At the same time it can delegate part of the responsibility of the central and state governments to meet the requirement of funds down the line to local governments. TIF is a tool that has been in use for a number of years in the USA by cities and other development authorities to finance development costs. The public purposes of TIF are there-development of designated urban areas, provision for roads, water treatment plants, parks, water tower, waste water treatment plant, capitalise economic development funds and business loan programs, establish reserve accounts for various purposes and enhance other urban infrastructure.

It allows an enacting local authority to use tax revenue increases resulting from growth in a designated area's assessed real values to finance the development costs associated with growth. With TIF, the growth in real assessed value in the TIF district, which would have been otherwise utilised for other purposes, is captured by the enacting city, town, or country, and is used for financing urban development. This represents a subsidy for the enacting government, reducing the cost of infrastructure below other funding alternatives. TIF ensures that different taxing jurisdictions in the costs of financing urban development.

In USA, various state governments have enacted TIF Act which permit cities and other developmentauthorities to establish tax districts. The TIF Act regulates the use of tax increment financing. For example, it may limit the duration of districts, the geographical areas that may be designated for certain districts, and the type and amount of tax increment spending. The act also requires cities to develop TIF plans and make annual financial reports on their districts. Taxes on the captured assessment (total assessed value in the TIF minus the base assessment) go to the re-development commission of the enacting government for infrastructure investments, other re-development or economic development purposes to support growth in the TIF district. In the USA, TIF revenues are used to pay principal and interest on bonds, making payments on lease or reimbursement the enacting government for development expenses. Investment project may include infrastructure within the borders of the TIF district or infrastructure that serves the TIF district but is not within its borders. Some cities have created project areasin which increment from TIF districts may be spent. Sometimes these project areas encompass entire cities or large portion of them. The TIF law allows cities to ``pool,'' or combine, tax increments from multiple districts within a project area or to spend tax increments anywhere within the project area.

In India, TIF can be used by local governments like municipalities and corporations for meeting funding costs of urban infrastructure. The taxes, which can be captured for the purpose of development, are property tax, municipality tax, vehicle taxes, parking charges, water cess, etc. TIF is an ideal instrument for a country like India since governments are in a way forced to utilise a portion of the revenues into infrastructure activities.

TIF has not been tried so far in India. However certain municipalities have raised market borrowings for meeting various developmental projects. These have been secured through an escrow on its revenue collections. TIF is a step ahead, as through legislativeintervention, growth is escrowed and utilised for infrastructure development. The entire revenues need not be escrowed as only part of revenues are captured for developmental purposes and barred for utilising for any other purpose. TIF, as a concept, can also be tried on a macro basis wherein its variants are utilised to meet specific infrastructure needs. For instance a part of growth in excise on petrol and diesel can be captured for being utilised for highway development by the central government. An alternative could be the cess variant where a fund created by imposing a small cess on petrol and diesel, can be utilised for development of highways. Similarly a small cess on telecommunication charges can be utilised for creating a fund for developing telecom infrastructure and so on. It is time that the government looks at playing a more proactive role in resource raising for infrastructure development.

(The author is VP-finance with Petronet-India)