To give a boost to urban infrastructure projects, the government is planning to permit financing of such projects using the viability gap funding (VGF) method.
At present, urban infrastructure projects are mostly routed through the government?s flagship programme the Jawaharlal Nehru National Urban Renewal Mission (JNNURM).
The finance ministry is now planning to permit such projects also to be funded through the VGF by state governments. Sources told FE that the finance ministry is in talks with the ministry of urban development on the issue and a final decision will be taken after this.
?States have not been able to fully exploit the VGF scheme and we hope this decision will not only boost scheme but also promote more urban renewal projects,? a government official said.
Under the VGF scheme, the government provides upto 20% of the cost of the project as grant. States can make an equal grant for projects in their states. The funding scheme, mostly used for ?commercially unviable? projects where there is little interest from private players, has however not found many takers.
Certain urban infrastructure projects like the Hyderabad Mass Rapid Transit System have already been financed using the VGF, which has received an approval in principle from the Centre.
If the plan works out, it may just prove the big ticket for urban infrastructure projects under the JNNURM. The omnibus programme is aimed at developing a number of pressing issues in over 60 cities such as water supply, sanitation, sewerage, slum development and housing for the poor.
While the JNNURM is mainly covered by central assistance and grants, the government hopes that it will also facilitate further investment in the urban sector in the form of public private partnerships.