Municipal bodies need to tap bonds, ad fees to fund development of cities: JLL

Municipal bodies will have to find new ways to raise funds for development of cities, property consultant JLL has said and suggested that options like bonds and advertisement fee could help generate 30 per cent of the capital required.

In its latest report Municipal Finance: Funding Urban Development in India', JLL said that over 140 cities can raise development capital through the issuance of municipal bonds.

Municipal bodies have to find new ways of raising capital to sufficiently fund their endeavours, it said. "A solid financial structure is essential to the success of cities in meeting the growing needs of urbanisation."

The report added that the traditional forms of revenue generation "like taxation and grants no longer suffice the scope, expanse and speed for the required development".

 

Municipal bonds are financial instruments issued by urban local bodies to raise money for specific infrastructure projects.

SEBI regulations (2015) regarding municipal bonds state that municipalities must not have negative net worth in any of the three preceding financial years, and also there should not be any default in any loan repayments in the last one year.

One of the ways to determine a city's financial health is through credit ratings. The government has initiated credit ratings to evaluate the credit worthiness of every possible local town.

"Non-traditional forms of raising capital including Municipal Bonds and alternate revenue streams such as advertisement tax and user fees can provide additional capital up to 3o per cent of the total requirement in various urban centres in the future," said Shankar Arumugham, Chief Operating Officer, Strategic Consulting, India and Sri Lanka, JLL.

The report also estimated that as much as Rs 25 crore can be raised annually through advertising fees by municipal bodies of metropolitan cities of India.

"Advertising fees are trending as a key instrument for revenue augmentation in the urban centres of India. The advertising fee, or revenue collected through the leasing of advertisement rights on assets owned by various government agencies, have the potential to be a game changer in the near future," the report said.

JLL said that India's urban centres are growing at a rapid pace, but this growth is causing significant strains on urban infrastructure and services, where massive upgrades are needed.

"This has necessitated local governments to consider planned urbanisation and peripheral expansions that would need a steady stream of revenues greater than what is generated currently by most urban centres," it said.