Water does not flow without money. Before a single pipe is laid, a pump activated, or a treatment plant commissioned, someone has to decide where the funding comes from, who bears the risk, and who gets paid back. For India’s cities, that question has never been more urgent or more complex.

The country needs an estimated USD 840 billion in urban infrastructure investment over the next 15 years, roughly USD 55 billion annually, to support a population expected to reach 600 million urban residents by 2036, according to a World Bank report on financing India’s urban infrastructure needs. A significant share of this requirement is linked to water and sanitation infrastructure. While financing options such as green bonds, blended finance, and PPP models are expanding, their adoption across Indian cities remains limited.

THE SOVEREIGN SIGNAL AND WHAT IT UNLOCKED

Before 2016, only 40 per cent of the urban population had access to formal drinking water systems, and merely 30 per cent of households possessed water connections. Water supply was intermittent, generally limited to two to four hours per day, often accompanied by low pressure and unreliable service. Informal settlements were disproportionately excluded, leading to widespread unauthorised connections and dependence on unsafe alternatives.

Every financing story needs a starting point. India’s water finance transition effectively begins with a signal from the Centre. In January 2023, India entered the sovereign green bond market with two issuances totalling INR 160 billion, approximately USD 1.9 billion. The move was as symbolic as it was practical: a statement that the Indian state was willing to attach its own credibility to climate-labelled instruments.

By 2025, total green bond issuances by Indian entities across government, corporations, and municipalities had crossed USD 45 billion, with the public sector accounting for more than 30 percent of total volume. India requires an estimated USD 170 billion annually in climate finance, against an average of USD 44 billion per year through 2024, and green bonds are now a central piece of the strategy to close that gap.

For water infrastructure specifically, the most consequential downstream effect of the sovereign signal has been at the municipal level, where a tentative but real market for green municipal bonds has begun to take shape.

CITIES THAT WENT FIRST

The story of municipal green bonds in India is, so far, a story of a few pioneering cities doing what thousands eventually need to do.

Ghaziabad went first. In 2021, its Nagar Nigam issued India’s first Certified Green Municipal Bond, raising INR 150 crore under the Swachh Bharat Mission-Urban framework, dedicated to building a Tertiary Sewage Treatment Plant using advanced membrane filtration technologies including microfiltration, ultrafiltration, nanofiltration, and reverse osmosis. The city went on to contract with over 800 firms to supply 9.5 MLD of tertiary treated water and was recognised

with the Best Municipal Treated Water Reuse Award at the Water Digest World Water Awards 2024-25, according to a Press Information Bureau release.

Indore followed in 2023 with an INR 244 crore issuance for renewable energy at its water utility. Ahmedabad and Vadodara both came to market in February 2024, raising INR 200 crore and INR 100 crore respectively for water treatment and climate-resilient urban services. Vadodara’s issuance was recognised as India’s and Asia’s first formally certified green municipal bond. According to the Centre for Financial Accountability, Santosh Tiwari, who led the transaction, said the certification strengthened the bond’s credibility and improved accountability within the urban local body. By June 2025, Pimpri-Chinchwad’s green bond for sustainable mobility was oversubscribed more than five times, attracting an additional INR 200 million incentive under the Urban Challenge Fund, as reported by Renewable Watch.

Yet the aggregate picture remains sobering. According to the RBI’s Report on Municipal Finance from November 2024, total borrowings by urban local bodies from financial institutions stood at just INR 3,364 crore, less than 0.05 percent of GDP. SEBI data shows the total value of all municipal bond issuances between 2017 and 2025 was a mere INR 2,833.90 crore, spread across just 13 ULBs. The CEEW Green Finance Centre’s March 2025 report found that nearly 60 percent of municipal bonds issued over the last decade could have been labelled green but were not, a missed opportunity for lower borrowing costs and dedicated climate investor access. The market exists. It is just very small, and the infrastructure to scale it, robust credit ratings, standardised green labelling frameworks, and liquid secondary markets, still needs to be built.

WHERE THE BIG MONEY IS: MULTILATERALS AND KUIDFC

For India’s cities today, the largest flows of water infrastructure finance still come from multilateral development banks, channelled through state-level intermediaries like the Karnataka Urban Infrastructure Development and Finance Corporation (KUIDFC).

KUIDFC is Karnataka’s nodal agency for urban infrastructure planning, financing, and project execution. In partnership with the World Bank, it has been implementing the Karnataka Urban Water Supply Modernization Project (KUWSMP), extending city-wide continuous piped water supply to Hubballi-Dharwad, Belagavi, and Kalaburagi. The World Bank committed USD 221.85 million across the original project and an additional financing round approved in August 2024, with the programme closing date set for June 2026. KUIDFC also channels Asian Development Bank funding through the Karnataka Integrated Urban Water Management Investment Programme, under which Mangaluru’s 24×7 water expansion is being executed with SCADA integration and 1,026 km of new distribution pipelines.

The scale of multilateral commitment to Karnataka reached a new level with the World Bank’s approval in June 2025 of the Karnataka Water Security and Resilience Program (KWSRP). Approved by the World Bank’s Board of Executive Directors on June 23, 2025, the programme carries a total budget of USD 670 million, with USD 426 million from the International Bank for Reconstruction and Development (IBRD) and the remainder from the Government of Karnataka and Government of India, plus USD 5 million in private commercial financing. The programme will improve water security for more than four million Bengaluru residents over five years from 2025 to 2031, covering the revival of 183 lakes, nine new sewage treatment plants, sewerage connections for over 100,000 households, and treated wastewater reuse for industry and groundwater recharge. Implementation is anchored in the Karnataka State Action Plan on Climate Change (KSAPCC) 2024, with BWSSB and BBMP as the primary implementing agencies.

GIZ AND THE DATA FOUNDATION OF CLIMATE FINANCE

Financing structures are only as good as the data they rest on. Projects that cannot demonstrate outcomes cannot attract climate-focused investors. This is where the German development agency GIZ has been doing some of its most important, and less visible, work.

In November 2025, NITI Aayog released the report Water Budgeting in Aspirational Blocks, prepared with GIZ India under the Indo-German bilateral project Water Security and Climate Adaptation in Rural India (WASCA), implemented with the Ministry of Rural Development and Ministry of Jal Shakti. The report provides a structured framework for estimating water demand

and supply, using a web-based platform called Varuni to enable block-level planning across human consumption, livestock, agriculture, and industry. The framework was piloted across 18 aspirational blocks spanning eight agro-climatic zones in 11 states, as detailed in the PIB launch note and the NITI Aayog publication.

The significance of this for water finance is not immediately obvious, but it is real. Climate instruments, whether green bonds, blended facilities, or results-based lending, require credible, granular baseline data to define what success looks like and to measure when it has been achieved. GIZ’s broader engagement on climate finance includes the CAFRI II project, a collaboration with NABARD on linking commercial finance to climate-resilient technologies, and advisory work on adaptation finance derisking models described in a June 2025 World Economic Forum piece on scaling adaptation investment in South Asia.

THE POLICY SPINE: AMRUT 2.0

All of these individual deals and instruments sit within a national policy framework designed to shift India’s cities away from grant dependency toward a diversified, commercially oriented funding model.

AMRUT 2.0, running through financial year 2025-26, carries a total indicative outlay of INR 2,99,000 crore. It mandates that cities with populations above one million must implement at least ten percent of their project value through public-private partnerships, according to the Cabinet approval note on the Prime Minister’s India website. Key water reform targets include reducing non-revenue water below 20 percent, meeting at least 20 percent of city water demand through recycled water, and achieving universal household tap connections.

A Parliamentary Standing Committee report tabled in December 2025 noted that while AMRUT has driven real progress, rejuvenation plans had been prepared for only 10.5 percent of mapped water bodies. It called for increased multilateral funding, stronger PPP models, a dedicated Operations and Maintenance fund, and the formulation of a National Urban Wastewater Reuse Policy. The Ministry of Finance’s release of a draft Climate Finance Taxonomy in May 2025 adds a further building block, providing the definitional clarity that investors need to confidently price climate-aligned water instruments.

THE STRUCTURAL PROBLEM NO ONE HAS FULLY SOLVED

Money is available. Instruments exist. Frameworks are in place. And yet the financing gap persists.

The core challenge is institutional. Most Indian urban local bodies are not yet bankable counterparties. Their financial statements are inconsistent, their revenue bases are thin, and their technical capacity to structure complex deals is limited. SEBI data showing just 13 ULBs with outstanding municipal bonds as of April 2025 makes that plain.

Blended finance, the deliberate mixing of concessional public capital with private investment to share risk, is the bridge strategy that most financing experts now advocate. The World Bank’s USD 5 million private co-financing component in KWSRP is a small but deliberate step in that direction. So is AMRUT 2.0’s PPP mandate, BWSSB’s PPP model for smart meter deployment, and the VA Tech Wabag structure for Bengaluru’s new wastewater treatment plants, where private capital funds construction against long-term offtake contracts.

What is still missing is a replicable model at the city level: a financing template that a mid-sized municipality can follow to bring together central grants, multilateral loans, state guarantees, and private capital into a coherent, bankable project structure. Several cities are close to proving one out. When they do, the next thousand water projects will be far easier to fund than the last ten.

WAY FORWARD

The way forward lies in building financially resilient and investment-ready urban water systems. India must now focus on strengthening the creditworthiness and technical capacity of urban local bodies so that more cities can access green bonds, blended finance, and PPP-based investments. Standardised financing frameworks, stronger climate data systems, and transparent governance mechanisms will be critical to attracting long-term private capital. At the same time, multilateral institutions, state agencies, and municipal bodies must work in closer coordination to create scalable and replicable funding models. With policy support from initiatives like AMRUT 2.0 and the emerging climate finance taxonomy, India has the opportunity to transform water infrastructure financing from isolated success stories into a nationwide urban resilience strategy. e gov

Written by: Nandani Jha, Elets News Network (ENN)