Reforms in Indian bond market

Abstract

Financial sector is long considered the backbone of any country. Especially with the globalization having become reality, modern financial markets became the heart of most economies. India is no different from such countries, especially when its economy is liberalized over the past two decades; its financial system is also expected to be reformed to address the interests of all the stakeholders. Well-developed debt and equity markets are integral part of well-functioning economy. While the share of debt and equity markets may differ across the countries, comparative analysis between countries indicates that equity markets developed well in advance to the debt market. Hence, the level of development of debt market is often considered as the measure of maturity of the economy. While equity market in India is on par with international markets but its debt market is way behind them. It’s often attributed to misplaced policies and also investor’s own preference to equity markets due to its high liquidity and returns compared to low liquidity, relatively lower returns and less transparent nature of debt market. While the investor has the discretion to invest in equity of his/her choice any of the private or public companies, investments in debt market are directed by RBI in the form of monetary policy, such as Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), repo and reverse-repo and also depending on macroeconomic condition of the country.