:
(a) whether the Union Government has permitted urban local bodies to raise funds from the market on a sustainable basis to
meet investment needs ;
(b) if so, the details thereof ;
(c) the progress made by the local bodies in raising funds ;
(d) whether sufficient provision for not utilizing the funds for other purposes have been made; and
(e) if so, the details thereof ?
THE MINISTER OF STATE IN THE MINISTRY OF URBAN DEVELOPMENT (SHRI AJAY MAKEN)
(a)&(b) : Yes, Sir. 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. Recently guidelines for issue of municipal tax
free bonds have been revised in consultation with the Ministry
of Finance and circulated to all the State Governments and UT
Governments on 7th March, 2006. In addition, the Government has
set up a Pooled Finance Development Fund recently to provide
credit enhancement to urban local bodies to access funds from
capital market based on their credit worthiness for funding
their bankable urban infrastructure projects. This scheme has
been approved by the Government on 29.9.2006.The broad
objectives of Pooled Finance Development Fund (PFDF) are to:-
(i) facilitate development of bankable urban infrastructure
projects through appropriate capacity building measures and
financial structuring of projects;
(ii) facilitate Urban Local Bodies (ULBs) to access capital and
financial markets for investment in critical municipal
infrastructure by providing credit enhancement grants to State
Pooled Finance Entities (SPFEs) for accessing capital markets
through Pooled Financing Bonds on behalf of one or more
identified ULBs for investment in identified urban
infrastructure projects;
(iii) reduce the cost of borrowing to local bodies with
appropriate credit enhancement measures and through
restructuring of existing costly debts; and.
(iv) facilitate development of Municipal Bond Market.
For implementing Pooled Finance Mechanism, a State Pooled
Finance Entity (SPFE) is required to be set up in each State.
SPFE is to be set up by the State which could either be a Trust
or a Special Purpose Entity, provided the Entity is only a pass
through vehicle. The basic advantage of setting up of SPFE is
that it would enable the ULBs to enter the bond market on a
regular basis and take advantage of scaled up operations.
Further, efficient SPFEs can generate fair degree of goodwill in
the bond market and may be able to achieve much higher levels of
efficiency in operations than individual ULBs. Most
importantly, it would be able to hedge risks against much larger
spectrum of activities than individual ULBs.
The Central Government would support SPFEs through the
PFDF. Of the funds made available with the Central Government
for PFDF, 5% would be utilized for project development
assistance. Balance 95% would be utilized for contribution to
the Credit Rating Enhancement Fund (CREF) to improve the credit
rating of the Municipal Bonds to investment grade.
(c): A statement showing the ULBs/Corporations that have been
granted permission to raise funds through issue of Tax Free
Municipal Bonds is enclosed at Annexure-I.
(d)&(e): Yes, Sir. 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:-
1. Potable Water Supply
2. Sewerage or Sanitation
3. Drainage
4. Solid Waste Management
5. Roads, Bridges and Flyovers; and
6. Urban Transport (if this is a municipal function under
respective state legislation).@@
ANNEXURE-I
ANNEXURE REFERRED TO IN REPLY TO PART (c) OF LOK SABHA UNSTARRED
QUESTION NO. 5096 FOR ON 11.05.2007
TAX FREE MUNICIPAL BONDS
Urban Local Bodies/Parastatals which have been granted
permission
Sl. Name Amount Date of No. (Rs.in crore) Gazette of Notification
1 Ahmedabad Municipal Corporation 100.00 21.08.01 2 Hyderabad Municipal Corporation 82.50 04.03.02 3 Nashik Municipal Corporation 50.00 07.03.03 4 Visakhapatnam Municipal Corporation 50.00 29.12.03 5 Hyderabad Metropolitan Water Supply 50.00 29.12.03 and Sewerage Board
6 Ahmedabad Municipal Corporation 58.00 16.03.04
7 Chennai Metropolitan Water Supply 42.00 24.3.04 and Sewerage Board
8 Karnataka Water & Sanitation Pooled 100.00 20.08.04 Fund Trust
9 Chennai Metropolitan Water Supply and 50.00 23.03.05 Sewerage Board
10 Chennai Corporation 44.80 24.03.05 11 Ahmedabad Municipal Corporation 100.00 24.03.05 12. Nagpur Municipal Corporation 128.00 4.1.2007 13. Ahmedabad Municipal Corporation 150.00 8.3.2007
Permission granted in 2004-05 and subsequently revalidated in 2005-06 at the instance of the applicant.