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India Debt Market

Historically, India debt market has suffered a severe neglect of policymakers in spite of the the fact that India has a fairly strong debt preference among households for their financial investment portfolio. The over-reliance on the financial intermediation of the public sector is largely responsible for hindering growth of the debt market in India which is the basic source of corporate financing in India.

However, since the early 90s, the Indian firms have become flexible in choosing the their capital structure optimally by virtue of significant structural changes in the Indian Capital Market. Today, India's debt market comprises two segments:

Government Securities Market
Corporate Securities Market

The former dominates the market in terms of outstanding issues, market capitalization and volume of trade thus setting a standard for the rest of the market through instruments like floating rate bonds, zero-coupon bonds,treasury bills and state government bonds.

On the contrary, the latter encompasses private corporate debts consisting of debentures, fixed deposits, bonds issued by private sector enterprises, commercial papers and other institutions relating to financial and infrastructural development.

The government should focus on Indian Debt Market at this early stage in spite of there being substantial amount of unfinished workload in other segments of the financial sector. The reason for that is the structural changes that have occurred post 1991, which need to remain uninterrupted.

The requirements of investment funds can be classified into equity,long-term debt and medium to short-term debt. The proportion in which the above funds will be required will depend on the nature of activity to be undertaken, the sector in which invest is proposed to be made and the perceptions regarding future developments in the financial sector. Too much variation in debt-equity ratio or term structure of debt appropriate for a particular industry is not permissible or desirable from the point of view of both lenders and borrowers.

If such measures are appropriately taken care of, India debt market has a bright future ahead.



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