BMC mulls 'municipal bonds' to raise cash for infrastructure projects

BMC mulls 'municipal bonds' to raise cash for infrastructure projects

Dipti SinghUpdated: Monday, January 25, 2021, 11:24 PM IST
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Brihanmumbai Municipal Corporation (BMC) | File Image

Mumbai: The cash-strapped Brihanmumbai Municipal Corporation is now considering issuing 'municipal bonds' to raise funds from the share market for its ongoing infrastructure projects. The civic administration is currently working out details of the plan with various committee heads and public representatives.

Already the country's richest municipal corporation has suffered more than 41 per cent loss in revenue in the first six months of the financial year 2020-21. Trying to bail itself out of this financial crisis, in September 2020, the civic body decided to dip into its reserves (in fixed deposits) to withdraw Rs 5,000 crore.

But now, it is considering alternatives to raise funds for some infra projects, like sewage treatment plants and for the Mithi river rejuvenation project, among others. Once a decision is finalised in the civic body, a proposal will be submitted to the state government, Mayor Kishori Pednekar said.

The BMC’s income has taken a hit because of Covid-19 related expenditure, and also because earnings under several heads, such as property and water taxes, development charge etc; have dipped because of the viral outbreak.

In February 2020, former Municipal Commissioner Praveen Pardeshi had presented a budget of Rs 33,441 crore for 2020-21, of which Rs 14,647 crore was for development projects. However, as the pandemic hit the city, the BMC suffered a huge revenue loss and had estimated that this would go up to Rs 12,000 crore -14,000 crore by the end of financial year.

In an attempt to prevent any further financial crisis, the civic body, at its general body meeting in August 2020, had approved a Rs 2,500 crore budgetary cut from its capital expenditure for the financial year 2020-21.

Major cuts were approved in funds allocated to various infrastructure projects in Mumbai such as the coastal road, the Gargai dam, road works and financial aid to the cash-strapped BEST undertaking. Apart from this, the civic body had also asked all its departments to slash their revenue expenditure by at least 20 per cent.

"We managed Covid-related expenses by using contingency funds and had to defer some projects. But we continue to face a huge financial gap, which we do not want to continue with in the next financial year. Hence, we are considering issuing municipal bonds," said a senior BMC official.

A municipal bond, commonly known as a 'muni bond', is a bond issued by a local government or territory, or one of their agencies. It is generally used to finance public projects such as roads, schools, airports and seaports, and infrastructure-related repairs. The Securities and Exchange Board of India (SEBI) circulated detailed guidelines in 2015 for urban local bodies to raise funds by issuing municipal bonds.

In 2019, the Ahmedabad Municipal Corporation had raised Rs 200 crore by selling ‘muni bonds’ for funding urban infrastructure development. With a maturity of five years, the bonds offered an interest rate of 8.7 per cent. A few other municipalities, including Pune, have also raised funds by issuing municipal bonds.

The idea of raising a municipal bond was first suggested by former BMC Commissioner Sitaram Kunte in 2014. However, since the civic body was not facing a crisis like this then, the suggestion was not considered further.

"Our credentials are good, so we are expecting to get an interest rate of 6-6.5 per cent if we float the bonds now. The bond period will be 10-15 years," the official added.

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