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Global Reach
India has, to a degree, benefited from these global trends and, while impacted by the current
global showdown, is positioned for further gains. Like other aspects of doing business in India,
land development and planning have their own complexities.
Regulatory Hurdles
Former World Bank urban planner Alain Bertaud (working as a consultant to the Bank in 2002–03)
analyzed India’s land use and urban planning regulatory framework and cited regulatory hurdles as
some of the key factors that affect urban development.
India’s 1976 Urban Land Ceiling Act, in effect until 1999, required that land parcels beyond a
certain size that were left vacant beyond a specified time period must be declared surplus and
sold back to the government, typically at below-market prices, to be banked for “public” use.
A number of states also adopted similar statutes that are still in effect. Over time, these laws
have restricted the supply of vacant land, driven up prices, prompted urban sprawl, and
encouraged corruption in the allocation and development of “surplus” properties.
Strict rent control laws prohibit redevelopment or renovation of buildings until tenants voluntarily
move out. Changes in land use—particularly in cases where farmland on city peripheries is to
be developed for urban uses—require lengthy approvals, even when allowed under existing
master plans, which results in the creation of pockets of “dead land.”
Master plans perversely place tight restrictions on building floor size index (FSI), also known as
the floor-area ratio (FAR), in the central business districts of cities like Mumbai and Bangalore.
Ostensibly, this is done to limit congestion, but it also insulates municipal governments from
having to fund major water, power, transportation, and other infrastructure improvements that
would accompany higher density and urban growth. No distinction is made between commercial
and residential buildings in determining the FSI.
A low FSI restricts the height and footprint of buildings, forcing up costs per square foot to
developers and tenants. Indexes in Indian cities are generally below 2, compared with a range
of 5 to 15 in most urban centers worldwide (downtown New York is 10–15; downtown Seoul is
8–10). The practical effect of a low FSI, plus large government and institutional landholdings
kept off the market, has been to drive new development further out to the periphery of Indian
cities, adding to sprawl and pressure on infrastructure.
Among the other difficulties facing new development:
• Urban master plans are often ignored by developers and politicians.
• High stamp duties for the transfer of property discourage transfers and encourage
buyers and sellers to under-declare property values which, in turn, depresses collateral
value for purposes of obtaining construction financing.
• A property tax structure based on actual rents rather than appraised land value creates a
disincentive to develop.
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