Municipal Bonds for Financing India's Urban Infrastructure: The Case of Indore

Abstract

To address the challenges arising from growing urbanization, local governments in India need to allocate significant funds to facilitate the development of urban infrastructure in the coming decades. The financial constraints experienced by governments at various levels, especially at the local level, underscore the need for alternative financing methods to bridge the substantial investment gap. Municipal bonds present a viable option for accessing the capital market for long-term debt to finance urban infrastructure.

India’s history with municipal bonds dates back to the mid-1990s, yet its municipal bond market is shallow and urban local bodies remain highly underleveraged. Recent initiatives aimed at developing the municipal bond market have led to an increase in bond issues since 2017. However, this activity is very limited and few municipalities have been successful in issuing bonds. In this context, Indore’s relatively active participation in India’s municipal bond market, despite facing similar challenges as other municipalities, offers an interesting case study. This thesis analyzes Indore Municipal Corporation’s latest green bond issuance and situates it within the trajectory of municipal bond financing in India in order to understand the factors contributing to the city’s performance, and to reflect on the replicability and scalability of these factors to proximate contexts.