Municipalities in India are changing the way they fund their operations

Key Highlights: 
Pune Muncipal Corporations first to issue debt markets in one and half decade
Ahmedabad Municipal Corporation issued debt in 1998 without state government guarantee
Municipalities to disclose audited, un-audited financial statement to stock exchanges

Municipal politics in India are largely a forgotten affair unless they are for big cities like Mumbai or New Delhi. Municipal Corporation of Pune, yesterday, achieved something that will open floodgates of how these state bodies fund their operations. 

It raised Rs 200 crore from the bond market. 

This was enabled by the Securities and Exchange Board of India (Sebi) who introduced new measures for issuance and listing of debt securities by the municipalities in India in 2015.

Pune Municipal Corporation on June 19, raised Rs 200 crore from BSE Bonds – India's first civic body to price rupee bonds and also first ever mobilisation of debt capital by Municipal Corporation on the BSE BOND platform. 

So far, state-owned companies like Power Finance Corporation, Rural Electrification Corp, National Highways Authority of India,  Indian Railway Finance Corporation have opted for this route to raise funds.

As on June 19, 2017, issuers have done 542 issues of bonds and have successfully raised Rs 2,55,175 crore from this platform. 

Municipal Bonds are not new to the country. However, the growth in issuance of Municipal Bonds has been sub-optimal. 

First municipal bond in India was issued by Bangalore Municipal Corporation. Real substance for municipal bond was bond without state guarantee which was issued by Ahmedabad Municipal Corporation in 1998.

Crisil Research, in its report, stated that Municipal Bonds are the ideal instruments for raising resources, channeling funds from the capital market into infrastructure development.

According to Crisil, these bonds are long-term in nature with longer maturity, increase the Urban local bodies financing capacities, in addition to providing opportunities for long-gestation infrastructure development projects. 

Data compiled by Crisil reveal there are 94 rated municipal corporations, only 10 out of which are rated AA or above. About 14 are rated in the A category, while the rest are rated BBB or below.

Minister of Urban Development Venkaiah Naidu has asked the government to undertake necessary interventions to improve their ratings for obtaining positive response to the Municipal Bonds to be issued.

Other cities like Jaipur, Jabalpur, Ahmedabad, Visakhapatnam, Indore, NDMC, Kakinada, Udaipur, Bhopal, Warangal, Kota, Bhiwadi, Kishangarh, Greater Hyderabad Municipal Corporation (GHMC) and Panaji are already planning to issue debt securities in this year. 

Ashish Chauhan, Managing Director and Chief Executive Officer, BSE firmly believes that Indian bond markets are poised for a substantial growth and India can use its domestic savings to fund its infrastructure needs in a substantial manner.