Furthermore, with the exception of the larger capital cities that are interested in accessing the capital markets, most urban local bodies do not make their accounts public.
Against this backdrop, one of the most important provisions of the 2015 regulations is the requirement for cities and municipalities seeking to issue bonds to disclose their accounts and make their activities more transparent.
Implementation of such measures would reinforce public scrutiny of the financial performance of urban local bodies and improve their debt management practices, thereby helping investors overcome information barriers and strengthen their interest in Indian municipal bonds.
A deepening of the municipal bond market in India (Baa2 stable) would also improve the ability of local governments to access a reliable flow of capital and enhance accountability for their borrowing activities.
And a more transparent, direct borrowing model among urban local bodies would in turn improve the central government's oversight of local government debt.
Rapid urbanization in India is driving the need for greater infrastructure spending on basic services such as water supply, sewerage, and transportation, all of which fall under the purview of Indian regional and local governments. However, the existing financial resources of these entities fall short of current and future needs.
India's municipal bond market remains relatively shallow, with a total of 30 municipal bond issuances to date from 14 urban local bodies, amounting to only around INR15 billion (USD230 million at the current market exchange rate). Moreover, over 75% of total Indian municipal bonds to date were issued before 2006.
More recently, activity has picked up following a greater central government policy push for raising funds in the bond market. In June 2017, the city of Pune issued a INR2 billion municipal bond to fund improvements to the city's water supply. In February 2018, the Greater Hyderabad Municipal Corporation raised INR2 billion through municipal bonds to help fund the government's Strategic Road Development Plan.
As an indication of the market's potential and the level of investor interest, both of these issuances were oversubscribed, the former six times and the latter two times.
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(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)