Sameer Unhale
The introduction and positioning of Municipal bonds in global south, as source of infrastructure financing and project funding, despite last three decades, have not seen any mainstreaming, beyond attempts of hype and drumming and trumpetting of couple of symbolic show case projects.
Attempts to find Reasons of this disconnects and lack of traction of Municipal Bonds with the ground realities of Indian municipality, is unfortunately missing. This creates a false sense of achievement putting into danger huge cost of opportunity.
Municipal Bonds have been extremely successful in US, China and the Nordics countries for decades. The critical factors for lack of disconnect here could be..
1. Acute Fiscal imbalance where in the core financial capacity of Municipal bodies is it self limited thus creating doubts of repayment of interest and principal.
2. Municipal bonds elsewhere (US, EU) have examples of income tax rebates and tax concessions which make them attractive to retail investors.
3. All land ownership and flexibility to dispose it (as in China) is with Municipalities thus enabling land and real estate being good mortgage and ample land monetization potential.
4. Government has put municpal bonds and financing into priority sector lending elsewhere. For all practical purposes, central bank banks have not shown much inclination and public sector as well as private banks have denied to give loans to Municipalities.
5. With ballooning debt to GDP ratio post GFC and pandemic, there is general reluctance not to increase public debt, in whatever format, any further.
6. Union /Federal/Central Governments as also the regional/provincial/State governments often take municipal debt as a part of national debt and thus crowding out of Municipalities is inevitable as they themselves would utilise this space.
7. Its currently seen in the municipal sector, think tanks and the consulting industry is seen to usurp the municipal finance sector, through bonds, without acknowledging the significance of domain expertise of municipal politicians and municipal accountants, like many attempts before, and thus inevitable hesitation and even reluctance.
8.lack of Municipal domain expertise and sensitivities about municipal functioning has led to irrelevance of design f municipal bonds and its disconnect with municipal functionaries. Evangelist approach of elitism and superiority, as perceived by municipal functionaries, is bot helping the cause.
10. The excessive conferencing, photo opportunities and self congratulatory social media posts is creating distortions in its implementations and the cause of supporting municipal finance.
Genuine efforts are required going into the very root cause of the reasons for the loss of traction and courageous innovation to give push to municipal bonds!!
Sameer Unhale, Joint Commissioner, Department of Municipal Administration, Government of Maharashtra; Urban Practitioner & Visiting Senior Fellow, IMPRI.
This article was first published on Linked in by Sameer Unhale on October 25, 2024.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.
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Acknowledgment: This article was posted by Avi Sharma, a research intern at IMPRI.
