MUMBAI, – India’s smaller municipal corporations (MCs) could explore issuing municipal bonds to diversify their funding sources, the central bank said on Wednesday.
An MC in India is a local government body responsible for administering and providing civic amenities to urban areas with a population exceeding one million. Mumbai, Delhi and Bengaluru have among the biggest MCs in the country.
“While the larger MCs are already using the municipal bonds for financing some of their infrastructure projects, other MCs can also explore municipal bonds and innovative financing instruments,” the Reserve Bank of India (RBI) said in a report on municipal finances.
The Indian municipal bond market is at a “nascent stage”, with outstanding bonds worth 42.04 billion rupees ($498.4 million) as on March 31, according to the report. This is just 0.09% of the total corporate bonds’ outstanding in the country.
These municipal bonds delivered an average return of 8.5% in fiscal year 2024.
Last month, Rajkot Municipal Corp, a smaller MC, issued five-year bonds, the first such issue for this financial year. Ahmedabad Municipal Corp issued five-year green municipal bonds in February.
MCs rely heavily on the upper tiers of government for their revenue, which can limit their financial autonomy and capacity to plan and execute long-term projects, the report said.
Creating mechanisms that allow MCs to pool resources for large-scale infrastructure projects will help overcome the fiscal constraints of individual corporations, the RBI said.
Urban planning that prioritises climate resilience, including investments in green infrastructure, waste management, and renewable energy, will bring in greater fiscal discipline and reduce the long-term fiscal burden of climate-related damages, the central bank said. ($1 = 84.3580 Indian rupees) (Reporting by Siddhi Nayak; Editing by Sonia Cheema)
