Indian municipal bond market has the potential to reach a size of Rs 45,000 crore: India Rating

MUMBAI: India municipal bond market has the potential to reach a size of Rs 45,000 crore in near future as state and central government grants to urban local bodies may reduce prompting the likes of Brihan Mumbai Municipal Corporate or Delhi Municipal Corporation to raise funds through this route, said the rating company India Rating.

Plugging urban infrastructure bottlenecks requires a lot of money. ‘Muni bonds’ as it is popularly known issues could help corporations directly raise funds without being dependent state or central governments.

“Adopting an innovative mode of financing in the form of ‘Government Citizen Partnership (GOCIP) Bonds’ where citizens invest in the bonds floated by Urban Local Bodies to improve urban infrastructure and urban civic services is one such option,” India Rating said in a report.

“This will make the development process participatory as it will enable citizens to be a part of the city improvement process. Citizens as investors of ‘GOCIP Bonds’ can keep a tab on ULBs’ performance and on their use of resources as well.”

About two months ago, Securities Exchange Board of India or SEBI has come up with new norms on municipal bonds, which failed to take off in absence of proper infrastructure. The new rules are expected to help local bodies raise money from the public for infrastructure development.

The rating company sees a need to fine tune the Sebi’s regulatory framework, which should elicit higher participation. Some regulations need some fine tuning/a re-look, which can help in the broadening of the municipal bond market.

Specialised entities in the line of National Capital Region Planning Board and Mumbai Metropolitan Region Development Authority are better placed than individual ULBs to raise such bonds as they are managed by professionals and subsequently have an edge in terms of governance, transparency and information disclosure, the company said.