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

India’s capital markets regulator, SEBI, aims to encourage municipalities to collaborate in issuing bonds collectively to fund urban infrastructure upgrades, with a potential cost of up to $900 billion by 2031. The Securities and Exchange Board of India (SEBI) launched a consultation paper in May to lower entry barriers for smaller towns by creating pooled funding vehicles.

This push comes as India aims to become a developed economy by 2047 and requires between 82 trillion rupees ($855 billion) and 86 trillion rupees ($900 billion) in funding for urban projects by fiscal year 2031, according to Rajkiran Rai G., managing director of the National Bank for Financing Infrastructure and Development, the country’s largest infrastructure financier.

SEBI Chairman Tuhin Kanta Pandey emphasized the need to promote municipal bond issuance as the nation focuses on building infrastructure, including potable water and sewage systems. Although India’s municipal bond market is currently small, progress is underway, with 22 urban local bodies raising over 45 billion rupees ($485 million) through 31 municipal bond issuances as of March.

However, Pandey noted that the next phase of growth will require attention to municipalities’ creditworthiness, governance, transparent disclosures, and predictable project cash flows. Currently, India’s municipal debt issuance accounts for less than 1% of its total rupee bond sales, compared to 7% in the US.