Aimed at providing broadband connectivity to Panchayats, the government on Tuesday approved the scheme of creating a national optical fibre network, which will help in offering governance, banking and health services online.

"The objective of the scheme is to extend the existing optical fibre network which is available up to district/block headquarter level to the gram panchayat level initially by utilising the Universal Service Obligation Fund (USOF)," DoT secretary R Chandrasekhar told reporters here.

The cost of this initial phase of the scheme is likely to be about Rs 20,000 crore and the target is to complete it in two years, he added.

A similar amount of investment is likely to be made by the private sector complementing the NFON infrastructure while providing services to individual users, Chandrasekhar said.

As per a study conducted by the World Bank, with every 10 per cent increase in broadband penetration, there is an increase in GDP growth by 1.4 per cent.

"NOFN will also facilitate implementation of various e-governance initiatives such as e-health, e-banking, e-education, etc, thereby facilitating inclusive growth," Chandrasekhar said.

Initially, the broadband project will be executed by state-owned Bharat Sanchar Nigam Limited (BSNL) and other institutions like RailTel.

"For the implementation and execution, the Cabinet has approved the formation of a special purpose vehicle (SPV) with equity from government of India," Chandrasekhar said.

Later on BSNL, Power Grid and Gas Authority of India would also be made partners, he added.

The NOFN will also provide high bandwidth connectivity for electronic delivery of services to citizens.

The proposed NOFN will enable effective and faster implementation of various mission mode e-governance projects amounting to about Rs 50,000 crore initiated by Department of Information Technology as well as delivery of a whole range of electronic services in the above areas by the private sector to citizens in rural areas.

According to telecom regulator TRAI, the number of broadband subscribers at the end of August 2011 stood at 12.69 million.