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Q. Importance of municipal bonds: Discuss the importance of municipal bonds in India.
Mar 07, 2017 Related to : GS paper-3

Ans :

Introduction-

The most of the municipal corporations in India derives their major quantum of income from sources like octroi. But few indirect taxes like octroi will be discontinued once the goods and services tax (GST) is implemented nationwide later this year. In such situation the municipal corporation will face difficulty over its revenue collection. In this backdrop Indian needs thriving municipal bonds, which have huge potential for much needed resources.  

Importance municipal bonds and what can be done-?

  • The Brihanmumbai Municipal Corporation, the richest municipal body in India, earned as much as 33% of its revenue last fiscal from octroi. But when GST will be implemented, octroi will be discontinued. In such conditions the corporation will suffer huge revenue loss.
  • Though municipal bonds in India have huge potential to raise the for much needed resources, in the absence of octroi, but it has not grown potential in comparison to other developing markets.
  • In this background we do need to boost the demand and supply of municipal bonds in at least 100 top cities of India, which will meet the revenue requirement and helps in development of the cities. 
  • Similarly, it will meet at least partly the massive funding requirement for our ambitious smart city project.The municipal bonds can well finance urban transport, public housing, solid waste disposal and umpteen other municipal projects, and also provide steady, long term returns for investors. 
  • For that municipalities need revenue streams to service the bonds, using making its revenue collection efficient through both user charges and property taxes. It is possible by enhancing the institutional capacity of municipalities. 

Conclusion-

 India’s economy zooms ahead primarily in India’s towns and cities, which need investment to facilitate that growth. With implementation of GST Indian cities will loose octroi tax and revenue out of it. In such situation they need some other modes to raise the funds and municipal bonds have huge potential in this regard. Hence municipalities need greater institutional capacity to issue municipal bonds and which van be possible by making them efficient in its operation.


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