties on the ground. First, as the model depends on the consent of the landowners it cannot be applied in areas with fragmented landownership, lack of owners' will and consensus. Second, collection of betterment levies may not be feasible by small landholders and lead to default of payment.

Most cities in developing countries suffer from land market distortions caused by poor land development and management policies including poor planning, slow provision of infrastructure and services, poor land information systems, cumbersome and slow land transaction procedures, as well as under regulation of private land development, leading to unplanned or ribbon/corridor development of land in the urban periphery. The urban poor suffer most from a dysfunctional city. Distortions in the land markets allow land speculation, which often prices the poor out of the formal land markets and into the informal land markets, which are exemplified by slums, squatter settlements and illegal subdivisions, mainly in the periphery of cities. This leads to longer commuting time and costs, poor living conditions, in adequate infrastructure and services, adversely affecting the health and financial condition especially of the poor, thereby entrenching the cycle of poverty.

Land and housing have special significance for the poor. Often for poor, a house is not just a shelter, but is also a place for income generation. Urban settlements

of the poor in the region are characterized by home based workshops from which the poor earn their incomes. Though slum, squatter and illegal settlements are often used interchangeably but they are different from each other and denote different characteristics of the settlement.

- Slums are legal but substandard settlements, with a lack of adequate services and overcrowding.

- Squatter are settlements where land has been occupied illegally. They are often found on marginal or environmentally hazardous lands, such as close to railway tracks, along rivers and canals etc. They are also found on government land or land whose ownership is unclear.

While squatter settlements are spontaneous and unorganized, illegal settlements are planned and organized. These usually occur in cities where the government owns large tracts of vacant land, with low opportunity cost.

3.2.4.1 Inclusion of Poorer Section into the Formal Land / Housing Market

Experience has shown that bringing the poor into the formal land and housing markets needs a two pronged strategy: increasing the choices available on the supply side and increasing affordability on the demand side.

1. Increasing supply of land for the poor includes following:

- Sites and services: It provides the target group with a plot and basic infrastructure, such as water, roads and sanitation facilities.

- Illegal settlements regularization/upgrading: Settlement upgrading provides existing settlement dwellers land tenure, as well as, basic infrastructure.

- Landsharing: Landowner and the land occupants reach an agreement whereby the landowner develops the economically most attractive part of the plot and the dwellers build houses on the other part with full or limited land ownership.

- Sites without services- incremental development: The approach includes mechanisms whereby groups of households are encouraged to organize themselves, accumulate funds and provide infrastructure gradually.

- Private developers to provide a percentage of FAR (DDA norms provides $15\%$) for EWS housing to be handed over to LB/ Authority at predetermined price.

- Reservation for servicepopulation including domestic help, cleaners, drivers, other small scale and informal services should be made (DDA norm in $50\%$).

2. The strategy of increasing effective demand for land for the poor has following schemes which can be used to provide better shelter to the urban poor:

- Community organization: Organized communities of the poor can afford housing and they also negotiate with governments and other stakeholders more effectively.

- Increasing savings and providing access to finance: Community-based savings-and-credit schemes preserve organized communities and increase access to finance.

- Improving income opportunities by providing access to the Central and State level schemes for employment (like Swarna Jayanti Shahari Rozgar Yojana, Urban Wage /Self-Employment Programme, Women Self-help Programme) and vocational trainings (like Skill Training for Employment Promotion).

(Source: UNESCAP- Urban Land Policy for the Uninitiated, DDA Norms and other sources.)

Local bodies play an important role in providing social, civic, physical and economic infrastructure services to the public. Municipal finances are critical in initiating many urban and local governance projects, as financial resources' strategic management plays a vital role in ensuring long-term sustainability of local services and infrastructure. With the introduction of $73^{\mathrm{rd}}\& 74^{\mathrm{th}}$CAA, local government's role and responsibilities have been increasing continuously. To realize these responsibilities local governments require steady flow and efficient management of financial resources. However, as the traditional system of funding on basis of plan and budgetary allocations will be reduced, the local authorities will have to devise innovative methods of resource mobilization through fiscal instruments and accessing the market. The subsidies will need to be rationalized and urban development plans and projects need to be designed as commercially viable. A general lifecycle of a project is depicted in Figure 3.1.

Also the estimation of project cost is to be accurately calculated including contingencies. The important head for project cost calculation are:

1. Capital Investment (Capex), including-

- Land cost

– Common infrastructure cost, like roads, water supply etc.

– Project specific infrastructure cost like toll plaza, bridge- s

– Building and civil cost

– Interest during construction

2. Working capital margin (also incidental expenses)

3. Operations and Maintenance cost (s) (O&M), including-

- Salary & Wages

– Recurring raw material cost

– Repair & Maintenance

– Administration & overheads

– Marketing expenses

– Project specific operating expenses

Requirement of finance in the project life cycle is for implementation and then later for operation and management. The first activity is raising funds in bulk to initiate a project. Once construction is over, the later stage of operation and maintenance requires steady flow from revenue sources. However, only well planned and implemented infrastructure projects generate revenue income for local authorities in form of fees and charges. Figure 3.1 depicts general life cycle of a project. Various innovative and traditional approaches for financing developmental activities are available these days and an attempt to prepare a comprehensive list has been made, as presented in Figures 3.2 &3.3 below.

Diverse options of the source finance are available for developmental projects. These traditional and innovative sources of financing projects at State and ULB level through funding and revenue sources are detailed below:

a. Taxes: State government authorises local governments by law, to collect taxes. Taxes are major source of revenue of Urban Local Bodies. Property tax, profession tax and advertisement tax are major sources of revenue in local governments.

b. Charges and fees: Local bodies levy charges and fees for the services provided to citizens. These charges, for water supply, solid waste management, parking and other such services to cover the cost of undertaking the provision of services.

c. Grants and Subsidies: Grants and subsidies are generally given by central government to state/ local government or State to local government for development and provision of services to citizens.

d. Public Private Partnership: PPP is an agreement between public and private entity for providing services or infrastructure to citizens. It helps municipal authorities to shed some of its functions and evolve alternative institutional arrangement for the performance of such functions.

e. Loans from financial institutions: Public and private organisations come together to pool funds from public and investing it in financial assets. Such loans are for long term.

f. Funding by Bilateral and Multilateral Agencies: These are developmental agencies which provide soft loans for infrastructural projects. Almost all such loans are backed by sovereign guarantee and take long process to access.

g. Foreign Direct Investment: FDI is direct investment from company or entity into a foreign country.

h. Pooled Finance Development Fund (PFDF) Scheme of Government of India: PFDF is meant to provide credit enhancement grants to enable ULBs to access market borrowings to facilitate development of municipal infrastructure.

i. Municipal Bonds and Debentures: Municipal bonds and debentures are issued by ULBs and Infrastructure Funds, to general public or specific institutional investors to raise finance for developing physical infrastructure.