The Hindu Business Line : Municipal bond permissions tote up to Rs 1,000 cr

Chennai March 19 Nagpur Municipal Corporation tops the list of the urban local bodies granted permission to raise funds through the issue of tax-free municipal bonds. A notification issued in January this year allows the corporation to mobilise Rs 128 crore through bonds. However, Ahmedabad Municipal Corporation has grossed more than double that sum: it has permission to tap Rs 258 crore, as per two notifications each for Rs 100 crore, in 2001 and 2005, and one in 2004.

"In addition, a proposal for the issue of Tax Free Municipal Bonds worth Rs 150 crore by Ahmedabad Municipal Corporation for the execution of infrastructure works in the city at an estimated cost of Rs 310.60 crore, recently recommended to the Ministry of Finance, has been approved by the Finance Minister for notifying the specified bonds in the Gazette of India."

Hyderabad and Chennai, corporations and water boards, have each been allowed to raise more than Rs 130 crore.

These particulars emerge from a reply by the Minister of State in the Ministry of Urban Development, Mr Ajay Maken, to a question in Lok Sabha, a few weeks ago. The questioner, Mr Baleshwar Yadav, had sought to know whether `the Union Government has advised the State Governments to raise money from the market by issuing Tax Free Municipal Bonds to meet the shortage of funds for implementing the schemes for providing basic amenities for their city dwellers.'

"In 2000-01, the Government inserted a new clause (vii) in Section 10(15) of the Income Tax Act, 1961, exempting interest income from bonds issued by local authorities," he informed the House. "Funds raised from Tax Free Municipal Bonds are to be used only for capital investments in urban infrastructure for providing one or more of the following: potable water supply; sewerage or sanitation; drainage; solid waste management; roads, bridges and flyovers; and urban transport (if this is a municipal function under respective State legislation)." In March 2006, guidelines for the issue of municipal tax-free bonds were revised in consultation with the Ministry of Finance.

Visakhapatnam and Nashik Municipal Corporations each have Rs 50 crore in the list, while Karnataka Water & Sanitation Pooled Fund Trust has twice that much. Total of Municipal bond permissions adds to about Rs 900 crore.