There is an urgent need to deepen India’s corporate bond market to enable efficient channeling of domestic savings for long term asset creation amid signs of investment slowdown in the coming quarters, a top finance ministry official said.
“Financial sector reforms have become urgent. The external inflows channel facilitated the intermediation for corporate investment, but an alternative channel is needed, as the inflows are likely to come down,” Chief Economic Adviser in the finance ministry Arvind Virmani told HT.
Lack of long-term financing instruments and a shallow corporate bonds market has meant that not all of India’s domestic savings finds its way into productive asset creation leaving a hug gap to be filled by overseas capital to meet the current investment requirements.
The mid-year review of the economy tabled in Parliament recently has said that both domestic savings and investment rates could fall from last year’s high of 36.2 per cent and 37.5 per cent of gross domestic product (GDP) respectively.
India would require $500 billion to spent over the next four to five years to strengthen the country's transport and power backbone, but experts said such long-term projects would require much longer-term lending — which can only come from the debt market, as these cannot be funded just by equity and bank loans. “We need further policy reform to stimulate investment and increase infrastructure investment,” Virmani said.
The Asian Development Bank (ADB) in a report released earlier this year said that India’s corporate bond market remains underdeveloped despite strong economic growth.
India Inc has raised Rs 91,7000 crore through domestic bonds, but an almost non-existent secondary bond market and tight restrictions on foreign investment has stalled further deepening of the market to tap household and individual savings.