Budget lays out roadmap for cities, proposes ₹100 crore single-bond issuance

New Delhi: In a major push to make Indian cities more self-reliant by strengthening municipal finances, the Union Budget on Sunday proposed a series of measures aimed at expanding market-based funding options, improving revenue autonomy of urban local bodies and reducing their dependence on state and central transfers.

The budget, tabled by finance minister Nirmala Sitharaman in Lok Sabha, proposed a ₹100 crore single-bond issuance to mobilise long-term funds for urban infrastructure projects, while continuing the ₹200 crore incentive allocation under the AMRUT scheme to support smaller and medium towns by enhancing their ability to raise resources, upgrade infrastructure and access capital markets.

Mint was the first to report that it would be announced in the Budget on 6 January.

The announcements form part of a broader effort to deepen municipal finance and encourage cities to tap market-linked instruments such as municipal and green bonds for funding long-term urban investments.

Several cities, including Surat, Indore, Ahmedabad, Vadodara, Ghaziabad and Pimpri-Chinchwad, have already raised funds through municipal green bonds, and the government sees these examples as templates that can be replicated by a wider set of urban local bodies.

The budget signals an intent to scale up such efforts by improving the financial preparedness of municipalities and creating incentives for them to access bond markets.

Anil Gupta, senior vice president and co-group head financial sector ratings at Icra said the incentive will improve the funding cost of municipalities, which otherwise have seen higher funding cost compared to state government bonds. Depending on tenor of the bonds, the annual benefit can vary. For example, a 10-year bond can reduce funding cost by 100 bps. Full impact will be only understood when key details of the announcement will be out.

As reported earlier by Mint on 6 January, the Centre has been working on a blueprint to give urban local bodies greater autonomy over finances and service delivery at a time when India’s cities are struggling with ageing infrastructure, weak service delivery and rapid population growth.

The officials familiar with the process had said the approach focuses on strengthening municipalities’ own-revenue sources, particularly property tax collections and user charges, which remain underutilised across most cities.

The budget also outlined steps to broaden the functional role of municipalities by allowing them to offer services such as project consultancy, capacity-building and implementation support, creating additional non-tax revenue streams.

Another element of the plan involves peer-to-peer mentoring, under which financially weaker municipal bodies will be paired with better-performing municipal corporations and guided to adopt proven practices in governance, accounting, revenue mobilisation and project execution.

With inputs from Subhana Shaikh