Maharashtra plans fund for Mumbai with new construction levies

The Maharashtra government has decided to create a Mumbai Development Fund (MDF) to finance mega infrastructure projects in the city.

The fund will be created by imposing new levies and charges on big construction schemes and, possibly, on users of the new metro and monorail projects.

The levies will also include part of the money received from charging a premium for the grant of additional FSI (floor-space index) and TDR (transfer of development rights).

While Rs 700 crore is expected from additional FSI premia, additional funds will be generated by imposing a development surcharge on construction projects above 10,000 sq ft.

A part of the receipts from stamp duty will also be funnelled into the MDF, which is intended to provide initial or viability-gap funding for future infrastructure projects.

The new surcharges and levies are still being weighed and a final decision on the exact mix will be taken after due consideration. But any development surcharge or betterment levies imposed on construction and public transport projects will mean higher realty prices in Mumbai.

Says Bhagwan Devkar, president, Builders Association of India: “The surcharge will definitely be passed on to consumers. Whenever taxes and duties are levied on real estate projects, they are passed on to end-users, like the service taxes levied recently.”

“The charges are expected to be levied on a one-time basis, but ultimately they will be recovered from the people by the agencies concerned. The surcharge on rail or residential construction projects will definitely be passed on to end-users,” said an official from Mantralaya.

During a presentation made by the Mumbai Transformation Support Unit (MTSU) at a meeting presided over by chief minister Ashok Chavan on Wednesday, the various funding options came up for discussion.

As the concept has been approved in principle by the government, the proposal for new levies will come up before the state cabinet for a final nod.

A final decision about the size of the MDF, the monitoring agency, and sources of fund mobilisation will be taken by the cabinet.

An official from the state urban development department said the MDF will be utilised for future infrastructure projects.

“The MDF corpus will be used by the government to kick-start priority infrastructure projects like flyovers, water supply and sewage projects. It cannot be utilised on ongoing projects, but can be used even for viability-gap funding,” he said.

Though the size of the fund has not been decided yet, the government could contribute 50% of the revenues it gets from various infrastructure-related sources. “The premium received from additional FSI and stamp duty on various agreements can be channelled into the MDF. Once it proves successful in Mumbai, we will take the concept to other cities,” the official added.

In the short-term, however, the government has to try and reverse the high court’s decision to quash the additional FSI of 0.33 given to development in the suburbs. This additional FSI was bringing in a premium, and the MDF will not take off till this ruling is nullified. The government is thinking of either amending the law or challenging the high court ruling on FSI.

The MTSU, a government-supported think-tank headed by a Maharashtra-cadre IAS official, has also suggested levying a premium on the Dharavi Redevelopment Project to create another funding source for the MDF. But the housing department has opposed this. “The premium from the Dharavi project cannot be utilised for MDF as it has to be kept as a shelter fund,” the department stated.

Chief minister Ashok Chavan has said that infrastructure projects worth Rs 50,000 crore have already been approved and are at various stages of takeoff.

However, the city’s ambitious makeover plans would require the state to mobilise even more funds to streamline its civic amenities.