NITI Aayog Report on “Deepening the Corporate Bond Market in India”

Post Date: 16 December 2025

Syllabus: GS-III | Economy | Financial Markets 💹

---

📍 Context

NITI Aayog has released a report titled “Deepening the Corporate Bond Market in India”, outlining the current status, challenges, and a phased reform roadmap to strengthen India’s corporate bond ecosystem.

---

🔎 About the Report

The report analyses India’s corporate bond market as a critical channel for long-term finance, especially for:

• Infrastructure development
• Climate and green transition
• MSMEs and emerging sectors

A deeper bond market reduces excessive dependence on bank credit and supports sustainable, market-based economic growth, aligned with Viksit Bharat 2047 goals.

---

📘 What is a Corporate Bond?

• Corporate bonds are debt securities issued by companies (public or private).
• By buying a bond, an investor lends money to the issuing company.
• The issuer promises:
  • Repayment of principal on maturity
  • Periodic interest payments (usually semi-annual)
• Unlike equity, bonds do not confer ownership rights in the company.

---

📊 Major Highlights of the Report

1️⃣ Growth and Current Status

• Outstanding corporate bonds increased from ₹17.5 trillion (FY2015) to ₹53.6 trillion (FY2025)
• Annual growth rate: ~12%
• Market size: 15–16% of GDP
• Still below peer economies such as South Korea, Malaysia, and China
• Corporate bond fundraising is now approaching bank credit levels, signalling gradual transition to market-based financing

---

2️⃣ Strategic Importance

• A deep bond market is essential for a $30 trillion Indian economy by 2047
• Enables mobilisation of long-term, low-cost capital for:
  • Infrastructure
  • Industry
  • Climate action
  • Emerging sectors
• Complements banking system, reduces systemic concentration risks, and improves monetary policy transmission

📈 Projection:
With sustained reforms, the corporate bond market could exceed ₹100–120 trillion by 2030 (~$1.3–1.4 trillion).

---

3️⃣ Equity vs Bond Market Imbalance

• India’s equity market value: USD 4.8 trillion
• India’s corporate bond market value: USD 642 billion
• Equity markets are nearly 7 times larger, highlighting a structural imbalance in financial intermediation

---

⚠️ Structural Limitations Identified

• Issuer concentration: Dominance of top-rated corporates; limited MSME access
• Investor concentration: Heavy reliance on institutional investors; low retail and FPI participation
• Market structure: Private placements dominate; weak secondary market liquidity
• Regulatory frictions: Multiple regulators, high compliance burden, procedural delays
• Investment constraints: Insurance and pension funds face limits on lower-rated bonds
• Weak enablers: Inefficient debt recovery, tax asymmetries, high transaction costs

---

🌍 Economic Benefits of a Deep Bond Market

• Channels institutional and household savings into productive investment
• Supports development of risk-management instruments
• Provides stable finance for:
  • Infrastructure
  • Green transition
  • MSMEs
  • Innovation-driven sectors

---

🌐 Global Experience & Lessons

Countries such as USA, South Korea, Singapore, and Thailand demonstrate success through:

• Unified and coherent regulation
• Strong market infrastructure
• Active market-making and liquid secondary markets
• Streamlined disclosures and credit-enhancement mechanisms

These features enhance liquidity, investor diversity, and financing depth.

---

🏛️ Reforms Undertaken in India

• Securities and Exchange Board of India (SEBI):
  • Electronic trading via RFQ platform
  • Retail access through online bond platforms
  • Strengthened governance of credit rating agencies and debenture trustees
  • Simplified issuance norms
• Reserve Bank of India (RBI):
  • Improved settlement architecture
  • Introduction of tri-party repos and credit default swaps
  • Support for repo and clearing mechanisms
• Government Initiatives:
  • Promotion of InvITs, REITs, and green finance instruments

Together, these reforms have created a more transparent, technology-driven bond market foundation.

---

🛣️ Reform Roadmap (Phased Approach)

Short-Term Priorities

• Streamline regulations and improve inter-regulatory coordination
• Strengthen market infrastructure and digital access
• Simplify issuance norms for wider issuer participation
• Achieve early liquidity gains to build confidence

Medium to Long-Term Priorities

• Unified regulatory architecture and stronger resolution mechanisms
• Deeper secondary markets with active market-making and repo facilities
• Broader issuer base including mid-sized firms and new asset classes
• Product innovation:
  • Long-tenor bonds
  • Credit-enhanced instruments
  • Sustainability-linked bonds
• Expand investor base (insurance, pension, retail, FPIs)
• Leverage digital innovations such as tokenised bonds and integrated data platforms

---

🌀 IAS Monk Whisper

A mature bond market is not merely a financial instrument — it is the quiet architecture that carries long-term national aspirations.