Viability Gap Funding (VGF) Scheme
Viability Gap Funding (VGF) Scheme
Need & Purpose of the Scheme: There is deficit in availability of infrastructure across different sectors hindering fast paced development. Infrastructure development is capital intensive and it can’t be solely dependent on public financing. Therefore, there is a need to promote PPPs to bring private efficiencies and attract private capital. However, infrastructure projects may not always be commercially viable because of long gestation periods and limited financial returns.
The Scheme : Accordingly, the Department of Economic Affairs (DEA) launched the Viability Gap Funding (VGF) scheme as a flagship scheme of the Government of India for providing financial assistance to financially unviable but socially/ economically desirable PPP projects. The revamped scheme launched in the year 2020 with a total outlay of Rs. 8,100 crores till 2024-25 to attract more PPP projects and facilitate the private investment in the social sectors (Health, Education, Wastewater, Solid Waste Management, Water Supply etc.). Under this scheme, economic sector projects may get up to 40% of the Capex as VGF grant. The VGF Scheme includes higher provisions of VGF grant for social sectors i.e., Health, Education, Water Supply, Wastewater Treatment, Solid Waste Management, etc. Social sector projects may get up to 80% of the Capex and upto 50% of Opex for 5 years after Commercial Operation Date (CoD) as VGF grant.
Social Sector projects get VGF grant under following two categories
- Sub scheme -1 to cater to Social Sectors such as Wastewater Treatment, Water Supply, Solid Waste Management, Health & Education sectors etc. The projects eligible under this category should have at least 100% Operational Cost recovery. The Central Government will provide maximum of 30% of Capex of the project as VGF and State Government/Sponsoring Central Ministry/Statutory Entity may provide additional support up to 30% of Capex.
- Sub scheme -2 supports demonstration/pilot social sectors projects. The projects may be from Health & Education sectors. The projects eligible under this category should have at least 50% Operational Cost recovery. The Central Government will provide a maximum of 40% of the Capex of the Project and a maximum of 25% of Opex of the project for first five years of commercial operations as VFG. The State Government/Sponsoring Central Ministry/Statutory Entity may provide additional support up to 40% of the Capex of the Project and upto 25% of Opex of the project for first five years of commercial operations.
Post revamp of the scheme in 2020, EC has accorded ‘In-principle’ approval for 12 projects [out of 12 projects, 10 health sector projects (04 projects for development of Hospitals from Govt. of Odisha & 06 projects for development of medical Colleges and upgradation of District Hospitals from GoUP), 01 transport sector Ropeway project in Varanasi, GoUP and 01 VoC Port Project in Tuticorin, GoTN] with TPC of ₹9283.83 Cr and GoI VGF share of ₹3285.04 Cr. Post revamp, Rs.470.46 Cr. have been disbursed under the VGF Scheme.
Overall, till date, 67 projects with total project cost of Rs.45,802 crores have received ‘final approval’ under the VGF Scheme with VGF of Rs.7,682 crores approved and disbursal of Rs.4,847 Crore already completed. The Revamping of the Scheme has seen increased uptake of projects from social sectors.
Viability Gap Funding Scheme Projects (Final Approved)
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