INDIA RATINGS MARKET WIRE: Spike in JNNURM Allocations Positive for Municipalities, More Required

Chennai, February 28, 2013: In urban development space, the completion pace of Jawaharlal Nehru National Urban Renewal Mission projects remains tardy. However, the government has given fillip by sanctioning INR148.73bn in FY14 against INR73.83bn in FY13. In India Ratings’ opinion, the release of grants on a timely basis - linked to achievement of project milestones - is key to the success.

Although many municipalities has made reasonable strides in urban transportation, projects related to other areas like augmenting water sources and improving the standard of living (sanitation) lacks push under the scheme. The government’s thrust on solid waste management through PPP mode is a positive. The municipalities have also preferred to take the PPP route for solid waste projects. Other key areas like water treatment, sewerage treatment has been largely under the municipality belt.

Concurrently, absence of concrete efforts to provide impetus to the municipalities to explore the bond market is a concern. Although some municipalities attempted to raise funds in the past, the capital market transactions for municipalities remain dull. Municipalities have relied heavily on the bank borrowings and grants for execution of the urban development projects.

Capacity constraints were another factor ailing the sector. Although an earlier effort on this theme does not materially improvise the position, India Ratings feels if any allocation had been made for capacity enhancement it is positive for the sector.

(Source: Manager – Corporate Communications and Investors Relations, India Ratings & Research  A Fitch Group Company)