Education sector to get capital support

Updated on: Monday, August 02, 2010

Social infrastructure is set to receive a boost with the capital subsidy regime taking a final shape, but the government support will be available to education sectors.

"We will extend VGF (viability gap funding) to the health sector at a later date when there is a little more clarity on the kind of projects that can be bid out to private developers," as senior government official said.

The government at times meets a part of the cost of a project to make it commercially viable, which is called viability gap funding, and attract private investment. It is currently available for core infrastructure sectors like highways, shipping and aviation.

Finance secretary Ashok Chawla had earlier indicated that the viability gap funding would be extended for creation of physical infrastructure to social sectors, including health.

The proposal that is being worked out is likely to suggest the existing model of VGF for infrastructure to social sector infrastructure as well.

However, since social sector projects are usually low return as payment capacity of their beneficiaries is meagre, the VGF requirement is high. But the government can keep the viability gap funding low and instead make yearly payments to the developer to bolster returns.

It is likely the government will follow this mixed approach and apart from VGF also provide annuity for projects that may not be very attractive to private players.

â€œClear guidelines are likely to be announced next month,â€ he said. Experts welcomed the move but said careful guidelines need to be brought to protect consumers. â€œThere are a lot of opportunities in these sectors and it will certainly help generate private investment.

But care should be taken to not treat these as strictly commercial ventures as they have to cater to people who often can not afford private services,â€ said Amrit Pandurangi, executive director, PricewaterhouseCoopers.

The total spending on health and the social sectors like education, water and sanitation is still less than 2% of the GDP and the government is keen to rope in private players. The Eleventh Plan, for instance, envisages 2,500 secondary schools under the public private partnership, or PPP, model.

The government has already bid out some projects but they are largely on build-operate-transfer mode. Viability gap funding is expected to help attract more private investment.

Under the existing VGF model for the core sector projects, the Centre provides up to 20% of the capital cost of a project, while the state government, sponsoring ministry or the project authority can also chip in with another 20% of the project cost. Bidders quoting the least VGF support are awarded the project.

Education sector to get capital support

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