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Development of Municipal Bond Market in India: Issues concerning Financing of Urban Infrastructure
Abstract
This paper addresses the issue of the limited success of municipal bond markets in India even a decade after the decentralisation initiative was launched through the 74th Constitution Amendment Act. It looks at some of the problems and constraints encountered in developing the bond market and the policy changes and reforms that need to come about to vitalise it, such as financial empowerment of urban local bodies.
... Using instruments such as municipal bonds, countries all over the globe, particularly developing countries, are experimenting with innovative ways to fund urban infrastructure to achieve the goals of efficient, sustainable, and inclusive urbanization (Leigland & Thomas, 1999;Platz, 2009;Vukovic et al., 2020;Whitaker, 2018). Despite India's lengthy history of capital markets, the municipal bond market is still in its infancy, unlike in the United States, where the markets are established (Bagchi & Kundu, 2003;Soumyadip, 2017). The rapid growth in India's urban population, at 286 million (Census 2021), accounting for 31.16% of the total population, has necessitated the use of municipal bonds for financing and managing urban facilities (Sheikh & Asher, 2012). ...
... Liquidity, risk, term, interest rate, yields, credit ratings, and tax benefits are some of the prominently studied aspects of municipal bonds (Babina et al., 2021;Bagchi, 2014;Bastida et al., 2014;Butler et al., 2009;Crowder & Wohar, 1999;Daniels et al., 2010;Denison, 2001;Kriz, 2003;Nanda & Singh, 2004). The municipal bond market's ability to finance capital projects in basic utilities in India has been limited by factors such as inadequate finances, urban governance structure (Bagchi & Kundu, 2003), low ratings, absence of proper regulatory mechanisms, lack of buoyant sources of revenues of municipalities (Sheikh & Asher, 2012) but better returns in the same asset class given in Table 1 with government backing makes them an attractive instrument for investment among the Indian retail investors. ...
... The speedy growth of the municipal bond market is a feature of both developed and developing countries (Zhan et al., 2017) demonstrated by India's expanding municipal bond market and their acceptance for sponsoring urban infrastructure projects such as "smart cities" in India (Nallathiga, 2015). However, excellent financial health is a requirement for urban local bodies (ULBs) to access capital market financing (Bagchi & Kundu, 2003). This is inhibited by variables such as statutory mandates related to budgets, absence of liberal permissions by state government (Mohanty et al., 2007), incompetent tax collection, insufficient resource utilization, impractical budgeting (Rao, 2015). ...
This paper aims to analyze the investor’s perspective toward municipal bonds and to inspect the success potential of municipal bonds in India from 2010 to 2020. The research’s conceptual model is drawn using PLS-SEM for the factors impacting investor decisions toward investment in bonds issued by urban local bodies in India. Results show that “credit rating,” “yields,” “tax benefit,” and “financial soundness” significantly affect the choice of investment in municipal bonds by retail investors. However, “transparency,” “liquidity,” and “investor awareness” are not found to be significant. Bond issuers can use the model to recognize the factors impacting investors’ prioritization for investments in municipal bonds, which can also help them target a bigger investor base. The study relies on subjective data provided by retail investors and may not be the clear-cut performance indicators. The limitation of the time frame for the study over 10 years will restrict the results specifically for that period. The importance of retail investors in developing countries’ municipal bond markets has been overlooked. The study’s key contribution will be to assist and empower new retail investors to have confidence in participating in this fixed-income financial instrument.
... MoUDPA is developing guidelines for the involvement of the private sector in infrastructure to ensure a (at 1984-85 prices) 1990-91 to 1993-94 1994-95 to 1997- 1990-1991-1992-1993-1994-1995-1996-1997 transparent and competitive biding process that will not only protect consumers but also enhance the integrity of the process. Further, as property tax constitutes the most important autonomous revenue source for urban governments, several initiatives related to tax assessment, tax collection, etc, have been undertaken by relevant government authorities to utilise the potentiality of property tax to fullest possible extent [Mathur 1999;Bagchi 2003]. The new system of financing through municipal bonds calls for reforms in the existing cash-based accounting system. ...
... It is evident from the development of the municipal bond market in India that, to access capital market funds, it is a prerequisite for ULBs to have strong financial health [Bagchi and Kundu 2003]. An urban development fund and pooled financing mechanisms have been proposed for medium and smaller municipalities with a weak financial position and lack of capacity to prepare viable project proposals, so as to help them in accessing capital market funds. ...
The steady pace of urbanisation coupled with the adoption of economic reforms has been creating serious problems for the provision and financing of urban infrastructure. The resource crunch at each level of government in general, and at the local level in particular, has instigated the need for innovative financing mechanisms. Municipal bonds provide an excellent route to tap the capital market for long-term financing of urban infrastructure. Against this background, the paper delineates the problems and prospects related to the municipal bond market along with recent initiatives to propel the development of a viable and vibrant municipal bond system in India.
... 54 Numerous studies survey the Indian experience at the local government level, though often covering the same few examples. See, in particular,Bagchi and Kundu (2003); WorldBank (2004a);Venkatachalam (2005);Pradhan (2003). ...
We investigate whether timing of the elections leads to riots or not within India. In other words, does timing of elections instigate riots? The theoretical underpinning is that an incumbent government and opposition parties exercises control over their agents to instigate communal mob violence and riots during the election years. The motto behind instigating riots is that it leads to polarization of voters and thus benefits the respective constituents (incumbent government & opposition parties). Using time series crosssectional data for 16 major Indian states for the period 1958 – 2004, we find that scheduled elections are associated with increase in riots. Also intensity of riots, proxied by rate of growth rate of riots increases in scheduled election years. We also find that riots and intensity of riots are responsive to the propinquity to an election year. Meaning, as incumbent government nears the elections, riots and intensity of riots keeps increasing, while this is exactly opposite during the early years of incumbent government in office. These results suggest that elections generate “riots cycle” in regionally, ethnically, culturally and socially diverse country like India.
Social determinants of health (SDH) are extremely important for a developing country like India that is battling a double burden of disease with exceptionally low levels of resources allocated for the health sector. This article adds to the evidence on the linkages between health status and SDH, with special focus on basic amenities, such as housing, water and sanitation. Based on data collected through a large sample household survey covering eight districts in three states of India, the study reports the status of basic amenities, disease burden and explores a link between the two. The study finds that access to basic amenities does affect the likelihood of a communicable disease in a statistically significant manner. The policy implication is that any successful communicable disease prevention agenda must take into account cross-cutting interventions involving multiple sectors, such as housing, water and sanitation. A sustained focus on these can rein in a lot of avoidable morbidity and mortality. In addition, it also has the potential for direct and indirect cost savings for the individual as well as the state.
Urbanisation is the proportionate increase in the urban population with respect to the total population. In India urbanisation was never a result of a strong economic base of cities. It was distress and poverty in rural areas that resulted in a huge influx of rural migrants into urban areas. The pace of urbanisation gained momentum after 1941 with the percentage of people living in urban areas increasing to 31.16% in 2011. The pattern of urbanisation is characterised by continuous concentration of population in the megacities and in Class I cities. India’s urbanisation is best described as pseudo-urbanisation, a condition in which a large city is formed without a functional infrastructure to support it. Migration and pseudo-urbanisation lead to demographic explosion and a progressive concentration of poor migrants in the cities, followed by misery, poverty, unemployment, exploitation, rapid growth of slums and degradation in the quality of urban life. Slums are usually characterised by poor housing conditions, inadequate physical infrastructure, deprivations in socio-economic conditions, health, hygiene and lack of safety and security. Two slums were chosen within the Kolkata Municipal Corporation for assessing the quality of life. Despite government initiatives the condition of the slum dwellers has not improved much.
The paper discusses and summarises the principal findings of the various articles in the report. It also develops the theme of ensuring value for government expenditures through inter alia PPPs and PFIs. Government expenditures on vital social services with vast positive external effects need to be stepped up, but doing this the old way would be wasteful and pointless even if they have some positive demand-side effects. Among the innumerable experimentation and experiences of non-governmental delivery of social and public services all over the country, there are many worthwhile and proven (social) inventions which need to be scaled up. PFIs inter alia have the potential to address the problem. Vast gains are possible not only in efficiency. In the Indian system, the gains arising out of better allocation including better and efficient supply that can be built into the frameworks for PFIs and PPPs, can be enormous. The poor have too long been used as an excuse to create rents and to result in system and organizational failure. That stands exposed since denial in the most public and basic of services is large despite the intentions to the contrary and the vast sums being lost in rents, inefficiency, and misdirection. The new paradigm of mobilizing the private sector and society, in competition and in collaboration with the state can set in motion the processes for the state itself to change and improve its efficiency. The macroeconomic environment for such change is also conducive today. In some sectors like road building and management, the change has begun as increased role of the private sector takes root. The challenges faced by the DFIs are many as the financial sector reform progresses. While some, especially those with a large exposure to the manufacturing sector, would have to become ordinary financial intermediaries, others could continue to play a developmental role that is very different from the sectoral sanction of concessional finance of the past. Upon them falls the challenge of leverage funds, credit support, residual risk taking, project structuring, and framework development for better regulation and sectoral markets, besides financial markets development.
In India the last 30 years had witnessed a radical transformation of urban scene. In particular, during this period, the one
lakh cities and million plus cities began to grow rapidly. In the present study, urban growth of Jaipur city in the last 31 years
(1975–2006) was assessed. Jaipur ranks 11th in India with a total population of 2.3 million and has shown a consistent increase
in the past 50 years. It is one of the fastest growing mega cities of the country with an annual average growth rate of 4.5%
which is quite high from the national urban growth rate. Remote sensing and GIS have been used to extract the information
related to urban growth-built up area and its spatial and temporal variation. The Shannon’s entropy at two levels (city as
a whole and ward wise) is computed in order to quantify the form and patterns of urban growth using built up area as spatial
phenomena. Further, multivariate statistical techniques have been used to establish the relationship between the urban growth
and its causative and determining factors. Results of this study reveal that the growth rate of built up in Jaipur has outstripped
the rate of population growth. Shannon’s entropy quantifies as dispersed form of urban growth till 2000 and after it, there
is relative compactness in 2006.
This study, entitled “Municipal Finance in India – An Assessmentâ€, undertaken for the Development Research Group (DRG), Reserve Bank of India examines the performance of Urban Local Bodies (ULBs) in India. Using data from 35 Metropolitan Municipal Corporations, the study attempts to analyze the reasons for their differential performance with respect to fiscal parameters and provision of civic amenities. [DRG Study Series No. 26].
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