Viability Gap Funding is the grant provided to infrastructure projects that economically feasible but fall short of financing.
The system is designed as a Plan Scheme that is administered by the Ministry of Finance and the budget amount will be adjusted year to year.
The funds for the scheme are provided by the government’s budgetary allocation. Plus, it can also be provided by the statutory authority that owns the project asset.
If the sponsoring Ministry/State Government intends to aid over and above the stipulated amount under VGF, it will be restricted to a further 20% of the total project cost.
Grants will only be available for infrastructure projects where private sector sponsors are selected through a process of competitive bidding. And these grants would be given at the construction stage itself, after the private sector developer makes the equity contribution required for the project.
It is provided as a capital subsidy to attract the private sector players to participate in PPP projects that are otherwise financially unviable due to long gestation periods and small revenue flows in the future.
Mechanism: Under this scheme, private sector projects in areas like waste water treatment, solid waste management, health, water supply and education could get 30% of the total project cost from the Centre.
Separately, pilot projects in health and education, with at least 50% operational cost recovery, can get as much as 40% of the total project cost from the central government.
The Centre and States would together variety percent of the capital cost of the project and 50% of operation and maintenance costs of such projects for the first 5 years.
Recently, in line with green growth, Finance Minister Nirmala Sitharaman proposed that coastal shipping will be promoted as the energy efficient and lower cost mode of transport, through PPP mode with viability Gap Funding.
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