Land as Capital: A New Model for Financing Urban Growth

In recent years, India has seen a quantum jump in large-scale public and private investments across roads, railways and aviation. While these projects are key to driving economic growth, they require significant financial investment with returns that are often difficult to monetise.

Typically, governments are responsible for funding such large-scale initiatives. However, they often struggle with limited tax revenue, fiscal deficits and bureaucratic inefficiencies. Private lenders, on the other hand, tend to be reluctant to loan money to the government for long-term projects due to risks such as delays, regulatory uncertainties, and a lack of predictable financial outcomes.

Amid these challenges, a well-known but an underutilised opportunity is that the land near infrastructure projects tends to appreciate as development progresses. As noted in the World Bank’s 2009 report, Unlocking Land Values to Finance Urban Infrastructure, “Land has a long history as an instrument of urban infrastructure finance”. 

Funding growing infrastructure needs 

Currently, land acquisition in India remains arbitrary and politically driven. Insiders, particularly politicians, frequently receive illicit payments from private developers who are tipped off about the locations of proposed major infrastructure projects.

Developers then acquire land at throwaway prices, which increase once the project is announced and developed. This system benefits a select few while depriving the government of the increased land value that could otherwise be reinvested in public infrastructure.

To fix the issue, I propose an ‘equity-like auction model’ that formalises land-based financing by making the process of selecting project location fair and transparent. In this market-driven approach, private players bid for the right to host infrastructure projects.