Why did this happen?

Please make sure your browser supports JavaScript and cookies and that you are not blocking them from loading. For more information you can review our Terms of Service and Cookie Policy.</s>Municipal bonds are yet to take off in India even as the Centre and the Securities and Exchange Board of India (SEBI) are working towards creating more awareness.

According to government statistics, a cumulative amount of Rs.1,750 crore has been raised through municipal bonds in India while South Africa saw $1.8 billion being raised through such bonds in a single quarter alone. Incidentally, $304 billion was raised in the U.S. through municipal bonds in just one single year.

“Requirement of funds to comprehensively address issues like solid waste management, water treatment etc is huge,” said Rajiv Gauba, Secretary, Ministry of Urban Development. “But, municipal bodies have been weak in raising finances.”

Speaking at a seminar on the way forward for municipal bonds he highlighted the fact that even while SEBI had framed the regulations for such bonds, municipal bodies have been weak in raising finances.

“Easy availability of government funds could also be a constraint. Lack of a secondary market for the trading of such bonds was another hindrance,” Mr. Gauba said. The capital market regulator announced regulatory norms for issuance of municipal bonds in July 2015 but after that there has been no such bond issue. The last municipal bond issued was in 2010. Rating agency CARE estimates that large municipalities in India could raise Rs.1,000 to Rs.1,500 crore every year through municipal bond issues.

“Money raised by municipal bodies in the country is a pittance when compared to other markets,” said SEBI Chairman U.K. Sinha. As regulators, we are providing protection and comfort in terms of regulations. Municipal bodies will have to look at such bonds for raising finance.”

The SEBI chairman added that regulatory bodies for pension funds and insurance should also take a proactive stance and allow their regulated entities to invest in municipal bonds.

Stressing on the importance of raising money through municipal bonds, Mr Gauba said that Brihanmumbai Municipal Corporation – the richest municipal body of India – earned 33 per cent of its revenue in 2015-16 from octroi, which would go away once Goods and Services Tax kicks in.

All cities will have to look at augmenting finance based on capital market instruments, he said.

The SEBI chairman also said that investors look for transparency and clarity while investing in any securities and municipal bodies will have to review the manner in which books of accounts are maintained.
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