India’s capital markets regulator will encourage municipalities to pool their financing needs and issue bonds collectively to fund the upgrade of urban infrastructure that may cost up to $900 billion through 2031.
The Securities and Exchange Board of India in May issued a consultation paper that aims to bridge urban funding gaps by lowering entry barriers for smaller towns via pooled funding vehicles.
SEBI pushes municipal bond market
The push to develop India’s nascent municipal debt market comes as the South Asian nation targets to be a developed economy by 2047. The country requires between 82 trillion rupees ($855 billion) and 86 trillion rupees ($900 billion) by fiscal year 2031 to develop urban infrastructure, Rajkiran Rai G., managing director at National Bank for Financing Infrastructure and Development, the nation’s biggest infrastructure financier, said on Thursday.
The regulator is trying to push the issuance of municipal bonds as India focuses on building infrastructure including potable water and sewage, said SEBI Chairman Tuhin Kanta Pandey. Road projects saw the biggest investments in the last decade, Rai G. said at the event in Mumbai.
Focus on creditworthiness, governance
India’s municipal bond market is small, but progress is underway, Pandey said, adding the next phase of growth will require focus on municipalities’ creditworthiness, governance, transparent disclosures and predictable project cash flows.
Twenty-two urban local bodies have raised more than 45 billion rupees through 31 municipal bond issuances until the year ended March, Pandey said.
Municipal debt remains small
India’s municipal debt issuance makes up less than 1% of its total rupee bond sales. In comparison, the segment represents 7% of the overall bond market in the US, according to CareEdge Ratings’ January report.
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