MUMBAI: The municipal bond market, despite many a push, is still at a nascent Rs 3,000 crore but has the potential to grow tenfold to reach Rs 30,000 crore by FY34, according to a Care Ratings analysis. This can go a long way to bridge urban infrastructure financing since the municipal bond market is receiving heightened attention as urban local bodies integrate debt issuances into their capital budgeting plans.
The agency’s optimism comes from the budget 2025 push for urban infra building through a Rs 1-trillion urban challenge fund towards financing the incremental urban infrastructure requirement. The initial outlay is Rs 10,000 crore for fiscal 2026.
Between 2017 and 2024, municipalities raised Rs 3,000 crore through municipal bonds, with one-third of that in FY24 alone, most of which from established issuers. However, several first-time issuers are now planning bond offerings. Municipalities can raise an additional debt of Rs 30,000 crore by FY34, says the agency.
Civic bodies have primarily financed their capital expenditure from their revenue sources besides grants from the state and the Centre. On the other hand, municipal revenue sources are limited, forming just over 1% of the national GDP and recording annual growth of 15% between fiscals 2021 and 2024. This is because state-level policies and limited autonomy curb their abilities to raise taxes and user charges, resulting in inadequate cost recovery and impeded revenue growth.
An analysis of 30 key municipal corporations (metros, tier 1 and tier 2 cities) shows they generate 65% of their revenue, of which property tax alone contributes 60%.
These 30 municipal corporations have outstanding debt of Rs 13,000 crore as of March 2024, of which bonds are just 18%. Additionally, municipal bonds represent around 0.06% of the total outstanding corporate bond issuances as of September 2024. But only five of these 30 largest municipalities had revenue deficits.
But the country is undergoing an unprecedented jump in urban population, growing from around 28% in 2004 to around 36% in 2024 and projected to reach 40% by 2036. This requires not only enhancing civic infrastructure but also developing new facilities such as roads, drinking water supply, sewage disposal, solid waste management, street lighting, public health services, schools and hospitals and other public amenities among others.