A Care Edge Ratings report says India needs to bridge several gaps in its bond market, including limited investor participation and low trading volumes, to align with global standards and support long-term economic growth and its 'Viksit Bharat' vision.
India needs broader investor participation, stronger secondary market activity and deeper sub-sovereign and corporate debt markets to strengthen its bond market and align it with global standards, according to a report by Care Edge Ratings.
Persistent Gaps and Market Scale
The report stated that despite significant progress in India's government securities market, several gaps still remain, including limited participation from retail and foreign investors, lower secondary-market trading volumes and limited development of sub-sovereign debt securities markets. It stated "several gaps persist, including limited retail and foreign investor participation, lower secondary-market trading volumes, and limited development of sub-sovereign debt securities markets. These gaps will need to be bridged to strengthen the government securities market and align it with global best practices".
The report noted that India's bond market continues to be largely dominated by government securities, with general government debt securities accounting for 55.4 per cent of the country's GDP. It said this level is broadly comparable with some Asian economies such as the Philippines at 52.1 per cent and Indonesia at 33.6 per cent. However, the report pointed out that India's government debt market remains significantly smaller compared to advanced economies such as Japan, where government debt securities account for 191.9 per cent of GDP, the United States at 107.5 per cent and the United Kingdom at 90.7 per cent.
Reforms, Risks, and Opportunities
The report highlighted that several structural and institutional reforms have improved India's government securities market over the years. These include active debt management, increasing global integration, lower rollover risks and a well-diversified government securities maturity profile. The report also noted improving participation from long-term institutional investors such as insurance companies, provident funds and pension funds.
At the same time, it cautioned that the global debt market is entering a more complex and risk-sensitive phase due to rising sovereign debt levels, tighter financial conditions, changing investor behaviour and growing geopolitical fragmentation. According to the report, the shift from an era of ultra-low interest rates and abundant liquidity to higher borrowing costs is expected to reshape debt sustainability dynamics globally.
For India, the report said the changing global environment presents both opportunities and challenges. It noted that India's improving macroeconomic fundamentals, credible policy framework, prudent corporate leverage profile and increasing global integration place the country in a relatively favourable position among emerging markets.
Future Reforms for 'Viksit Bharat'
However, the report added that achieving the vision of "Viksit Bharat" by 2047 would require a deeper, broader and more efficient bond market capable of mobilising large-scale long-term capital.
The report stressed that future reforms should focus on improving market liquidity, diversifying both investor and issuer participation, strengthening secondary market activity, developing sub-sovereign and corporate debt markets and encouraging greater financial innovation. According to the report, these measures will remain critical for strengthening India's debt market and supporting long-term economic growth.
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