Green municipal bonds grow as many Indian cities seek climate funding

Surat, in Gujarat, along with Pimpri Chinchwad in the western part of the country and southern city Coimbatore are all finalising proposals

By Shruti Srivastava and Ronojoy Mazumdar  More Indian cities are considering issuing their first green bonds, seeking to tap the nation’s small-but-expanding municipal debt market to fund climate action. 

Surat, in Prime Minister Narendra Modi’s home state of Gujarat, along with Pimpri Chinchwad in the western part of the country and southern city Coimbatore are all finalising proposals after Rajkot Municipal Corp. this month revealed a plan to raise up to $200 million.

 

“With balance sheets of state governments constrained, there is genuine interest among urban bodies to find new avenues to finance their needs,” said Neha Kumar, head of South Asia at Climate Bonds Initiative, a non-profit focused on green finance.

 

Surat Municipal Corp. aims to raise Rs 200 crore ($23.8 million) and is being assisted by the United Nations Development Program, said Shalini Agarwal, the city’s municipal commissioner. “We plan to install more wind and solar plants from the funds raised,” and to boost sewage water treatment, she said.

 

Coimbatore plans to raise Rs 150 crore with proceeds designated for adding a 20 megawatt solar power plant, according to Sivaguru Prabakaran, the city’s municipal commissioner. Pimpri Chinchwad is seeking state government approval for green issuance of Rs 200 crore. The proceeds would be used on sustainable infrastructure, said Pravin Jain, chief finance officer of the city’s civic authority.  

City authorities in Asia’s third-largest economy started issuing bonds only a decade ago, unlike municipalities in the US which have been raising debt since the 18th century. Green muni bonds are also a fairly recent phenomenon in India, and represent a small slice of what’s a tiny market for civic debt and worth about Rs 2,700 crore. 

 

Many civic authorities are likely to face challenges in accessing the debt market. The National Bank for Financing Infrastructure and Development, a government-backed lender, is exploring options to help cities improve credit ratings. 

 

Municipalities are also aiming to boost transparency, Climate Bond’s Kumar said.