Municipal bonds could help corporations to directly raise funds, thereby reducing its dependency on central and state grants. What are the roadblocks that hamper Indian cities to tap its full potential? (200 words)
Refer – Business Standard
Enrich the answer from other sources, if the question demands.
Shankaranand 6 years
Please Review
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IAS Parliament 6 years
Good try. Concluding part was a bit too general. Write some specific suggestions. Keep writing.
IAS Parliament 6 years
KEY POINTS
Roadblocks
· Low ratings - According to Crisil credit rating, only 55 of 94 cities in 14 states received investment-grade ratings and the others were below investment grade.
· Limited information – Low ratings are due to limited information available on the fiscal performance, debt and contingent liabilities of these municipalities.
· Slow implementation of municipal reforms.
· Weak governance
· All the above reasons break the confidence of investors, that municipalities will have revenue streams to service the bonds.
· Lack of transparency - In 2015, SEBI eases rules for the issue of such bonds, but also mandated more timely disclosure of financial information.
· This is important as most municipalities do not make their accounts public.
· But the slow implementation of the rules reflects the significant challenges that such entities face in meeting minimum disclosure standards.
Solutions
· Timely disclosure of financial information should be made mandatory as proper disclosures would reinforce public scrutiny of the financial performance of municipalities improve their debt management practices, thereby helping investors overcome information barriers.
· Poorly rated municipal corporations can be to access the bond market through pooled finance.
· Many civic bodies do not sell bonds because lower-rated securities have few takers.
· In pooled finance, several municipalities come together to issue one bond collectively, and pay back from the revenue from their projects collectively.
· Investors can take comfort from the fact that there is diversification of revenue sources to service debt.
Abhishek Dandriyal 6 years
Dear sir/mam, the articles of business standard are not freely accessible.they are paid. Kindly provide brief analysis regarding the same so that we can use that as a reference while answering.
Thank you
