The government is considering awarding a grant from the funds of the Jawaharlal Nehru National Urban Renewal Mission to meet a funding gap in the Mumbai metro project's first corridor that is being built by the Reliance [Get Quote] Anil Dhirubhai Ambani Group.

If the decision is approved, the Mumbai metro will be the first project involving private participation to receive a JNNURM grant.

Currently, JNNURM grants are mainly given to local bodies or city corporations for drinking water, drainage and sewage projects.

Extending a grant to a private-participation project like the Mumbai metro will require the Cabinet to amend the JNNURM guidelines. Urban development secretary M Ramachandran said a decision on this is expected soon.

The decision could have wider implications since it would mean that other infrastructure projects that face a funding or viability gap could ask for a similar dispensation. The grant could be Rs 500 crore.

JNNURM was launched in 2005 with committed central government funds of Rs 50,000 crore. The state government and local bodies are to contribute the Rs 50,000 crore.

Of the Rs 50,000 crore available at the central level, roughly Rs 31,000 crore is under the Ministry of Urban Development (close to Rs 21,000 crore of this appears committed under different projects). The rest is allocated for alleviating urban poverty and other schemes.

The question of a grant to the Mumbai metro corridor has arisen because the first corridor was bid for and commissioned before the viability gap funding formula for infrastructure projects was put in place by the government.

If an exception is made in this case and funds provided to a project cleared before the viability gap funding scheme, other projects could ask for similar dispensations.

Viability gap funding refers to a one-time or deferred grant for infrastructure projects that may have long gestation periods and limited financial returns, so that their viability may be improved through government support.

The government can provide up to 20 per cent of the funds for a project provided it is convinced of its merits and it meets the guidelines.

The first corridor is 11.5 km and is expected to cost Rs 2,400 crore to Rs 2,500 crore and covers Versova through Andheri to Ghatkopar.

The MMRDA is one of the partners with the ADAG group in the special purpose vehicle formed to implement the project, which is on a build-own-transfer basis for 35 years. The project also involves real estate and property development opportunities.

The larger question about the Mumbai metro project, which is expected to cover 62.8 km and cost Rs 18,600 crore, concerns how the rest of the project will be financed.

First, there are some stretches � especially those extending to Nariman Point � that do not allow for much property development.

Secondly, several corridors will have to be underground, which is more expensive to build than elevated tracks.

In view of this, the state government is considering whether it will make sense to go in for the private participation route to build the metro on the remaining corridors and is exploring other financing patterns, probably on the lines of the Delhi metro.