June 9, 2007

Muni Bonds Can Help India Clean Up Urban Mess

May 17 (Bloomberg) -- The humble municipal bond may offer India a ``huge'' window of opportunity to help clean up the ailing infrastructure of the country's vast urban landscape, says Fitch Ratings.

Already, some 285 million Indians live in 4,000 towns and cities. This number is only going to rise.

Municipalities can't rely on their creaking, 100-year-old water pipes and sewerage systems to serve the large and growing urban communities. Investments are needed, and urgently.

According to the World Bank, India will need $37 billion over the next decade to give city dwellers access to safe water and sanitation. The budgetary resources of India's federal and state governments are already stretched.

The larger Indian cities have some access to capital markets. They can borrow funds by pledging future revenue from property taxes, service charges and state grants. The Bangalore municipality sold bonds in 1997; a few others have followed suit.

Smaller municipalities' fund-raising abilities, however, are constrained by their lousy balance sheets. In the absence of sovereign guarantees -- which the government nowadays is reluctant to provide -- they will have to pay unaffordable junk- bond interest rates.


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