Introduction

Globally, governments at all levels—national to local—are fiscally constrained, particularly in India and other developing countries of the Global South. Specifically, local and state governments are more fiscally limited because a large proportion of tax and fee revenue typically accrues to the national government. This issue is further exacerbated due to several reasons. First, local and state governments have very little authority to levy new taxes. Second, the national government, being severely indebted externally and internally, is unable to extend funds to local and state governments for urban development. Third, the municipal bond markets are either underdeveloped or nonexistent in such countries, limiting their ability to access private capital markets to generate funding. Finally, residents resist traditional tax-based revenue sources, such as property and income taxes. In such a scenario, the countries require additional sources of revenue to fund urban development, especially due to their rapid rate of urbanization. For example, the increase in India’s urban population will be the largest in the world, surging by 404 million from 2014 to 2050, and China will follow suit with 292 million (UN 2014). Therefore, development charges can be a significant source of revenue for funding urban development in India.

Property owners pay these charges when seeking the government’s approval to change or institute the use of their land parcels or to improve them. They pay the charges to public agencies, which, in turn, use this revenue to mitigate the negative impacts of the charges-paying development, for example, providing the infrastructure needed to serve the development. In India, these charges are often meager, and they are not tied to the cost of providing infrastructure and services that serve the development, such as roads, parks, and schools. In many cases, the charges have not been updated for decades. Therefore, they have not kept pace with the cost of developing urban infrastructure and services.

Development charges fall under the larger umbrella of development exaction. Jurisdictions require that real estate developers pay development exactions at the stage of building permit approval. Jurisdictions levy the exactions to mitigate the impact of the proposed real estate development on public infrastructure and services (Mathur 2016). The developer exactions could be financial or in kind. For example, as a condition for permitting a 500-unit apartment complex, a city government can levy development exactions on the real estate developer.