Greater Chennai Corporation Empowers Local Bodies Through Municipal Bonds
The Greater Chennai Corporation (GCC), in a bid to address the city’s infrastructure needs, has announced its decision to issue municipal bonds. This model, approved by the central government for urban local bodies, allows them to raise funds from investors and commercial establishments, reducing the dependence on state or central grants. The GCC aims to empower local bodies to execute essential projects by attracting investors through this funding route.
Empowering Local Bodies through Bonds
The issuance of municipal bonds is a strategy outlined by the union finance ministry to enable urban local bodies to seek funding for well-prepared projects. Under this model, such bodies must have detailed project reports (DPR) in place to attract investors. These investors will provide funding at an interest rate that will be repaid by the local bodies, diminishing the reliance on government grants.
Impetus for Greater Chennai Corporation
The Greater Chennai Corporation intends to present a resolution at its upcoming council meeting, aiming to raise an amount of ?1,500 crore through bonds. This fund will be utilized towards financing various projects, including the restoration of major canals worth Rs 80 crore, road relaying, and flyover construction. With an annual revenue of Rs 4,500 crore primarily allocated to administration and salaries, the GCC sees issuing municipal bonds as a viable financial solution.
Successful Implementations across Indian Cities
Adopting the slogan “the scheme has been successful in other corporations,” GCC Commissioner J. Kumaragurubaran looks to the achievements of cities such as Hyderabad and Pune. Pune Municipal Corporation successfully raised an amount of ?2,264 crore in 2017 through ten bonds at an interest rate of 7.5% for a 24X7 water supply project. Also on Hyderabad’s success radar, the city secured ?600 crore from various bonds for its strategic road development project.
Stimulating Urban Development
Apart from Chennai, other cities like Bengaluru, Ludhiana, Madurai, and Ahmedabad have also chosen to raise funds through municipal bonds for impactful projects in road and water supply sectors. These cities have successfully raised bonds ranging from ?20 crore to ?150 crore, with interest rates varying from 7% to 13%. They have primarily repaid these loans using property tax funds, capital funds, state grants, and property tax bills and assets as guarantees.
Concerns about Repayment Capacity
While the initiative is positive, concerns have been raised regarding the repayment capacity of the corporations indicating high-interest burdens. According to D.S. Sivasamy, former additional director of the municipal administration and water supply department, “Corporations lack capital revenue, and property tax revenue is consumed by salaries. How will they repay the bonds? They need to maximize internal funds through better collection of entertainment taxes and increasing professional taxes.”
Municipal bonds have emerged as a promising financial instrument, allowing urban local bodies to raised substantial funds for crucial projects. With the upcoming resolution in the council meeting, the Greater Chennai Corporation firmly pla
