Assocham calls for creating municipal bond market in India

NEW DELHI: The Associated Chambers of Commerce and Industry of India ( Assocham) has emphasised the need for creating a liquid municipal bond market in India on the lines of the US, Canada, South Africa, Russia, Hungary and Brazil, among others, with a view to fund the nation’s urban infrastructure.

In a note submitted to the RBI, the chamber has stated that as the pace of urbanisation gathers momentum and new cities are created as a consequence of industrial corridors, need for creating such municipal bond market will be of necessity.

Chamber president Rana Kapoor has said India will need to invest $835 billion to meet its urban infrastructure requirement between 2013 and 2031.

He said municipal bonds have advantages in terms of the size of borrowing and the maturity period of 10-20 years, both of which are considered to be ideal for urban infrastructure financing.

A municipal bond is a bond issued by a local government or their agencies. The potential issuers of such bonds include states, cities, countries, redevelopment agencies, special purpose districts, school districts, public owned airports and seaports and any other governmental entity at or below the state level. Municipal bonds may be general obligations of the issuers or secured by specified revenues.

In the United States, interest income received by holders of municipal bonds is often exempt from the federal income tax and may be exempt from state tax, although municipal bonds issued for certain purposes may not be tax exempt.