According to reports, viability gap funding (VGF) is necessary for planned economic development of the country. For instance, a road that links several villages with the main market is a necessity but it may not be financially viable for a contractor to build it on his own. Solar energy is cheaper and profitable in the long term, but it requires heavy investment in the short term. It is to encourage more and more people to go in for renewable sources of energy like the sun and the wind that the government has been providing subsidy. Recently, the ministry of non-conventional energy sources sought to evolve a long-term policy by publishing draft guidelines to offer VGF via bidding.
The plan is to set up a 750MW solar power grid under the Jawaharlal Nehru National Solar Mission. The VGF will be made available through competitive bidding that will bring down the cost of solar plants. But the plan has its drawbacks, since once the financial assistance is obtained, it will not be binding on the recipients to maintain standards of the plants they set up. In fact, it will be more profitable for them to set up plants using cheap solar panels. It will not bother them that the plants will have a short life, as they will have already obtained the VGF.
Indigenisation has been an important component of India’s industrial policy since Independence and it has paid dividends. If equipment necessary for solar plants are imported from, say, Chinese and American sources, the indigenous industry will never grow. The US wants India to meet its need for solar panels through imports from that country. However, the same US has been complaining of poor-quality solar panels flooding its market. In order not to become a dumping ground for poor-quality solar panels, the government should build into the VGF policy a condition that ensures indigenisation of the solar energy industry. It should not repeat the mistake it made by allowing growth of the telecommunications industry based solely on infrastructure imports.