On February 1, the Finance Minister, Nirmala Sitharaman proposed a ₹100 crore incentive for municipal corporations issuing bonds of more than ₹1,000 crore in a single tranche. The proposal was announced during the Union Budget presentation in Parliament. The incentive is linked only to one standalone issuance crossing the threshold.
No details were provided on how the incentive will be disbursed or which bodies will qualify. Further clarification is expected through post-Budget notifications or guidelines.
Municipal bonds are issued by urban local bodies to raise funds for infrastructure spending. The money is usually used for projects such as roads, water supply, sewage systems, sanitation facilities, hospitals, schools and other civic services. These bonds are backed by municipal bodies and linked to specific capital expenditure.
In India, municipal bond issuances have remained limited. Only a few cities have accessed the bond market, and most issuances have been relatively small. Many municipal bodies continue to depend on budgetary allocations, state support and bank borrowings for infrastructure funding.
The Economic Survey tabled on January 29 referred to the potential of municipal green bonds for climate-related projects. According to the Survey, municipal green bonds could mobilise between $2.5 billion and $6.9 billion over the next 5 to 10 years for climate action undertaken by local bodies.
The Survey listed Vadodara, Ahmedabad, Indore and Ghaziabad municipal corporations as issuers of green bonds in India. Between February 2024 and May 2025, these four corporations raised a total of ₹694 crore through green bond issuances.
Along with the bond incentive, Sitharaman announced plans to restructure REC Ltd and Power Finance Corporation. The restructuring was outlined as part of measures related to public sector financial institutions.
The Budget also proposed the formation of a high-level committee on “Banking for Viksit Bharat” to look at issues connected with the banking sector.
Read More: Budget 2026: India Sets FY27 Fiscal Deficit Target at 4.3%!
The proposed ₹100 crore incentive for large municipal bond issuances, along with references to green bonds and institutional changes, places municipal borrowing and capital market funding within the Budget framework for infrastructure financing.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
Published on: Feb 1, 2026, 1:30 PM IST
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