[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...
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MORE MARKETS, LESS GOVERNMENT<br />
of the government bonds leads banks to<br />
include even greater percentage of government<br />
bonds in their portfolio than the<br />
prescribed SRL of 25 percent. Government<br />
and Reserve Bank of India introduced<br />
many structural changes to improve<br />
transparency in the market<br />
dealings, method of primary auctions, allowing<br />
Primary Dealers, borrowings at<br />
market determined rates, and creating<br />
technology platforms like NDS to recognize<br />
the institutional characteristics of<br />
the market. <strong>The</strong> same kind of impetus<br />
has been lacking in the Indian corporate<br />
bond markets and as a result of this, major<br />
source of corporate funding is all but<br />
non-existent.<br />
<strong>The</strong> corporate bond market, in the<br />
sense of raising debt through public issuance<br />
in capital market, is shadowed by<br />
growing equity market and government<br />
bond market and was less than 2 percent<br />
of Indian GDP in 2004 compared to 50<br />
percent in Singapore,68 percent in South<br />
Korea, and 143 percent in USA (IMF,<br />
2004). A well developed corporate bond<br />
market facilitates the firms operating in<br />
the economy to devise their optimum for Indian debt capital markets”,<br />
capital structure and investors to have (Nov,<strong>2007</strong>), predicts that Indian bond<br />
better spectrum of asset classes to 160<br />
hedge and diversify their fixed income<br />
risks. <strong>The</strong> share of corporate<br />
140<br />
Government Debt<br />
bonds in the total bond issued has 120<br />
also decreased from 34 percent in<br />
Corporate Debt<br />
100<br />
1999-00 to a 29 percent in 2003-<br />
80<br />
04. <strong>The</strong> weak status of corporate<br />
bond market was mainly due to 60<br />
dominance of government securities<br />
and structure of the market<br />
itself where government was borrowing<br />
at pre-decided coupon<br />
rates from a group of investors<br />
such as banks. <strong>The</strong> public sector<br />
Debt As Percentage Of GDP<br />
40<br />
20<br />
undertakings (PSUs) have persistently<br />
overshadowed the private sector bond issuance<br />
over the years. Corporate debt<br />
can be raised either by private placement<br />
or public issue. Private placement is preferred<br />
owing to the regulatory processes,<br />
higher cost associated with public issuance,<br />
and enormous hurdles in public issues<br />
process in the form of various types<br />
of disclosure, registration requisites etc<br />
(NSE, 2005).<strong>The</strong>se reasons have also incentivized<br />
the corporate to raise debt<br />
from abroad because of lesser listing and<br />
disclosure requirements, lower cost, and<br />
better liquidity in secondary market.<br />
Debt raised abroad increased around two<br />
and a half times from 2001 to 2005 equivalent<br />
to 60 percent of corporate issuance<br />
in domestic debt market (NSE, 2005).<br />
<strong>The</strong> latest report by the Goldman Sachs<br />
titled, “ Bonding the BRICs: Big chance<br />
0<br />
market is going to grow fourfold and<br />
reach to the level of $1.5 trillion by 2016.<br />
It also reports that the corporate bond<br />
market will annually grow by around 28<br />
percent from $100 billion to $575 billion<br />
in 2016.Such a high benchmark (required<br />
growth of 28 percent) when contrasted<br />
with almost non-existent growth rate of<br />
the corporate bond market (historically)<br />
raises a big concern for policy makers and<br />
According to Goldman Sachs, Indian bond market is going<br />
to grow fourfold and reach to the level of $1.5 trillion by<br />
2016. <strong>The</strong> corporate bond market will annually grow by<br />
around 28 % from $100 billion to $575 billion in 2016<br />
India<br />
China<br />
Korea<br />
Malaysia<br />
Singapore<br />
USA<br />
market participants equally. A robust<br />
policy framework together with a performance<br />
based regulatory approach is<br />
urgently required to push the market to a<br />
higher growth and market friendly frontier.<br />
<strong>The</strong> booming economy, growing<br />
populations, and rising household income<br />
are exerting huge demand for infrastructure<br />
services. <strong>The</strong> inability to meet such<br />
a fast growing demand has become more<br />
visible in recent past and evident by congestion<br />
on the roads, airports, ports, frequent<br />
electricity cut etc. <strong>The</strong>re is no way<br />
India can take its infrastructure requirement<br />
for granted if it aims to<br />
traverse the sustainable growth trajectory.<br />
<strong>The</strong> government officials estimate<br />
the infrastructure requirement<br />
of about $500 billion in next five<br />
years. It is also expected that about 40<br />
percent of the fund will be infused by<br />
the private sector. Considering the<br />
long term irreversible nature of infrastructure<br />
investment and short to<br />
medium term liabilities of banks, long<br />
term financing in the form of debt is<br />
widely accepted as the most appropri-<br />
THE INDIA ECONOMY REVIEW<br />
133