Municipal Bonds As a Source of Finance for Urban Infrastructure Development in India

Abstract

Municipal bonds are an option available to the large cities to raise resources for financing long term projects such as infrastructure development. Countries like the USA have had a long experience of using municipal bonds to finance the development of cities and their infrastructure. Indian cities also have taken the route of raising financial resources through bond markets in the past (until 2004), especially few large cities have taken active interest in it. This article discusses first the salient features of municipal bonds in terms of their characteristics, advantages and risks in the present scenario. The experience of municipal bonds in India during the period of 1997-2007 under the NDA regime is analysed subsequently so as to understand their success and limitations. With the NDA government coming back into power in 2014, it is hoped there will be scope for re-introduction of them. The current NDA government has already declared Municipal bonds as a feasible tool for financing urban infrastructure projects, especially in the development of ‘Smart Cities’, thereby bringing back favourable prospects for them. The article concludes that municipal bonds may play a role in smart city development provided that some changes are made in the operation of finances of ULBs and enable them to move towards raising resources.

Keywords: urban finance, urban infrastructure, municipal bonds, municipal finance