Infrastructure project budgets may exclude land cost for faster clearances

The government could soon give the go-ahead to excluding the cost of land while computing the total cost of infrastructure projects, a measure that will allow more ministries to clear their own projects without going through the time-consuming process of seeking the approval of the Cabinet Committee on Economic Affairs. 

All infrastructure projects costing over Rs 1,000 crore have to be approved by the CCEA and given the high cost of land, many projects will remain below the threshold if this component is not included in the project cost, officials said. 

"The Prime Minister's Office has supported the proposal to exclude the land cost from total project cost. We are expecting to get the Cabinet's approval soon," said a senior official of the road transport and highways ministry, which has moved the proposal. 

The land cost makes up as much as 40% of the project cost in many cases, according to officials, who said the proposal will benefit the ministries of urban development and railways as well. To implement the proposal, the government will have to amend the transaction of business rules for the Cabinet Committee on Economic Affairs.

 Experts welcomed the proposal. "The move is very logical. Once the annual plan of capital expenditure of any ministry is approved what's the need to get cabinet clearance for each and every small project," said Vinayak Chatterjee, chairman, Feedback Infra Services. "Even the existing limit needs to be raised if the government is serious about empowering ministries," he said.

According to the data available with the road transport and highways ministry, the land cost in recent times has seen a significant increase in states including Delhi, Punjab, Haryana, Uttar Pradesh, Maharashtra and Karnataka. 

"Earlier, the land cost for any project was not more than 10-15%, but because of the increased compensation for land acquisition in some cases prices of land are as high as the construction cost. Exclusion of land cost is a must if we have to increase the pace of awarding projects," the government official cited earlier said. 

As per the National Highways Authority of India's figures, the estimated initial price of land has increased to Rs 3 crore per hectare on average from Rs 56 lakh in 2011-12. About 1.5 hectare land is needed to build a four-lane highway, for instance. The land would have cost about Rs 75 lakh in 2011-12, but now the cost of acquisition has increased to Rs 4.5 crore. 

SOURCE: ET, CCEA