Floor Area Ratio incentives for urban development in India's smart cities

ADB has released a research paper that assesses Floor Area Ratio incentives and draws on lessons learned from international experiences to understand the potential for stimulating urban redevelopment and improving quality of life in Indian cities.

Rapid urbanization puts tremendous stress on Indian cities. In the last 2 decades, India’s urban population has increased exponentially, with 420 million Indians—33% of the population—living in cities in 2015.

Experts estimate that urbanization will peak in 2050, with more than half of India’s population living in cities.

The Smart Cities Mission was launched in 2015 to transform and improve livability in urban areas in the country through various redevelopment strategies including land-value capture mechanisms.

ADB has released a research paper that assesses one such measure, Floor Area Ratio incentives, and draws on lessons learned from international experiences to understand the potential for stimulating urban redevelopment and improving quality of life in Indian cities.

Floor area ratio—defined as the ratio of total floor area versus the size of the plot of land on which a building is constructed—is relatively low in Indian metropolises compared to other major cities globally. Even though many Indian cities are among the most densely populated in the world, they tend to have low FARs.

The result is an extreme scarcity of urban space in city centers, low per-capita land consumption, and exceptionally high property values and rents, leading to unplanned expansion of city margins. These margins are generally characterized by a proliferation of slums, a deficit of urban infrastructure and services, and high environmental pollution.

If Indian cities are to revitalize their centers through innovative FAR policy reform to encourage high-density, mixed-use development, and promote a compact urban form as part of an overall strategy of integrated urban and regional growth, they can leverage the advantages of agglomeration, and improve livability.

Promoting a highly dense and compact urban form using floor area ratio (FAR) incentives is a promising approach, with great potential to revitalize urban centers of cities in India. FAR incentives are essentially rooted in the concept of separating the ownership of land from the right to build on that land, which is stipulated by the urban local bodies (ULBs).

The full report is available on ADB's website in English.