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Local bodies should raise funds via municipal bonds: Hardeep Puri
Live Mint  |  January 12, 2018

Ajai Sreevatsan New Delhi

Urban development minister Hardeep Singh Puri on Thursday urged local bodies to improve revenue collection and raise additional funds through municipal bonds to make development of smart cities a viable proposition.

 

There is scope for local bodies to increase efficiency in revenue collection from property tax, he told a NITI Aayog workshop on municipal finance.

 

Based on satellite imagery studies, Bengaluru taxes only 24% of its built-up area and Surat manages to collect property tax from only 11% of existing structures. In the absence of internal revenue generation capacity, municipalities will have to look at external options like municipal bonds.

 

“The urban ministry will soon take concrete steps to support states and cities in municipal finance reforms with model laws and policies on next generation financial management,” Puri said.

 

Compared to certain other areas of reform, India has been very slow in implementing municipal reforms, Puri said.

 

“The combined [revenue] receipts of all the municipalities in India is estimated to be less than Rs150,000 crore, with less than a third of this amount estimated to be from own resources,” he said.

 

Puri said that municipalities in the country are increasingly reliant on state and central government grants.

 

Nearly Rs65 lakh will be required for capital investment in Indian cities over the next 20 years and given the state of municipal budgets, much of this money may have to be raised through private sources, he said.

 

However, the ongoing central government push to make cities get credit rated to issue bonds does have its share of doubters “Bonds are not viable without improving revenue generation first. Investors would need certainty that their money would be paid back,” said Praveen Chakravarty, a senior fellow at IDFC Institute. “Indian cities ideally need to spend about Rs.30,000 per capita, but they currently spend about Rs.3,000. There is a vast gap and this can’t be filled with bonds,” he said.

 

Since the first municipal bond issuance in the mid-1990s, beginning with Bangalore, over 10 city corporations like Ahmedabad, Nashik, Madurai, Visakhapatnam, Nagpur, Indore, Chennai, Hyderabad and Ludhiana have issued bonds. But their combined worth is only about Rs2,000 crore. Pune was the most recent city to issue a tranche of bonds worth Rs200 crore in order to fund a water supply project. Both taxable and tax free bonds have been issued in the municipal bond market in India.

 

Discussions at the workshop also revolved around the prospect of raising funds for city development by leveraging urban land, making a recommendation to the Direct Taxes Commission to devolve at least some powers to local bodies, and the challenge of hiring talented staff to drive municipal services.

 

Citing a McKinsey Global Institute report, Puri said: “We need about 40,000 planners across our cities, but we currently have only 400. We need 200-300 professionals such as planners, geographers, economists, architects, and digital experts per Tier 1 & 2 city.”

 

“Lateral entrants, particularly at the municipal level should be become the norm and not the exception,” he added.