Hike in support to civic bodies to boost appeal of municipal bonds

Hike in support to civic bodies to boost appeal of municipal bonds

MUMBAI: Top municipalities in the country are likely to get a funding boost in the budget as the government prepares to empower civic bodies that will play a key role in strengthening the quality of life in a rapidly urbanising India.

The 15th Finance Commission may recommend up to 2 lakh crore in fund allocation over the next five years to municipalities across the country in its report next Monday, two sources familiar with the matter told ET. “It will likely have big provisions for cities, both in terms of money and reform measures, besides others,” said one of sources.

This should significantly improve the financial health of those local bodies, many of them aiming to raise bonds. Asia’s richest civic body, Brihanmumbai Municipal Corporation, is planning to raise up to 4,000 crore, the Times of India reported on January 25.

The 14th Finance Commission had allocated 87,000 crore for the period between FY16 and FY20. There was an interim report for FY21, released in the last budget.

An emailed query sent to the department of economic affairs remained unanswered.

“Financial sustainability and financial accountability of Urban Local Bodies are critical to transforming urban infrastructure in India,” said Srikanth Viswanathan, CEO at Janaagraha, a Bengaluru-based NGO working on governance reforms and citizen participation in cities. “If urban local bodies receive predictable and untied fiscal transfers in the form of Finance Commission grants, their financial health would improve. Private investors would start gaining confidence to invest in municipal borrowings including bonds.”

The coronavirus has compounded the financial position of local bodies. Also, alleged reluctance by states to pursue collections has further weakened the resources.

Fund allocations will likely be released to certain categories of cities, especially for undertaking improvements in key social infrastructure such as air quality, drinking water and solid waste management.

There are about 3,700 urban local bodies in the country. The government has been encouraging them to raise money in the capital market. However, private investors are apprehensive of the municipal bonds. “Any surge in funding boost will help lift investor confidence in muni bonds,” said a local investment banker.

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