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Informist, Thursday, Jan. 29, 2026

--EconSurvey:Debt mkt development logical step for long-term fincl goals 
--EconSurvey: Can tweak debt instrument taxation to deepen long-term finance 

 

NEW DELHI – To finance sustained growth, India must strengthen its long-term capital markets, according to the Economic Survey for 2025-26 (Apr-Mar), tabled in Parliament by Finance Minister Nirmala Sitharaman Thursday. The Survey highlighted that corporate bond markets remain shallow and illiquid, dominated by top-rated issuers, while securitisation is limited and municipal bonds are underdeveloped. Pension and insurance funds also remain conservative investors due to regulatory and cultural inertia.

 

"Institutional investors are shown to exhibit structural preferences influenced by return profiles, risk assessments, regulatory incentives, and prevailing market liquidity conditions," the Economic Survey said. "As a result, they tend to favour equities and government securities over corporate bonds. This trend may be contributing to the constraining of the corporate bond market's growth and development."

 

The Survey recommends several reforms to address these barriers, including rationalising tax treatment of debt instruments and creating credit enhancement facilities for lower-rated issuers. 

 

Despite the recent progress, a significant potential remains untapped in the country compared to global peers. South Korea's corporate bond market is 79% of its GDP, it is 54% of its GDP in Malaysia, and 38% in China, while India's corporate bond market remains underdeveloped, accounting for around 16-17% of GDP.

 

Furthermore, India's debt market is skewed towards highly rated borrowers, 'AAA' or 'AA' rated, which accounts for 85-90% of bond issuances. In contrast, the US presents a more liquid and mature corporate debt market catering to various segments. The US has less than 5% of its bond issuances from 'AAA'-rated categories, with over 60% of its issuances in the 'A-' and 'BBB-' rated categories. In India, with the dominance of private placements, public offerings remain limited, deterring access for small firms. 

 

Rationales also include standardising securitisation structures and disclosures. "A well-developed corporate bond market is indispensable to India's financial system and its path toward becoming a Viksit Bharat by 2047," the Economic Survey said. "Such a market channels institutional and household savings into productive sectors, strengthens efficient price discovery through a robust yield curve and supports the development of critical risk management instruments such as credit derivatives and securitisation."

 

Further, it also suggests building municipal financial capacity and pooled bond mechanisms, revising investment guidelines for long-term funds, and strengthening financial market infrastructure and insolvency systems, according to the Survey. "Such reforms would supply the scale and maturity needed for infrastructure and climate financing while lowering the economy's cost of capital," it said.

 

Building a robust debt capital market needs market players which includes issuers, investors, arrangers, and rating agencies - to act as market-builders. They must focus on boosting transparency, pricing risk accurately beyond just 'AAA'-rated bonds, and keeping financial innovation standardised, according to the Economic Survey.

 

Further, the Survey highlighted that a deep corporate bond market boosts financial stability by reducing systemic concentration risk and dependence on bank financing. It diversifies funding sources, enabling banks to focus on priority sectors like rural credit, infrastructure, and micro, small, and medium enterprises, promoting financial inclusion and lowering fragility. "Additionally, a vibrant bond market helps to lower borrowing costs through competitive pricing and improved liquidity," the Survey said.

 

In volume terms, India's corporate bond market has showed strong growth, with outstanding issuances increasing to INR 53.6 trillion in FY25 from INR 17.5 trillion in FY15, growing with an annual rate of approximately 12%. In FY25, the highest-ever fresh issuances were recorded, totalling INR 9.9 trillion. In FY26, the debt market accounted for over 63% of total resource mobilisation from the primary market in Apr-Dec. Private placements accounted for over 99% of total resources mobilised through the bond market, and remained the preferred mode.

 

Major issuers in the corporate debt market include public sector undertakings, public financial institutions, and banks. As of Dec. 31, the market comprised 6,351 issuers with a total of 29,638 instruments outstanding. The principal investor base consists of banks, insurance companies, pension funds, mutual funds, and non-banking financial companies, accoridng to the Economic Survey.

 

The daily average secondary market volume ranges from INR 70 billion to INR 100 billion. Only a small group of institutional investors participate in the primary markets, which limits the supply of bonds available for trading in the secondary market. Initiatives by the government and the Securities and Exchange Board of India to deepen the bond market helped corporate bond issuances hit INR 6.8 trillion by the end of December, according to the Economic Survey.  End

 

Reported by Vaishali Tyagi

Edited by Tanima Banerjee

 

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