India’s bond market needs to be expanded. India’s equity culture has grown as a result of two factors. The first was the Demat, and the second was that equity investments were exempt from capital gains and dividend tax for several years. These incentives have resulted in the expansion of India’s capital market. However, the debt market requires similar deepening because debt returns appear to be negative. After-tax returns, or real returns, have always been lower than inflation

To become a five-trillion-dollar economy, India must increase economic investment. To fund the country’s economic growth and inclusive progress, conducive policies for attracting funds from global sources as well as churning economic activities for driving the growth agenda for the next few decades are required.

To promote long-term projects, India needs a strong refinancing mechanism. There are various agencies for structuring long gestation funding in developed markets such as the United States. Long-term funding in the developed world is hugely provided by independent financing agencies.

Previously, the country had financial institutions such as IFCI that provided long-term financing for projects. The government later converted them into banks. Instead of institutions, there is now a Universal Banking concept. We are seeing that project gestation periods are increasing, and conventional banking or commercial banking is failing to provide a solution.

India’s bond market needs to be expanded. India’s equity culture has grown as a result of two factors. The first was the Demat, and the second was that equity investments were exempt from capital gains and dividend tax for several years. These incentives have resulted in the expansion of India’s capital market. However, the debt market requires similar deepening because debt returns appear to be negative. After-tax returns, or real returns, have always been lower than inflation.

RBI is now part of the Central Banks and Supervisors Network for Greening the Financial System (NGFS). It is a group of Central Banks and Supervisors who are willing to exchange experiences, share best practises, contribute to the development of environment and climate risk management in the financial sector, and mobilise mainstream finance to support the transition to a sustainable economy on a voluntary basis. Climate Scenarios, Climate Risk, and other papers have been published by NGFS. As a result, the financial sector will embrace sustainability and transition to green finance and green investing.

However, the bond market remains available for higher-rated entities, and the duration is also short. Most international financing is done through bonds, and there are high yield bonds available for lower rated entities. Higher-rated entities can invest in high-yield bonds. Bond market development will also assist the government in attracting more FII capital to the country.

A conducive policy framework is required in the country to ease the availability of capital for long-term deployment.

Galactik Views