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Here’s govt plans to push up municipal bonds

The Ministry of Housing and Urban Development is for the first time creating a database of audited annual accounts for those local bodies in line with international standards, two people with the direct knowledge of the matter said.

, ET Bureau|
Nov 11, 2019, 11.46 PM IST
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Agencies
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So far eight local bodies in India have raised Rs 3,390 crore via municipal bonds. By 2024, fifty cities are expected to issue municipal bonds.
MUMBAI: Fixed-income investors, short of investible options, may have a reason to smile, with the urban development ministry bringing in financial discipline and reporting in international formats to about 4,500 urban local bodies in cities like Ahmedabad, Indore and Pune.

Municipal bonds, or muni bonds, are issued by local bodies like municipal corporations to raise money for public projects, such as to construct roads, bridges, schools or other infrastructure, and are repaid from returns generated by such projects or tax revenue. While it is a popular source of funding in developed economies like the US, this has so far been a non-starter in India. However, it could now get a leg up with the Smart Cities programme taking off.

The Ministry of Housing and Urban Development is for the first time creating a database of audited annual accounts for those local bodies in line with international standards, two people with the direct knowledge of the matter said. Efforts are being made to attain higher credit ratings as it helps attract investors. Higher credit worthiness could be attained only through financial transparency.

The urban ministry didn’t respond to an email seeking comment until the publication of this report.

“Once the (muni bond) platform comes in full swing, individual bodies can learn from each other's forte areas to plug the gaps,” said one of the people cited above. With municipalities tapping the capital market via bonds, this should also project financial transparency to institutional investors.

If one municipal corporation is doing a good job of collecting tax while another is an expert in waste management, both can help each other to gain collective expertise.

The ministry has tied up an external agency that has already culled data of 2,000 current and past balance sheets of 1,000 such bodies, sources said.

So far eight local bodies in India have raised Rs 3,390 crore via municipal bonds. By 2024, fifty cities are expected to issue municipal bonds.

Municipal bonds are not only an instrument to raise funds but a way to transform urban governance, said a senior government official.

Weak financial position and poor governance and management of city agencies have limited their ability to issue bonds, and reduced investor trust and confidence.

“Investors cast doubt over local bodies as there is no authentic financial data available. Hence, many institutional investors shy away,” said a domestic arranger, who was involved in muni bond sales.

A root causes for muni bonds not taking off in India are around limited issuer strength — low ability, accountability and autonomy of city agencies — followed by the lack of an enabling environment, according to a report by Janaagragha, a Bengaluru-based organisation working closely with local bodies.

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