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Union Finance Minister Nirmala Sitharaman on Friday called for strengthening municipal finances and expanding bond-based funding for urban infrastructure, even as rising borrowing costs make it increasingly challenging for Indian cities to raise money from capital markets.
Speaking at a keynote session titled "Working Together to Make Cities Investable - Mobilising Private Capital for Urban and Water Infrastructure" on the sidelines of the World Bank-IMF Annual Meetings in Bangkok, Sitharaman stressed that cities need stronger revenues, transparent accounts and financially viable projects to attract private investors. "Municipal bonds can enable cities to mobilise capital market resources for urban infrastructure," she said. Her remarks come at a time when borrowing costs are rising in India's debt market, posing a challenge for municipalities seeking to raise funds through bonds. The Reserve Bank of India raised its benchmark repo rate by 25 basis points to 5.50 per cent earlier this month, while government bond yields have also risen, adding to concerns over borrowing costs for municipalities looking to tap capital markets. Highlighting the importance of financial discipline, Sitharaman said, "Investment readiness of a city depends on credible accounts, stronger own-source revenues, prepared projects and capable institutions." She added that robust property tax administration, efficient collection and transparent financial reporting would help municipalities establish the track record required to access suitable financing. The Finance Minister also emphasised that government investment must continue alongside private funding to meet growing urban infrastructure requirements. "The objective is not to replace public funding, but to use it to address viability gaps, support reforms and mobilise appropriate additional capital that will be required," she said. Referring to existing government initiatives, Sitharaman said the Urban Challenge Fund, backed by Rs 1 lakh crore in central assistance, aims to mobilise Rs 4 lakh crore in total urban investment. She also highlighted pooled financing as an option for smaller municipalities, citing Tamil Nadu's model in which 13 urban local bodies jointly raised funds through a bond for water and sanitation infrastructure. The approach allows smaller municipalities to combine their borrowing requirements, making projects more attractive to investors while spreading financing benefits across participating cities. "Private investors can contribute capital, technology and operating expertise when projects have clear contracts, reliable payment arrangements and fair risk allocation," Sitharaman said. Her remarks underline the challenge facing urban infrastructure financing: attracting private capital while ensuring municipalities have the financial strength to borrow and repay funds, particularly when market interest rates are rising. (ANI)
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