India’s municipal bond market gets SEBI push as urban funding needs rise

India's capital markets regulator, the Securities and Exchange Board of India (SEBI), is guiding municipalities to collaborate on financing urban infrastructure projects that could require up to $900 billion through 2031. The regulator issued a consultation paper in May to address urban funding gaps by reducing barriers for smaller towns through pooled funding vehicles.

India aims to become a developed economy by 2047 and currently needs between 82 trillion rupees ($855 billion) and 86 trillion rupees ($900 billion) to upgrade urban infrastructure by fiscal year 2031. Rajkiran Rai G., managing director at National Bank for Financing Infrastructure and Development, the nation's largest infrastructure financier, highlighted this requirement during an event in Mumbai.

While the regulator seeks to encourage municipal bond issuance, India's municipal bond market remains small, but growth is progressing. SEBI Chairman Tuhin Kanta Pandey emphasized that the next phase of growth will depend on municipalities' creditworthiness, governance, transparent disclosures, and predictable project cash flows.

As of March, 22 urban local bodies had raised over 45 billion rupees through 31 municipal bond issuances, representing less than 1% of India's total rupee bond sales. In contrast, municipal debt issuance makes up 7% of the overall bond market in the United States, according to CareEdge Ratings' January report.