Introduction of Viability Gap Funding
The main constraint in India’s infrastructure sector is the lack of source for finance. More than the overall difficulty of securing funds, some projects may not be financially viable though they are economically justified and necessary. This is the nature of several infrastructural projects which are long term and development oriented.
- For the successful completion of such projects, the government has designed Viability Gap Funding (VGF).
- Viability Gap Finance means a grant to support projects that are economically justified but not financially viable.
Why in News?
The Union Cabinet approved a viability gap funding support of up to Rs. 19,041 crore for the implementation of the BharatNet project through Public-Private Partnership (PPP) model in 16 States.
Viability Gap Funding (VGF) Scheme
- Viability Gap Finance means a grant to support projects that are economically justified but not financially viable.
- The scheme is designed as a Plan Scheme to be administered by the Ministry of Finance and amount in the budget are made on a year-to-year basis.
- Such a grant under VGF is provided as a capital subsidy to attract the private sector players to participate in PPP projects that are otherwise financially unviable.
- Projects may not be commercially viable because of the long gestation periods and the inability to increase user charges to commercial levels.
- The Department of Economic Affairs, Ministry of Finance introduced “the Scheme for Financial Support to PPPs in Infrastructure” (Viability Gap Funding Scheme) in 2006.
- VGF up to 40%of the Total Project Cost (TPC) is provided by the Government, of India (Gol) and the sponsoring authority in the form of capital grant at the stage of project construction (20%+20%).
Funding
- The quantum of financial support (VGF) to be provided under this scheme shall be in the form of a capital grant at the stage of project construction.
- The amount of VGF shall be equivalent to the lowest bid for capital subsidy, but subject to a maximum of 20% of the total project cost.
- In case the sponsoring Ministry/ State Government/ statutory entity proposes to provide any assistance over and above the said VGF, it shall be restricted to a further 20% of the total project cost
VGF grants
- The VGF grant will be disbursed at the construction stage itself but only after the private sector developer makes the equity contribution required for the project.
Also refer :
- Download the pdf of Important MCQs From the History Of Ancient India
- List Of Important Inscriptions In India
