The Hindu Business Line : ‘City projects need viability gap funding’

Mumbai, Oct. 30 When external commercial borrowing norms are relaxed, it will be done keeping in mind the infrastructure sector, said Dr D. Subbarao, Union Finance Secretary, at a panel discussion on public private partnership (PPP).

It is, however, not possible to say when ECB norms will be relaxed, he added.

(The RBI had imposed curbs on ECBs this year, requiring that proceeds of over $20 million will have to be parked overseas for use as foreign currency expenditure. The infrastructure had at that time asked for the norms to be relaxed for them.)

The panel discussion among Union Secretaries appeared to indicate that viability gap funding (VGF) is chiefly required for civic and urban infrastructure projects. (VGF means a one-time or deferred grant for economically unviable but socially desirable infrastructure projects that may have long gestation periods and limited financial returns, so that their viability may be improved through Government support).

In the case of the roads sector, projects are extremely viable, said Mr Bhram Dutt, Secretary, Ministry of Road Transport & Highways. Road collections are far in excess of expectations, he said. However, overseas finance is an issue and despite the tax concessions, overseas institutions are not showing interest, he said. This could be because the projects were currently too small – in the $80 million –$100 million range.

This is being increased to $350 million and may be expanded to more, he said. Also, Indian companies are increasingly seen to be taking the equity route, he noted.

As far as the power sector is concerned, “there are no alarm signals” with respect to funding, said Mr Anil Razdan, Secretary, Power.

Private consortia undertaking airports projects are bringing in the money themselves, added Mr Ashok Chawla, Union Secretary for Civil Aviation.

It is for city projects that VGF appeared to be most appropriate. States have been asked to come up with a model municipal law, and 63 cities which are candidates for urban renewal programmes are going to be rated by agencies to pave the way for financing, said Mr M. Ramachandran, Union Secretary for Urban Development.

Currently, the Finance Ministry provides up to 20 per cent of the project cost as VGF, while the ministry concerned could provide an additional 20 per cent, said Dr Subbarao.

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