New Delhi: To help cities raise money for civic projects, the Union urban development ministry has picked four rating agencies to assess the creditworthiness of municipal corporations of 63 cities.
The government has selected Crisil, Fitch, Icra Ltd and Credit Analysis and Research Ltd to rate municipal corporations on financial and administrative parameters.
The move is part of a plan to augment the government’s limited budgetary resources and help cities sustain urban development projects. The Union government in 2005 had allocated Rs50,000 crore to the urban development ministry under the Jawaharlal Nehru National Urban Renewal Mission to fund infrastructure development projects in urban areas across the country.
Analysts say as much as $300 billion (Rs132 lakh crore) could be used for developing urban infrastructure.
While municipal corporations had earlier raised money from secondary markets on an individual basis, this would be the first such concerted effort by the Union government. The Ahmedabad Municipal Corporation had in 1998 raised Rs100 crore at an interest rate of 14%.
At present, organizations cannot raise money through the bond markets unless they are rated by a recognized agency. Currently, about Rs730 crore in municipal bonds are outstanding, according to numbers provided by a rating agency.
“If you do not implement reforms, there is no way of sustaining the growth that these cities are facing. And there is only so much the Union government can do. Eventually, our resources will dry up,” M. Rajamani, joint secretary at urban development ministry and director of the renewal mission, says.
Ramesh Ramanathan, national technical advisor to the mission, estimates that urban areas need between $200 billion and $300 billion funds for facilities such as roads, sewage, water, street lighting etc.
“Nobody considers the full cost of these services but they need as much investment as high-profile sectors like ports and airports,” Ramanathan said.
Approaching the markets is very important, but it has to be done in “a carefully calibrated way,” Ramanathan says.
“You want this to happen when cities are ready—financially and administratively—to raise money from the markets. You need to know that the projects they are raising money for are bankable and also something they require.”
“The credit rating of the various municipal corporations under mission will help achieve multiple objectives,” Akash Deep, head of Crisil’s corporate and infrastructure sector ratings, said.
“It would provide investors an independent, unbiased evaluation of credit quality, and help in pricing municipal debt more efficiently, thereby helping in creating a vibrant bond market.”
The ratings exercise could also prove to be “a surrogate indicator of the local bodies’ performance,” he said.
Striking a cautionary note, an analyst with a rating agency said the impact of the ratings wouldn’t be felt in the short term because of a lack of depth in the secondary market for bonds.
Sanjiv Shankaran contributed to this story.