06/12/2018 - Urbanisation

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KEY POINTS

Municipal bonds as source of finance

·       According to the constitution of India, urban local bodies are dependent upon state government for the financial resources.

·       As the urban local bodies lack financial autonomy, municipal bond markets help urban local bodies to gather needed financial resource for urban infrastructure expansion.

·       Recently Pune raised Rs 2 billion from the issue of municipal bonds on the Bombay Stock Exchange in last year to fund water supply projects.

·       In case of SMART cities initiative, Central government creates a special purpose vehicle for the implementation of projects and the funds are released based on certain conditions. So urban local governments lacking financial autonomy

·       The municipal bonds,thus acts a channel for huge source of financial resource for urban local bodies.

Draw backs

·       Obstacle is that the municipal bonds in India have not been able to attract potential investors due to the opacity in finances and operational outcomes.

·       The SEBI rules need to be standardized eligibility norms for raising such bonds, and aim at ensuring a minimum level of transparency on the part of the city raising funds.

·       Another issue is that the funds remained unutilized, and still stuck in fixed deposits.

Measures for strengthening financial autonomy

·       State government must devolve some financial resources to urban local bodies via streamlining entertainment tax, property tax.

·       Central government and state government must invest in quality human capital formation at ground level for the effective planning and utilization of financial resources.

·       Urban local bodies should follow the recommendations of State finance commission for optimal utilization of financial resources.

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