Govt to provide ecosystem for raising municipal bonds

Note4students

Mains Paper 1: Social issues | Urbanization , their problems & remedies

From UPSC perspective, the following things are important:

Prelims level: Municipal bonds, AMRUT and Smart cities mission

Mains level: Urban development and issues associated with it


News

10-year municipal bonds

  1. The ministry of housing and urban affairs is working on a plan to provide an ecosystem in which urban local bodies can raise money through municipal bonds
  2. ULBs will be able to raise money through 10-year municipal bonds backed by land holdings and infrastructure projects
  3. This is being done to resolve a cash crunch at ULBs for development of infrastructure in the cities

Centre’s intervention not desired

  1. Land is a state subject and no state wants centre to come in and design their cities
  2. Municipal bonds will help utilize land assets to raise money

Need of municipal bonds

  1. The government’s move to develop civic infrastructure across the country through the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and the Smart Cities Mission requires significant capital spending by ULBs
  2. These will have to be funded by market borrowings in addition to government grants
  3. ULBs will have to borrow around Rs15,000 crore to fund projects under AMRUT and the Smart Cities Mission through fiscal 2023

Back2Basics

Municipal bonds

  1. Municipal bonds are bonds issued by urban local bodies- municipal bodies and municipal corporates (entities owned by municipal bodies) to raise money for financing specific projects specifically infrastructure projects
  2. Bangalore Municipal Corporation was the first ULB to issue Municipal Bond in India in 1997
  3. Municipal bonds in India has tax-free status if they conform to certain rules and their interest rates will be market-linked
  4. Both public issue and private issue can be adopted for municipal bonds
  5. SEBI has allowed urban local bodies to raise money through the issue of revenue bonds as well
  6. Municipal bonds where the funds raised are kept for one project are termed revenue bonds
Urban Transformation – Smart Cities, AMRUT, etc.
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