The Finance Ministry has asked the Urban Development Ministry to review the urban infrastructure projects coming from states for funding under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM).

After roads, it is the urban development projects undertaken in states that need the Government’s support in the form of viability gap funding (VGF).

Under the VGF scheme, the Centre can provide up to 40 per cent of the project cost as grant in order to make the project viable for investments and for it to run commercially. However, under the JNNURM, depending on the classification of the city, the state Government can get up to 50 per cent of the funds as grant from the Centre. In special cases, this grant can go up to even 90 per cent.

So states, after identifying the project to be undertaken, approach the Urban Development Ministry for funds under the JNNURM.

The Finance Ministry’s proposal now to review these projects recommended by the states essentially entails an audit to ascertain whether some of these projects can be undertaken through the Public Private Partnership route.

From a fiscal perspective, the Centre stands to save money by routing some urban development projects through the PPP route, as the extent of grant is limited. The suggestion put forward to the Urban Development Ministry is that, of the 40 per cent that can be given under the VGF, 20 per cent can come from the Finance Ministry while the rest can come from JNNURM funds.

This way if a project was initially entitled to say 50 per cent of the funds under the JNNURM, the actual outflow would be 30 per cent lower, even if the project stakes claim to the entire 40 per cent funds under the VGF.

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