Step Forward for Cities

Business Standard     8th December 2020     Save    
QEP Pocket Notes

Context:  Lucknow Municipal Corporation (LMC) had issued Rs 200 crore worth of bonds.

Need for issuing municipal bonds:

  • Alternative source of finance: for Urban Local Bodies (ULBs) of under developed states to finance infrastructure by tapping the capital markets.
  • To fill the gap created by the withdrawal of international funding:g. recently Asian Infrastructure Investment Bank withdrew from the project to build a capital city for Andhra Pradesh at Amaravathi.

Ways to tap maximum benefits from municipal bonds:

  • Timely repayments: which make the bonds attractive in future
  • Structure bonds to finance green projects: like for river cleaning and waste management
    • This will allow a wider placement of the bonds and greater interest from investors. E.g. Bonds issued by Ahmedabad
  • Tailor the bond as per demand in the market: currently, the demand is high for bonds that meet suitable characteristics in terms of environmental, social and governance (ESG) norms.
  • Strengthen the governance at the local bodies
    • More resources should be at the disposal of ULBs: Thus, ULB can create and structure attractive financial instruments for the sort of projects that will meet the objectives of efficiency or sustainability.
    • Create an institution at Union level to lend out expertise to ULBs: In case of Lucknow, the United States treasury department helped in issuing bonds.
  • Municipal bonds should adhere to prudent financial management principles.

Conclusion: Municipal bonds expand the financing options for urban infrastructure in India and will introduce some market discipline into urban governance and revenue generation.

QEP Pocket Notes