India’s Debt Market

Context

The Economic Survey 2024-25 highlighted that India’s debt market remains undercapitalised, and risky borrowers are unable to access it.

About the Debt Market

• Debt Market is the market in which fixed income securities of various types and capabilities are issued and traded.
• These are issued by the Central and State Governments, Municipal Corporations, Govt. Bodies and business entities, like Financial Institutions, Banks, Public Sector Units, Public Ltd. Groups and also based finance instruments.
• Government bonds, additionally called Government Securities (G-Secs), are issued by the Central and State governments to finance their monetary desires.
• Corporate bonds are issued through corporations to raise the price range for their operations and enlargement projects.
• Instruments Traded in Money Market: Treasury Bills, Certificates of Deposits (CDs), Commercial Paper (CPs), Bills of Exchange and other such instruments of short-time period maturities (i.e., not those exceeding 1 year with regard to the authentic maturity).

India’s Debt Market: Challenges and Constraints

• Undercapitalisation and Limited Access: The Economic Survey 2024-25 reveals that the company bond market in India is only 18% of the country’s GDP, compared to 80% in South Korea and 36% in China.
  • This undercapitalisation is a chief hurdle for smaller gamers and risky debtors who locate it hard to tap into the market.
• Private Placements Dominance: Private placements account for 99.1% of the overall assets mobilised through the bond market, deterring the participation of retail buyers.
• Barriers to Public Issuance: Public issuance of company bonds has declined from 12% of general issuances in 2014 to 2% in 2024.
  • In FY24, the general public placement of company bonds stood at ₹19,000 crore, while personal placements amounted to around ₹8.38 lakh crore.
• Regulatory Challenges: Most of the borrowing inside the bond market is completed by corporations with the highest credit scores (AAA, AA+, and AA), leaving out many smaller companies and non-banking financial companies (NBFCs).
• Liquidity In Debt Market: High access costs, statistics asymmetry, and the absence of a secondary market for company bonds are foremost hurdles.
  • These elements make it difficult for unstable borrowers to steady investment through corporate bonds.
• Debt Recovery Challenges: Inefficiencies in debt healing frameworks, which include the Insolvency and Bankruptcy Code (IBC) and Debt Recovery Tribunals (DRTs), hinder creditor self assurance.
  • The advent of out-of-court restructuring frameworks, modeled after systems in South Korea, ought to expedite recoveries and decrease judicial burdens.

Opportunities for India’s Bond Market

• • Infrastructure and Green Bonds: The National Infrastructure Pipeline (NIP) with $1.4 trillion capital geared toward accelerating India’s infrastructure improvement.
    • India is pushing inexperienced finance with $10 billion really worth of inexperienced bonds in 2024, assisting weather-friendly tasks.

• Reforming FPI Norms to Boost Liquidity:

• • Allocation limits beneath the Voluntary Retention Route (VRR);
• Unified Market Operations for Seamless Functioning: To reduce transaction fees, and beautify investor self belief.
  • Strengthening Debt Recovery Mechanisms inspired by models in South Korea and the Philippines.

Recommendations for Improvement

• Reducing access rates, improving records transparency, and organising a secondary market for company bonds should enhance liquidity and accessibility.
• Additionally, enjoyable regulations to allow coverage and pension budget to put money into lower-rated bonds ought to help small gamers and volatile debtors access the market.

Source: The Indian Express

UPSC Mains Practice Question

Q. Public expenditure management is a challenge to the Government of India in the context of budget-making during the post-liberalization period. Clarify it. (2019)

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