Wednesday, January 7, 2015

Municipal Bonds

Municipal Bonds, also known as Munis, are tax saving investments offered by the municipal bodies to raise funds from the community for local area development. In view of the plan towards Smart Cities, the Government of India has proposed to use Munis in a few select cities in view of the following benefits it yields:
1. They help in saving tax for the individual, hence increased participation
2. Since the money invested is being used in the development of the local area, the direct impact can be felt by the investors and hence greater accountability
3. It balances authority and responsibility at the community level, thus making the process of development more effective and inclusive 
4. Viable alternative source of funding, given the central funds are already under pressure with “Make in India”
Municipal Bonds are being planned to be issued in the following manner:
1. Select five to six Tier II and Tier III cities, including smaller capitals and satellite owns, to issue munis in
2. Issue a fixed number of bonds to the people of the given municipality (75% of the population), for a fixed period (3 years) and at a fixed rate of interest (8%). The people would be decided on first come first serve basis.
3. The issuing authority must fund a minimum of 20% of the Project Cost from the munis, and incase is unable to reach minimum subscripion, must refund to the applicants within 12 days
4. Depending on the success of Munis in the first phase, the option will be extend to other towns as well. Some of the constraints that Munis might face in the first phase are:
a. Better alternative available for people with higher rate on interest
b. Absentia of Municipal Bodies causing lack of trust in them by people
c. Techno-managerial capacity of the municipal bodies
If Municipal Bonds are able to perform as expected, they will display an extraordinary route of development
investment in India at the community level. The democracy would truly be functioning BY the people and FOR the people.

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