A New Finance Model

Have you ever wondered how the Big-Big Large-Scale Projects are implemented! Most of the times we think- Well the government has a lot of money; it can easily manage those! But the case is not so!-atleast most of the times!

Now you must be thinking- Public-private Partnerships; But most of the times Private sector is RELUCTANT to invest in such large scale projects! because Revenue can't be collected from such organisations for prolonged periods! So, overall it is a very hectic procedure- we can even conclude this as the very reason why such projects are so slow to be implemented!

As an answer to this Professor Bhagwan Chowdhry, Indian School of Business; has come up with an unique Financial model.Let us understand this model.

Let us consider the Government wants to implement a Large-Scale Project. Here goes the chain:

  • The Locals and the State Governments decide mutually and locate 100 acres of land for the project.
  • In addition to this, an additional 100 acres of land surrounding the plot is also located.
  • Now the Bidding Agency divide the surrounding 100 Acres of plot into two parts say- 60 acres and 40 acres.
  • The Government now chooses randomly any 60 acres and the remaining 40 acres goes to the Private Land Lender.
    • Remember,  this 40 acres will be of more value than the original 100 acres because the land will gain value because of Government projects; possibilities of residential areas coming up in the areas surrounding the Government project are high!
    • Thus, this compensates the 100 acres of land given by Private Lender.
  • Now the Governments sells the chosen 60 Acres of surrounding land in the Open Market: the revenue generated is used for the implementation of the project! Plus the government may end up earning some profits too!
This is a brilliant method of Money Creation. The government must look forward to use this strategy..

By- Siddheshwar Panda

Idea By- Bhagwan Chowdhry, ISB

Sources- The Economic Times

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