The market has been effectively dead. Greater Vishakhapatnam Municipal Corp issued the last municipal bonds in India in 2010 for Rs300 million. Total issuance has been mere Rs31 billion (USD 503 million) since municipal bonds were first issued in 1995. (Agencies)
With an urban population set to grow 38 percent by 2026, this market in India is ill-equipped to meet the future funding needs of the country's towns and cities.
However, efforts are now under way to change this. Last month, India's capital markets regulator formed a 20-odd member committee to look into the development of the market for municipal bonds and suggest measures to revive it.
According to sources, the Central Government is also closely following a World Bank report on the regulatory framework for municipal borrowing in India. This indicates the determination of the government to promote the market.
Nearly 900 million people are expected to be added to Indian cities by 2050, when the country's total population will touch around 1.7bn, according to government estimates. The Registrar General & Census Commissioner of India anticipates the urban population in the country to grow 38% to 534 million by 2026.
A vibrant market for municipal bonds can go a long way to help provide long-term funding for India's urban infrastructure requirements - as in the US, where the related market had over USD 3.7 trilion outstanding in early 2012.
Many challenges, however, remain. “Most municipal corporations in India have a limited understanding of bond markets. First, these bodies need to be educated on the significance of the muni bonds and, without this, nothing will work," said Atul Joshi, managing director and CEO of India Ratings & Research, the local arm of Fitch Ratings.
The market has been effectively dead. Greater Vishakhapatnam Municipal Corp issued the last municipal bonds in India in 2010 for Rs300 million. Total issuance has been mere Rs31 billion (USD 503 million) since municipal bonds were first issued in 1995.