New VGF to have social infra focus, Rs 8,100-crore outlay seen in 5 years

The one-and-a-half-decade-old mechanism of viability gap funding (VGF), which made only modest headway in promoting investments in long-gestation infrastructure projects, is being revamped with a focus on “social infrastructure”, including education and healthcare. The Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved VGF for public-private partnership (PPP) projects till 2024-25, with a total budgetary outlay of Rs 8,100 crore.

Under the revamped VGF programme, financial support by PPPs in economic projects designed for social infrastructure will cost the central exchequer Rs 6,000 crore in five years through FY25 while a scheme for social infrastructure will cost Rs 2,100 crore during the period.

The first scheme is aimed at boosting waste water treatment, water supply, solid waste management, health and education sectors, all of which face bankability issues and poor revenue streams to cater fully to capital costs. The projects eligible under this category should have at least 100% operational cost recovery.

“The central government will provide maximum of 30% of total project cost (TPC) of the project as VGF and state government/sponsoring central ministry/statutory entity may provide additional support up to 30% of TPC,” the government said in a statement.

The second sub-scheme will support demonstration/pilot social sectors projects. The projects may be from health and education sectors where there is at least 50% operational cost recovery. In such projects, the central government and the state governments together will provide up to 80% of capital expenditure and up to 50% of operation & maintenance costs for the first five years.

The central government will provide a maximum of 40% of the TPC of the project. In addition, it may provide a maximum of 25% of operational costs of the project in first five years of commercial operations.

Since the inception of the scheme for PPPs in infrastructure in 2006, 64 projects have been accorded ‘final approval’ with TPC of Rs 34,228 crore and VGF of Rs 5,639 crore. Till the end of FY20, VGF of Rs 4,375 crore has been disbursed, indicating under-achievement.