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Financial Economics: Term paper 1
Corporate Bond Market in India: A critical appraisal
Introduction
The corporate bond market involves all bonds that have credit risk, i.e., bonds issued by all entities other than the central government. This includes not just the bonds issued by private Indian firms, but more significantly bonds issued by sub national agencies such as state government and municipalities, as well as the public sector unites or entities which are firms where the majority share holder is the central or state government. It is evident that the broader and efficient financial markets are desirable for public policy objectives as they play a critical role in improving the efficiency of capital allocation within the economy. India’s case is peculiar in the sense that while it has the well developed government sector, its corporative bond market is underdeveloped. Through this paper I try to look at the contradictions in the Indian bond market, ie., why there is a well functioning government sector at the cost of corporative bond. I also intend to examine the challenges and potentials that Indian corporate bond market face. The paper is divided into four sections. Section 1 highlights the need for a well developed corporate bond market in India. Section 2 explains the growth of Indian bond market. Section 3 tries to locate the challenges or reasons for underdevelopment of corporate bond market in India. Section 4 highlights the measures taken to develop the bond market in India and lastly the concluding remarks.
1. Why corporate bond market?
The debt market in India mainly consists of two categories - the government securities or the G-Sec markets comprising central government and state government securities, and the corporate bond market. In order to finance its fiscal deficit, the government floats fixed income instruments and borrows money by issuing G-Secs that are sovereign securities issued by the Reserve
Corporate Bond Market in India: A critical appraisal
Introduction
The corporate bond market involves all bonds that have credit risk, i.e., bonds issued by all entities other than the central government. This includes not just the bonds issued by private Indian firms, but more significantly bonds issued by sub national agencies such as state government and municipalities, as well as the public sector unites or entities which are firms where the majority share holder is the central or state government. It is evident that the broader and efficient financial markets are desirable for public policy objectives as they play a critical role in improving the efficiency of capital allocation within the economy. India’s case is peculiar in the sense that while it has the well developed government sector, its corporative bond market is underdeveloped. Through this paper I try to look at the contradictions in the Indian bond market, ie., why there is a well functioning government sector at the cost of corporative bond. I also intend to examine the challenges and potentials that Indian corporate bond market face. The paper is divided into four sections. Section 1 highlights the need for a well developed corporate bond market in India. Section 2 explains the growth of Indian bond market. Section 3 tries to locate the challenges or reasons for underdevelopment of corporate bond market in India. Section 4 highlights the measures taken to develop the bond market in India and lastly the concluding remarks.
1. Why corporate bond market?
The debt market in India mainly consists of two categories - the government securities or the G-Sec markets comprising central government and state government securities, and the corporate bond market. In order to finance its fiscal deficit, the government floats fixed income instruments and borrows money by issuing G-Secs that are sovereign securities issued by the Reserve
References: Ajay Shah, Susan Thomas & Michael Gorham. (2008). India’s financial markets; An insider’s guide to how the markets work. Elsevier, Haryana. Anupam Mitra Khan H.R., (2012). Corporate debt market: Developments , Issues and Challenges. Speech at FICCI’s 9th annual conference on capital markets ;CAPM 2012. Sanjay Banerji., Krishna Gangopadhyay., Ila Patnaik., & Ajay Shah (2012). New thinking on corporate bond market in India. Working paper no 2012-106. National Institute of Pulic Finance and Policy. New Delhi. Saugata Bhattacharya Shyam Srinivasan, (2013). India’s emerging corporate bond market: Potentials and challenges. Financial foresights Views, Reflection and Erudiction, FICCI. Vol. No. 4, Issue No. 1. Usha Anathasubrahmanyan. (2013). India’s emerging corporate bond market: Potentials and challenges. Financial foresights Views, Reflection and Erudiction, FICCI. Vol No. 4, IssueNo. 1