CEA flags bond market skew, calls for wider access for mid-sized firms

Don't want to miss the best from Business Standard?

Chief Economic Advisor V Anantha Nageswaran on Friday flagged the concentration of large and well-rated companies in the bond market for raising funds, and said there is a need to enable mid-sized firms to access markets "systematically and affordably".

There is also a need to increase liquidity in the markets, and investors need to shed the tendency of holding papers till maturity, Nageswaran said.

The "double-engine" of bond markets and bank funding will help provide the required financial support for a growing economy like India going forward, he said.

Amid wider calls for self-reliance in the economic sphere, the academician-turned-policymaker made it clear that domestic money should "anchor" the funding in the Indian debt markets, and foreign flows should "complement" it.

"The challenge today is not the absence of a debt market but its concentration. Large and highly rated firms raise capital with ease. The task ahead is to enable mid-sized corporates, infrastructure SPVs, supply chain firms... to access markets systematically and affordably," he said, speaking at a Trust Group event.

Stating that the debt markets are very important from an Indian perspective, Nageswaran called for a "recalibration" over the next few years where the funding load is shared between banks and debt markets.

Banks will provide working capital, relationship-driven lending and early-stage project finance, while the debt capital markets must lead in long-duration financing, transition finance, large corporates and mid-market issuers, he said.

A dual-engine financing model is not optional. It's foundational," he said, adding that India is at a favourable moment.

The country has certain strengths like sustained high economic growth, macroeconomic stability despite global shocks, a credible fiscal consolidation path, a resilient banking system with strong balance sheets, anchored inflation expectations, record foreign exchange reserves and a stable external position.

These fundamentals have boosted domestic and foreign investor confidence in India and contributed to the global index inclusion of Indian government securities, the CEA said, adding that this is a milestone that reflects not only stability but a belief in the credibility of India's institutions and debt management.

The next frontier is debt, liquidity and innovation, he said, calling for smarter regulations to help with it.