Indian Cities Turn to Green Municipal Bonds for Climate Financing Initiatives

Indian Cities Turn to Green Municipal Bonds for Climate Financing Initiatives

Indian cities are increasingly turning to green municipal bonds to finance climate initiatives, tapping into a growing but modest municipal debt market aimed at supporting sustainable urban development. Surat in Gujarat, Pimpri Chinchwad in Maharashtra, and Coimbatore in Tamil Nadu are in the final stages of proposals to issue green bonds to raise capital for climate-related projects. This move follows Rajkot Municipal Corporation’s recent announcement to raise up to $200 million through green bonds.

The interest in alternative financing options comes as state governments face budget constraints. According to Neha Kumar, Head of South Asia at the Climate Bonds Initiative, urban bodies are actively seeking new financial resources to address their climate funding needs. Surat, for instance, aims to secure Rs 200 crore ($23.8 million) in collaboration with the United Nations Development Program (UNDP) to fund renewable energy projects like wind and solar plants, as well as to enhance sewage water treatment, explained Shalini Agarwal, Municipal Commissioner of Surat.

Similarly, Coimbatore has outlined a plan to raise Rs 150 crore to construct a 20-megawatt solar power plant, while Pimpri Chinchwad has sought state government approval to issue green bonds worth Rs 200 crore, which would support sustainable infrastructure projects. Pravin Jain, the city’s Chief Finance Officer, indicated that these funds will be allocated specifically for eco-friendly infrastructure.

Municipal bond issuances in India are relatively recent, with the country’s municipal debt market valued at approximately Rs 2,700 crore. This stands in stark contrast to markets in the United States, where municipal bonds have been a financing tool since the 18th century. The rise of green bonds in India marks a positive shift, though experts, including Kumar, acknowledge that challenges remain for municipalities seeking debt market access. To support these cities, the National Bank for Financing Infrastructure and Development is exploring solutions to help improve credit ratings, facilitating easier bond issuance.