New Delhi: Thanks to increased investment in city infrastructure coupled with reforms in municipal financing, the cities are expected to push India’s GDP growth to 70 per cent by 2036, said report in ANI citing a study by Brickwork Ratings.
As per the report, India would need at least Rs 80 trillion in urban infrastructure investments by 2037. So far, the Urban Local Bodies minimally rely on debt markets, the report titled “From grants to markets: How Urban Challenge Fund will reshape urban finance in India” further said.
Urban areas to contribute to 70% by 2036
The report further states that urban areas in India are expected to contribute to 70 per cent of the GDP by 2036. The report highlights the role of cities and urban infrastructure in economic development.
The Brickwork Ratings report somewhat praises the government’s move to shift urban financing from traditional grant-based to market linked financing under the Urban Challenge Fund (UCF).
The report further states that only 5 per cent of Urban Local Bodies (ULBs) uses funding from debt markets highlighting low penetration of commercial funding in urban areas.
UCF to push for bond issuance in Tier II and III cities
The Urban Challenge Fund (UCF) is likely to push for bond issuances especially in Tier II and Tier III cities.
“ULBs must raise at least half of project costs through bonds, loans, or PPPs before accessing UCF grants-making credit ratings non-negotiable,” the report stated.
The report also observed that the municipal bonds have emerged as a crucial financing tool in view of transparency, market discipline and participation of investors as compared to traditional funding by HUDCO and IIFCL.
The UCF framework targets over 4000 small Urban local bodies. However, 80 percent of these UBL are yet to access market debt.