Scenario of Viability Gap Funding (VGF) Concept in Indian Infrastructure Projects

Abstract

Infrastructure is a key area since it provides the main thrust and impetus area in the growth of a developing nation like India. A major area of concern for sustaining the real gross domestic product (GDP) growth in India has been the lack of adequate infrastructure, which can support the growth process. The deplorably low levels of public investment have rendered India’s physical infrastructure incompatible with large increases in the national product. Clearly, without improving the rate of infrastructure investment, the expected growth rate of 9 per cent and above at best would remain modest. The Planning Commission of India has estimated that investment in infrastructure sector defined broadly to include road, rail, air and water transport, electric power, telecommunications, water supply and irrigation will need to be of the order of about ₹45 lakh crores or US$1.4 trillion during the 12th Five-year Plan period. India has one of the largest road networks in the world, aggregating around 33 lakh km; historically, the budgetary resources from the governments have been the major source of financing for infrastructure such as road projects in India. This article focuses on Viability Gap Funding (VGF) that has been used for financing of infrastructure projects and specially for road projects in India. The purpose of this article is to examine and analyse viability of the VGF scheme for Indian road projects by studying projects being covered under the VGF option.