KIIFB CEO and Dr Abraham propose use of innovative instruments to overcome constraints in infrastructure financing
Observing that land acquisition is the biggest hurdle to infrastructure development in the state, a top Kerala official today suggested leveraging the potential of land bonds as a viable instrument for removing this crippling roadblock.
Kerala Additional Chief Secretary (Finance) Dr. K.M. Abraham said factors like high population density and relatively higher prosperity levels have led to skyrocketing of land cost across the state.
“In 2011-12, the budgetary allocation for land acquisition was Rs 400 crore whereas in 2015-16, it climbed to Rs 900 crore. In the coming years, the expenditure will grow to about Rs 4,000-5,000 crore. Land bonds, among other innovative instruments, could provide an alternative to this wholly unsustainable model,” he noted.
He was delivering a presentation at a session entitled ‘New Avenues and Innovative Instruments for Infrastructure Financing’ during the Kerala Infrastructure Investment Fund Board’s (KIIFB) national seminar on ‘Opportunities and Challenges in Public Infrastructure Financing’ held at the Hilton Garden Inn.
Dr Abraham, who is KIIFB’s CEO, spoke of the need for efficacious new ideas that work within the systemic constraints instituted by the Land Acquisition, Rehabilitation and Resettlement Act, 2013. He posited a more equitable structure wherein landowners are issued land bonds that take land value appreciation into account.
“Land acquisitions face resistance even where the prevailing market rate is offered on account of future appreciation not being factored in. As well, there are administrative issues relating to offering compensation that is higher than the prevailing market rate in negotiated settlements. This leads to delays,” he said.
“Allowing landowners to share in the increased revenue caused by future appreciation will remove a major constraint. In addition, giving landowners the ability to exercise redemption options at periodic intervals will help facilitate trading in land bonds,” he said, adding: “KIIFB can play a central role in this process.”
After the presentation, a panel of industry experts discussed the regulatory framework for issuing land bonds and other hybrid infrastructure financing instruments.