Step Forward for Cities

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.