Viability Gap Funding - An Emerging Model for Social Infrastructure Financing

The transition from economic backwardness to economic advancement is generally characterized by special focus on social sectors like healthcare, education, and general infrastructure for achieving the much needed inclusive growth. Since India is going through this period of transition there can never be an overemphasis on the need to create a model for funding projects in this sector to scale up the intellectual capital which is an essential component of a knowledge economy with the assurance of proper healthcare facilities for all segments of the society.

In Western countries the young population supports the old population by contribution to social security. However, because of the ‘Silver Tsunami’ in many of these countries the scheme is running into serious problems, compelling the governments to seriously think about nationalization of healthcare. Also, international tax competition that results in lowering tax on capital and increasing tax on labour creates problems for the Western countries with large welfare states.

But, in a country like India a major cohort of the population is young, and an imaginative and creative model for funding such projects by roping in the private players and effective supervision by the government could alleviate this problem of lack of funding and the consequent lack of initiatives from the private sector. The approach to this problem should aim at shifting the focus away from the state and move towards public-private-partnerships (PPPs). At the same time it should also ensure that the interest and initiative from the private players is sustained through the emerging model of ‘viability gap funding’.

This can achieve the twin purpose of effective government supervision and proactive initiatives from the private sector to scale up the intellectual capital which is the very essence of a knowledge economy and also supported by proper healthcare for all.