Bonds To The Rescue?

Urban local bodies across India are floating bonds to raise money. This may render them unviable and make city living costly

AFTER THE implementation of the Goods and Services Tax (GST), which has robbed the right of urban local bodies (ULBS) to levy and collect tolls, taxes and fees, ULBS are resorting to the system of floating municipal bonds. In May 2017, the Pune Municipal Corporation (pmc) raised ̀ 200 crore through bonds which it plans to use to improve water supply infrastructure of the city. The bond, notified in the Bombay Stock Exchange, assures returns at 7.58 percent a year to investors and will mature in 10 years.

After Pune’s success, cash-strapped New Delhi Municipal Council, Vadodara Municipal Corporation, Surat Municipal Corporation and Nashik Municipal Corporation now plan to float bonds to finance their crumbling civic infrastructure.

“Our town and cities are growing by leaps and bounds. Providing essential services like drinking water and motorable roads to these ever-expanding populations require huge funds,” says Kunal Mandavali, deputy chief accountant (finance and compliance to bond), pmc. The 2011 report by the High Powered Expert Committee of the Union Ministry of Urban Development (now renamed Ministry of Housing and Urban Affairs), shows that improving the country’s urban infrastructure requires an investment of `39 lakh crore. The latest 2017 report of think-tank McKinsey Global Institute puts the figure at an astounding `53 lakh crore. “In the absence of adequate funding from the Central or state governments, municipal bond is one of the most potent methods of mobilising money,” Mandavali adds.