Regarding UDAN Scheme
With more routes set to be operational under UDAN, the Civil Aviation ministry is likely to face paucity of funds in providing viability gap funding (VGF) to participating airlines
What is VGF?
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. This is the nature of several infrastructural projects which are long term and development oriented.
- 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
To connect unserved and under-served aerodromes as well as make flying more affordable, the Ministry unveiled UdeDeshkaAamNaagrik (UDAN) and 128 routes were awarded in the first round of bidding
As participating airlines are extended VGF, the Ministry feels that the amount that will be available towards it may not be sufficient once more players start operating UDAN flights