Indian cities are increasingly exploring green municipal bonds as a means to fund climate action and sustainable development projects. Surat, in Gujarat, Pimpri Chinchwad in Maharashtra, and Coimbatore in Tamil Nadu are finalizing their proposals to issue green bonds, joining Rajkot, which recently announced plans to raise up to $200 million.

Green bonds, part of India’s growing municipal debt market, are particularly appealing as state governments face budget constraints. Neha Kumar, head of South Asia at the Climate Bonds Initiative, noted a “genuine interest” among urban bodies to explore alternative financing options to meet their climate and infrastructure needs.

Surat Municipal Corporation aims to raise ₹200 crore (approximately $23.8 million) to fund renewable energy projects and improve sewage water treatment systems, according to Municipal Commissioner Shalini Agarwal. The United Nations Development Program (UNDP) is supporting Surat’s efforts to structure this bond issuance. Coimbatore, led by Municipal Commissioner Sivaguru Prabakaran, plans to raise ₹150 crore to finance a 20-megawatt solar power plant, while Pimpri Chinchwad is awaiting state approval to issue green bonds worth ₹200 crore for sustainable infrastructure projects.

Municipal bonds are relatively new in India, where cities have only started issuing bonds over the past decade, in contrast to the U.S., where municipalities have utilized bonds since the 18th century. Despite the recent emergence of green bonds in India, the market remains small, valued at around ₹2,700 crore.

However, challenges remain. Many municipalities have low credit ratings, which can hinder debt market access. The National Bank for Financing Infrastructure and Development is considering strategies to help cities improve their credit profiles. Municipalities are also aiming to enhance transparency and creditworthiness, which are critical for fostering investor confidence in India’s nascent green municipal bond market.