The government is considering a proposal to exclude the cost of land while computing the total cost of infrastructure projects. This is likely to expedite the process of clearance of government-backed infrastructure projects. This is how it will work. Currently, all ministries need clearance from the Cabinet Committee on Economic Affairs (CCEA) for projects above Rs.1,000 crore. With land now excluded from project cost calculations, the need to approach CCEA for clearance now stands diminished to that extent. Several projects with cost exceeding Rs.1,000 crore (including land) would now fall below the threshold limit, enabling ministries and departments to clear projects on their own.
The move is significant as it demonstrates the government’s intent to compress project gestation periods. Pre-project clearances are known to be very time consuming as they involve much paperwork. The exclusion of land from the project cost calculation is pertinent given the spiraling cost of land and its increasing share in overall project costs. Industry experts estimate that, on average, land cost could account for as much as 40 per cent of the total cost as against 10-15 per cent, few years ago. The new policy is expected to receive Cabinet approval soon.
Land prices have also increased due to upward revisions in rehabilitation and resettlement policies. The new policy proposal is likely to favourably impact land-centric projects like roads and urban infrastructure projects. Mega thermal and hydropower projects that are expansive in nature could also be beneficiaries of the new policy.
It may be recalled that in August last year, the Centre raised the CCEA-approval threshold from Rs.300 crore to the present Rs.1,000 crore. Exclusion of land cost from the project cost being proposed now will expedite the project clearance procedure even further.
The dominance of land in the overall project cost can be well understood by figures released by National Highways Authority of India in July this year. NHAI estimated that land costs have risen to Rs.3 crore per ha from an average of Rs.56 lakh per ha in FY12. For a frame of reference, a four-lane national highway needs 1.5 ha of land. [1 ha = 1 hectare = 10,000 sqm; 100 ha = 1 sqkm] Much of this increase has come about due to better market-related land compensation. It may be mentioned that while lucrative compensation has made landowners more forthcoming in selling their land for highway projects, a steep rise in land prices has caused highway usage charges (toll) to escalate significantly.