Allowing local bodies to explore the potential in ‘municipal bonds,’ devolution of 29% of the State Plan to them in 2026-27 and a hike in the honorarium of elected representatives of local bodies are among the major recommendations and suggestions made by the State Finance Commission (SFC) in its first report.
The report was tabled in the Assembly along with the Budget documents on Thursday (January 29, 2026). Presenting the Budget, Finance Minister K.N. Balagopal had stated that almost all the SFC recommendations on devolution of fund have been accepted by the government.
In his Budget speech, the Finance Minister had announced that municipalities and Corporations would be permitted to issue municipal bonds for implementing major projects that are “profitable as well as beneficial to the public.” Grama panchayats will be permitted to avail themselves of loans with the same objective subject to fixed criteria, he had said.
For resource mobilisation
In its first report which is applicable to the 2026-27 fiscal, the 7th SFC headed by K.N. Harilal has listed municipal bonds as a means for ‘supplementary/external resource mobilisation’ by local bodies. The SFC has recommended the creation of a Board of Finance for Local Governments, so that local bodies are “empowered in all possible ways to realise the revenue potential.” Among other things, the board should also facilitate issue of municipal bonds and borrowings by eligible local bodies, the report notes.
