Uttar Pradesh govt bets on municipal bonds for infrastructure development

UP expands municipal bond programme to strengthen urban infrastructure financing and local body development

Having secured ₹500 crore by floating municipal bonds in five major cities, the Uttar Pradesh government has planned to add two more cities to the debt instrument basket to fund the state’s infrastructure development. 

 

While Lucknow, Ghaziabad, Agra, Prayagraj, and Varanasi have already raised a collective corpus of ₹500 through municipal bonds, the state will follow a similar route for Gorakhpur and Moradabad to mop up a total of ₹130 crore.

 

The Yogi Adityanath cabinet has recently cleared the proposal of raising ₹80 crore and ₹50 crore by the Gorakhpur Municipal Corporation and Moradabad Municipal Corporation, respectively.

 

Uttar Pradesh is among the top states with the highest number of urban local bodies floating municipal bonds for local development.

 

A bond is a debt security issued by a government agency or municipality to finance capital expenditure. The investors get returns at a predetermined rate of interest over a stipulated time period.

 

In November 2020, bonds worth ₹200 crore of the Lucknow Municipal Corporation (LMC) were oversubscribed 250 per cent on debut at the BSE. The municipal bonds issued by the LMC with a 10-year tenure offered an interest rate of 8.5 per cent.

 

In March 2021, Ghaziabad Municipal Corporation (GBC) became India’s first municipality to issue green municipal bonds worth ₹150 crore. GMC mopped up ₹100 crore and ₹50 crore in base issue and green shoe option, respectively, in proceeds.

 

Later, Agra, Prayagraj, and Varanasi municipal corporations also raised ₹50 crore each from investors to fund their respective infrastructure projects.

 

UP Finance Minister Suresh Kumar Khanna said the decision to allow Gorakhpur and Moradabad to float municipal bonds was taken to mobilise funds from various financial sources for the development of urban infrastructure.

 

“It will strengthen financial management, promote market orientation, and enhance the creditworthiness of urban local bodies,” he added.