India’s markets regulator is intensifying efforts to expand and modernise the municipal bond market, facilitating urban infrastructure funding through innovative financing structures and stricter disclosure norms to support a projected ₹86 trillion urban infrastructure investment by 2031.
India’s markets regulator is stepping up efforts to deepen the country’s tiny municipal bond market, with a push that could help cities and towns fund a vast programme of urban infrastructure spending expected to run into hundreds of billions of dollars by 2031. The Securities and Exchange Board of India wants local bodies to combine borrowing needs and raise money together, a structure designed to make market access easier for smaller municipalities that would struggle to issue debt on their own, according to reporting by Business Standard and a May consultation paper cited by Livemint.
At a market event in Mumbai, Sebi chairman Tuhin Kanta Pandey said the next stage of growth would depend on stronger credit quality, better governance, clearer disclosure and more reliable project cash flows. Rajkiran Rai G., managing director of the National Bank for Financing Infrastructure and Development, said India would need between ₹82 trillion and ₹86 trillion by fiscal 2031 to build urban infrastructure, including drinking water and sewerage systems, while noting that road projects have drawn the largest share of investment over the past decade.
The reform push is part of a broader attempt to expand a market that remains small by international standards. Pandey said 22 urban local bodies have raised more than ₹4,500 crore through 31 municipal bond issues up to the year ended March. CareEdge Ratings said in a January report that municipal debt accounts for less than 1% of total rupee bond sales in India, compared with about 7% of the broader bond market in the US.
The consultation paper published in May also points towards a wider overhaul of the framework. According to summaries of the proposal, Sebi wants to allow pooled bond issues by multiple municipalities, permit refinancing of existing debt through municipal bonds and tighten disclosure requirements around borrowings, repayment schedules and past restructuring. Other proposed changes include limits on how much proceeds can be used for working capital and rules aimed at improving investor confidence, including more structured support for pooled finance vehicles.
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