Cabinet expands viability gap funding by Rs 2,100 cr for social sector

VGF is given to PPP projects and has been limited to economic infra so far; some Rs 6,000 cr would be given for such initiatives as VGF till 2024-25

The Cabinet Committee on Economic Affairs on Wednesday expanded the viability gap fund (VGF) scheme to social infrastructure, with a total outlay of Rs 2,100 crore over five years.

VGF is given on a public-private partnership model and has been confined to economic infrastructure projects so far. As much as Rs 6,000 crore will be given for economic infrastructure projects as VGF till 2024-25.  

The scheme will have two parts.

The first will cater to areas such as wastewater treatment, water supply, and solid waste management. These projects face bankability issues and poor revenue streams to cater fully to capital costs.

The projects eligible under this category should have at least 100 per cent operational cost recovery.

The Centre will provide a maximum of 30 per cent 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 per cent of TPC. The rest will come from the private sector, Finance Minister Nirmala Sitharaman told reporters after the Cabinet meeting.

The second part will support demonstration or pilot social sector projects. The projects may be from health and education sectors where there are at least 50 per cent operational cost recovery. In such projects, the Centre and the states together will provide up to 80 per cent of capital expenditure and up to 50 per cent of operation & maintenance costs for the first five years.

The Centre will provide a maximum of 40 per cent of the TPC of the project. In addition, it may provide a maximum of 25 per cent of operational costs of the project in the first five years of commercial operations. Since the inception of the VGF scheme, 64 projects have been accorded final approval, with a total project cost of Rs 34,228 crore and VGF of Rs 5,639 crore. Till the end of 2019-20, VGF of Rs 4,375 crore has been disbursed.