To encourage the private participation the Government of India has taken initiative by facilitating following funds to the PPP sector.
1. Viability Gap Funding (VGF) – The infrastructure projects which are acceptable economically but typically fall short on financial viability are granted support under this scheme. To qualify under this scheme the private sector sponsors have to be selected vide the process of competitive bidding.it must be noted that as per the guidelines the total VGF would not exceed twenty percent of the overall Project Cost.
However, in the event the project is Government owned or owned by any authorized authority as approved by Government then further twenty percent of additional grants may be granted, thus taking it to 40% of the cost of the project. This grant can be availed by the private sector sponsor at the stage of project construction.
2. India Infrastructure Project Development Fund (IIPDF) –The Central and the State Governments and local bodies are provided 75% financial support through this Scheme for activities and expenses related to PPP project development at various stages such as feasibility reports, project structuring etc. under this scheme, the Sponsoring Authorities i.e. World Bank or Asian Development Bank, can avail the granted funds to meet the project development cost and achieve the technical close of such project. Once the project is successfully completed, any such expenditure as granted shall be recovered from the successful bidder.
It must be noted that procuring services for transaction advisory can be financially cumbersome and to reduce this burden the Department of Economic Affairs (DEA) has identified the IIPDF mechanism to source fund the Sponsoring Authority which in turn help to reduce the financial burden and keeps the budget in check. The Government of India is of view that the projects which are processed through the Central or State project pipelines shall be helpful in increasing the quality and quantity of bankable projects.
3. India Infrastructure Finance Company (IIFCL) – the projects which are long-term and have longer development period require sufficient debt finance. The long gestation period also requires equally sufficient debt financing tenure to enable the cost recovery throughout the project life. However, the indian capital market were found deficient in long term investments so to overcome/bridge this gap IIFC was set-up.
4. Foreign Direct Investment (FDI) – the Government of India has taken initiative to encourage foreign investors. To achieve the said purpose, up to 100% FDI in the form of equity of Special Purpose Vehicle (SPVs) is allowed on the automatic route for most sectors under PPP modal.