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Viability Gap Funding
Airfares are set to rise with the government deciding to levy up to Rs 8,500 per flight on major routes to fund the regional air connectivity scheme. The viability gap funding funding is being provided since the fares of half of the seats operated in a particular flight under UDAN would be capped at Rs 2,500 for one-hour duration.
On October 21, the Ministry of Civil Aviation launched the much-awaited Regional Connectivity Scheme “ UDAN.” This first-of-its-kind scheme globally will create affordable yet economically viable and profitable flights on regional routes so that flying becomes affordable to the common man even in small towns.
Airfares are set to rise with the government deciding to levy up to Rs 8,500 per flight on major routes to fund the regional air connectivity scheme. The viability gap funding funding is being provided since the fares of half of the seats operated in a particular flight under UDAN would be capped at Rs 2,500 for one-hour duration.
This cap would be applicable for distance of 476-500 km. Viability Gap Funding (VGF) means a grant one-time or deferred, provided to support infrastructure projects that are economically justified but fall short of financial viability. The lack of financial viability usually arises from long gestation periods and the inability to increase user charges to commercial levels, writes arthapedia.in.
According to indianeconomy.net, the main constraint in India’s infrastructure sector is the lack of source for finance. More than the overall difficulty of securing funds, some projects may not be financially viable though they are economically justified and necessary.
For the successful completion of such projects, the government has designed Viability Gap Funding (VGF). Viability Gap Finance means a grant to support projects that are economically justified but not financially viable.
The scheme is designed as a Plan Scheme to be administered by the Ministry of Finance and amount in the budget are made on a year-to- year basis.
Such a grant under VGF is provided as a capital subsidy to attract the private sector players to participate in PPP projects that are otherwise financially unviable.
Projects may not be commercially viable because of long gestation period and small revenue flows in future. The VGF scheme was launched in 2004 to support projects that comes under Public Private Partnerships, adds indianeconomy.net.
Another example of VGF is India BPO Promotion Scheme (IBPS) to create employment opportunities and promotion of BPO/ITES operations across the country.
The scheme provides capital support along with special incentives up to Rs 1 lakh/seat in form of VGF, across India, excluding metro cities and States of North East Region (NER).
