Highlight the reasons behind an underdeveloped corporate bond market in India. Suggest reforms required in this regard.
Corporate bond market in India is 16 % of GDP compared to more than 70% in South Korea which shows the underdevelopment.
Issues faced by corporate bond market:
- Lack of investors due to trust deficit.
- Absence of proper policy promotion.
- Twin balance sheet deterioration leading to further issues.
- Lack of diversified investment options.
- Lack of trust in credit rating agencies.
- Information asymmetries leading to fear.
- Non-participation of retail investors.
- Limited participation of foreign investors.
- Lack of investments from debt fund, banks, and other financial institutions due to mandated guidelines.
- Reducing crowding out of funds.
- Increasing the attractiveness through portfolio formation.
- Indexing and standardization can be done to increase marketability.
- Allowing retail investors and increasing information flow to people to enhance transparency.
- Government regulations to be reformed to help corporate raise funds through reduced costs.
Corporate bond market development is the key to reviving private investments and promote the virtuous goal of wealth creation and push India back to growth rate of 8-9 % per annum.