At Anand Vihar, where Delhi shares its border with Uttar Pradesh, a long line of trucks snakes up to the toll gates to pay a higher commercial tax the state has rung in from May. The bottleneck creates a snarl down the road, creating an equally long line of cars that wait for gaps between the trucks to cross into Delhi.

People pouring out of the adjacent inter-state bus terminus duck through the mad traffic for safety of non-existent pedestrian walks. Those walks have to be built by the Municipal Corporation of Delhi (MCD), but the R6,943.63-crore annual budget is barely enough to service a cumulative debt of R2,867 crore.

MCD, India?s biggest municipal corporation, is not just cash-starved, its sources of income are also weak. This is surprising, when in apartments across Delhi, flat owners pay an average of over R1,000 each month as maintenance charges. But with a restricted mandate that crimps the sources of raising funds, it is not able to approach the debt markets to raise funds to finance projects.

Delhi is not alone. Since 1999 when the rules for municipal corporations to approach the debt markets were relaxed, only R1,005 crore had been raised till March 2011. Of this, R350 crore is from the Ahmedabad Municipal Corporation (AMC). Given what they need, this is peanuts.

Dipak Dasgupta, senior adviser in the economic division of the ministry of finance puts the requirements for urban infrastructure at R54 lakh crore over the next ten years ($1.2 trillion).

Some of that money will come in from the Jawaharlal Urban Renewal Mission (JNNURM), which is projected to raise about R8,00,000 crore for the urban bodies.

Of this, figures from the Economic Survey show till the end of 2010-11, the total allocation under JNNURM has reached R31,500 crore. By the standards of what is needed, this is puny.

But by the standards of what the municipalities obtain, this is big change. No wonder the mission has already weakened the enthusiasm of the urban bodies to carry out the homework needed to approach the debt markets.

They have promptly dropped the stiff conditions for approaching the markets. The last one to have approached the bond market was the AMC in 2007.

They have instead satisfied themselves by approaching the rating agencies only to complete the formality of being rated. The JNNURM plan links the progressive release of funds for municipalities with clear indication they are reducing losses. It is the reason why the towns visited the rating agencies in the first instance. However, few of those ratings will help them get any funds from the debt markets.

Thus, of the 13 towns that approached Care Ratings in 2009-10 for a grade, eight basically failed. They got a rating of BB or less which translates as those offering ?inadequate safety for timely servicing of debt obligations. Such issuers carry high credit risk?.

None of them returned. Samruddha Paradkar, associate economist at Care Ratings, says only those municipal bodies that are self-sufficient in their revenue stream are willing to go through the rating exercise as a preparatory to float bonds in the market. Bruhat Bengalaru Mahanagar Palike for instance, has approached the rating agencies recently. The MCD is yet to approach the credit rating agencies.

That picture is expected to change soon. According to the 13th Finance Commission, there are 3,723 urban local bodies in India, of which 109 are municipal corporations, 1,432 are municipalities and 2,182 are nagar panchayats. These serve a population of 495 million which is growing fast. The rise in population in every five year is like adding a Greater Mumbai to the urban population.

Yet together all of their revenue accounts for only 0.75% of the country?s GDP as on 2009. The ministry of urban development estimates the $1.2 trillion investment would mean spending over 7% of the GDP on urban areas. Obviously the Centre cannot give that scale of money. The need for the money is not outrageous. The comparable revenue stream for cities in Poland is 4.5%, Brazil is 5% and even higher for South Africa at 6% .

So creating the conditions to approach the markets has to be one of the top priorities for the municipalities. There are indications the better ones are planning to do so now. Of the 1,112 projects on the tracker of the government of India?s PPP site, nearly 300 are urban projects. While many of them are using their land bank as equity to bankroll the projects that option will dry up very fast. The markets will be the next option.

The positive part is that few of the municipalities have stress on their debt service ratio. This means they can raise good amount of debt provided the revenue stream does not go askew. Will that mean less of a queue at the Anand Vihar border? This is something we all will need to know.