Union Budget 2025-26: Focus on Infrastructure and Social Sectors
In the Union Budget 2025-26, Finance Minister Nirmala Sitharaman allocated ₹11.21 trillion for infrastructure capital expenditure, slightly above last year’s ₹11.11 trillion. The shift in focus is towards social infrastructure sectors such as health care, education, tourism, housing, sanitation, water, skilling, and digital areas.
Three-Year Project Pipeline
- Central ministries to develop a three-year project pipeline in public-private partnership (PPP) mode.
- States encouraged to prepare proposals with support from the India Infrastructure Project Development Fund scheme.
Public Spending and Private Capital
Due to fiscal constraints, private capital is essential for social infrastructure, with the government providing de-risking mechanisms like Viability Gap Funding (VGF).
Viability Gap Funding (VGF)
- VGF is a capital grant that reduces the capital to be serviced, not requiring repayment.
- Revamped in 2020 with three sub-schemes:
- Sub-scheme 1: 60% VGF for water, waste management, health, and education projects.
- Sub-scheme 2: Up to 80% VGF and 50% operational cost support for pilot projects in health and education.
- Other sectors receive 40% VGF.
- VGF paired with the hybrid annuity model for projects like the Clean Ganga Mission.
Opportunities and Examples
- District Hospitals: PPP schemes advocated by NITI Aayog to connect district hospitals with private medical colleges.
- Tourism Infrastructure: Varanasi Ropeway project funded by VGF with 20% support from both Centre and state.
- ITIs Upgradation: 1,227 government ITIs covered under PPP with industry partners.
- Semiconductor Manufacturing: Tata Group’s project in Dholera, Gujarat, supported by VGF covering 50% of the ₹91,000 crore cost.
Challenges and Recommendations
- Limited PPPs in social infrastructure due to lack of sector-specific Model Concession Agreements (MCAs).
- Need for broader interpretation of VGF, including "in-kind" contributions.
- Call for a twin-engine approach, with core and social infrastructure driven by private capital and involvement for better quality-of-life services.
