To address the city's infrastructure needs, the Greater Chennai Corporation (GCC) has decided to issue municipal bonds, a model approved by the central government specifically for urban local bodies to raise funds from investors and commercial establishments. This initiative aims to empower local bodies to execute essential projects without depending on state or central grants.
As per the guidelines from the union finance ministry, urban local bodies can seek funding through bonds for well-prepared projects that have detailed project reports (DPR) to attract investors. Investors will provide funding at an interest rate that will be repaid by the local bodies. With GCC's Rs 4,500 crore annual revenue largely allocated to administration and salaries, and with government grants diminishing, the corporation has opted for this funding route.
The GCC plans to present this resolution at the upcoming council meeting, targeting to raise ?1,500 crore through bonds to finance major canal restoration projects worth Rs 80 crore, as well as road relaying and flyover construction.
GCC Commissioner J. Kumaragurubaran noted that subsidies are available for local bodies that choose grants. "Many large projects are stalled due to a lack of funds. As the city rapidly expands, we cannot wait for funding. The scheme has been successful in other corporations, including Hyderabad," he said.
For instance, Pune Municipal Corporation raised ?2,264 crore in 2017 for a 24X7 water supply project through ten bonds of ?200 crore each at an interest rate of 7.5%. The corporation is currently repaying these bonds through semi-annual payments, with the final installment due by 2027. Investors for Pune’s projects included insurers, state-owned banks, and private companies. Hyderabad successfully secured ?600 crore through various bonds for its strategic road development project.
Other corporations, including Bengaluru, Ludhiana, Madurai, and Ahmedabad, have also raised bonds ranging from ?20 crore to ?150 crore for road and water supply projects, with interest rates between 7% and 13%. Most have repaid these loans using property tax funds, capital funds, and state grants, often providing property tax bills and assets as guarantees. Some corporations have also issued non-guaranteed bonds.
However, former additional director of municipal administration and water supply department D.S. Sivasamy expressed concerns about the repayment capacity of corporations, citing high-interest burdens. "Corporations lack capital revenue, and property tax revenue is consumed by salaries. How will they repay the bonds? They need to maximize internal funds through better collection of entertainment taxes and increasing professional taxes," he added.
