Back2Basics: Viability Gap Funding (VGF) Scheme

• The VGF scheme is a financial tool to support infrastructure projects that are economically justified but face financial viability challenges.
• It was launched in 2004 to address the gap between economically viable infrastructure projects and their financial feasibility under traditional financing models.
  • Administration: Administered by the Ministry of Finance, Government of India, the scheme operates as a Plan Scheme with annual budget allocations.

Features:

1. Capital Subsidy: VGF provides a grant (capital subsidy) to infrastructure projects to make them financially attractive for private sector participation. This subsidy helps cover part of the cost that private investors would find economically unviable.
2. Project Eligibility: Projects eligible for VGF are typically selected through competitive bidding processes. They must demonstrate economic justification but face challenges in attracting private investment solely on commercial terms.
3. Disbursement Timing: The VGF grant is disbursed during the construction phase of the project. However, disbursement is conditional upon the private sector developer making the required equity contribution to the project.
4. Budgetary Allocation: Funds for VGF are allocated from the government’s budget. Sometimes, contributions may also come from the statutory authority that owns the project asset.
5. Limitations: Additional financial assistance beyond the VGF amount is capped at 20% of the total project cost. This additional support can be provided by the sponsoring Ministry, State Government, or the statutory entity involved.

Benefits:

• Encouraging Investment: By reducing the financial risks associated with infrastructure projects, VGF encourages private sector participation, leading to faster project implementation and improved service delivery.
• Infrastructure Development: The scheme supports the development of critical infrastructure such as transportation (roads, railways, airports), energy (power generation, transmission), and public utilities.

PYQ:

[2018] With reference to solar power production in India, consider the following statements:

1. India is the third largest in the world in the manufacture of silicon wafers used in photovoltaic units.
2. The solar power tariffs are determined by the Solar Energy Corporation of India.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

[2016] Give an account of the current status and the targets to be achieved pertaining to renewable energy sources in the country. Discuss in brief the importance of National Programme on Light Emitting Diodes (LEDs).