{"id":36633,"date":"2025-02-01T19:51:25","date_gmt":"2025-02-01T14:21:25","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=36633"},"modified":"2025-08-05T16:45:36","modified_gmt":"2025-08-05T11:15:36","slug":"india-debt-market-challenges","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/01-02-2025\/india-debt-market-challenges","title":{"rendered":"India\u2019s Debt Market Challenges"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The <strong>Economic Survey 2024-25<\/strong> highlighted that <strong>India&#8217;s debt market<\/strong> remains under capitalised, and risky borrowers are unable to access it.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>About the Debt Market<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Debt Market is the market where<strong> fixed income securities<\/strong> of various types and features are issued and traded.<\/li>\n\n\n\n<li>These are issued by the <strong><em>Central and State Governments, Municipal Corporations, Govt. bodie<\/em><\/strong><strong>s<\/strong> and <strong>commercial entities,<\/strong> like <em>Financial Institutions, Banks, Public Sector Units, Public Ltd. companies<\/em> and also<em> structured finance instruments.<\/em>\n<ul class=\"wp-block-list\">\n<li><strong>Government bonds<\/strong>, also known as <strong>Government Securities (G-Secs),<\/strong> are issued by the Central and State governments to finance their fiscal needs.<\/li>\n\n\n\n<li><strong>Corporate bonds<\/strong> are issued by companies to raise funds for their operations and expansion projects.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Instruments Traded in Money Market:<\/strong> Treasury Bills, Certificates of Deposits (CDs), Commercial Paper (CPs), Bills of Exchange and other such instruments of short-term maturities (i.e., not those exceeding 1 year with regard to the original maturity).<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>India\u2019s Debt Market: Challenges and Constraints<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Undercapitalisation and Limited Access: <\/strong>The Economic Survey 2024-25 reveals that the <strong>corporate bond market in India is only 18% of the country&#8217;s GDP<\/strong>, compared to<strong> 80% in South<\/strong><strong> Korea <\/strong><strong>and 36% in China.<\/strong>\n<ul class=\"wp-block-list\">\n<li>This undercapitalisation is a major hurdle for smaller players and risky borrowers who find it difficult to tap into the market.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Private Placements Dominance: <\/strong>Private placements account for <strong>99.1% of the total resources<\/strong> mobilised through the bond market, deterring the participation of retail investors.\n<ul class=\"wp-block-list\">\n<li><strong>Barriers to Public Issuance: <\/strong>Public issuance of corporate bonds has declined from 12% of total issuances in 2014 to 2% in 2024.<\/li>\n\n\n\n<li>In FY24, the public placement of corporate bonds stood at \u20b919,000 crore, while private placements amounted to around \u20b98.38 lakh crore.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Regulatory Challenges: <\/strong>Most of the borrowing in the bond market is done by firms with the <strong><em>highest credit ratings (AAA, AA+, and AA),<\/em><\/strong> leaving out many smaller companies and non-banking financial companies (NBFCs).<\/li>\n\n\n\n<li><strong>Liquidity In Debt Market:<\/strong> High entry costs, information asymmetry, and the absence of a secondary market for corporate bonds are major hurdles.\n<ul class=\"wp-block-list\">\n<li>These factors make it challenging for risky borrowers to secure funding through corporate bonds.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Debt Recovery Challenges:<\/strong> Inefficiencies in debt recovery frameworks, including the <strong>Insolvency and Bankruptcy Code (IBC) and Debt Re<\/strong><strong>covery Tribunals (DRTs), <\/strong>hinder creditor confidence.\n<ul class=\"wp-block-list\">\n<li>The introduction of out-of-court restructuring frameworks, modeled after systems in South Korea, could expedite recoveries and reduce judicial burdens.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<p><strong>Also read:<\/strong> <a href=\"https:\/\/www.nextias.com\/ca\/current-affairs\/14-01-2025\/india-debt-market\" data-type=\"link\" data-id=\"https:\/\/www.nextias.com\/ca\/current-affairs\/14-01-2025\/india-debt-market\">India debt market<\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Opportunities for India\u2019s Bond Market<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Infrastructure and Green Bonds: <\/strong>The National Infrastructure Pipeline (NIP) with $1.4 trillion capital aimed at accelerating India&#8217;s infrastructure development.\n<ul class=\"wp-block-list\">\n<li>India is pushing green finance with $10 billion worth of green bonds in 2024, supporting climate-friendly projects.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Reforming FPI Norms to Boost Liquidity:<\/strong>\n<ul class=\"wp-block-list\">\n<li>Allocation limits under the Voluntary Retention Route (VRR);<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Unified Market Operations for Seamless Functioning:<\/strong> To reduce transaction costs, and enhance investor confidence.<\/li>\n\n\n\n<li><strong>Strengthening Debt Recovery Mechanisms<\/strong> inspired by models in South Korea and the Philippines.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Recommendations for Improvement<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Reducing entry costs, improving information transparency, and establishing a secondary market for corporate bonds could enhance liquidity and accessibility.<\/li>\n\n\n\n<li>Additionally, relaxing regulations to allow insurance and pension funds to invest in lower-rated bonds could help small players and risky borrowers access the market.<\/li>\n<\/ul>\n\n\n\n<p><a href=\"https:\/\/www.thehindu.com\/business\/budget\/debt-market-in-india-remains-undercapitalised-risky-borrowers-unable-to-tap-market\/article69164031.ece\" rel=\"nofollow noopener\" target=\"_blank\"><strong>Source: TH<\/strong><\/a><\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Economic Survey 2024-25 highlighted that India&#8217;s debt market remains undercapitalised, and risky borrowers are unable to access it.<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-36633","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/36633","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=36633"}],"version-history":[{"count":4,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/36633\/revisions"}],"predecessor-version":[{"id":50404,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/36633\/revisions\/50404"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=36633"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=36633"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=36633"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}