The Economic Survey for 2025-26, released on Thursday, has issued a clarion call for comprehensive reforms to strengthen India's corporate bond market. The document emphasizes that while regulators have implemented various measures over the years to deepen this market, a more coordinated and phased approach is now essential to further bolster its growth and reduce the cost of credit for Indian companies.
Key Recommendations for Market Enhancement
The survey outlines several critical areas requiring immediate attention. Enhancing the effectiveness of the insolvency framework is paramount to accelerate recovery timelines and boost investor confidence in corporate debt. Additionally, simplifying tax structures for bonds and ensuring greater coordination between regulatory agencies are identified as vital steps to attract more investment.
Vision for a Trillion-Dollar Market
As the market expands towards a potential size of ₹100-120 trillion by 2030, the survey predicts that intermediation costs should decline, particularly benefiting the mid-market segment. This segment is crucial as it is expected to drive much of India's manufacturing capacity and job creation in the coming years.
Realizing this ambitious vision demands sustained policy focus, technological innovation, and regulatory harmonization. However, the survey cautions that financial deepening alone may not be sufficient to durably lower India's cost of capital, underscoring the need for multifaceted reforms.
Current Market Landscape and Growth Trajectory
India's corporate bond market is currently growing at an annual rate of approximately 12%. The fiscal year 2025 witnessed the highest-ever fresh issuances, reaching ₹9.9 trillion. Despite this growth, the market accounts for only 15-16% of the country's Gross Domestic Product (GDP) as of March 2025.
This figure pales in comparison to global peers. For instance, South Korea's corporate bond market constitutes 79% of its GDP, Malaysia's stands at 54%, and China's at 38%. This disparity highlights the significant room for improvement in India's market development.
Regulatory Coordination and Structural Upgrades
The Securities and Exchange Board of India (SEBI) serves as the primary regulator for the corporate bond market. However, measures taken by the Reserve Bank of India (RBI) for the government bond market or for non-banking financial companies also impact the corporate debt side, necessitating better inter-agency alignment.
The survey recommends streamlining this coordination through joint circulars that clearly define responsibilities across regulators. Establishing single-window contact systems for issuers would further simplify processes and enhance efficiency.
Long-Term Structural Development Priorities
To foster a vibrant corporate bond market, the survey advocates for several long-term initiatives:
- Upgrading market infrastructure through unified trading platforms and enhanced market-making capabilities.
- Expanding the investor base by offering targeted incentives, including simplified tax structures for bonds.
- Providing regulatory flexibility for pension funds and insurance companies to invest in mid-rated securities.
Challenges in Market Composition and Liquidity
India's debt market is currently skewed towards highly-rated borrowers, with AAA or AA-rated issuances accounting for 85-90% of bond issuances. In contrast, the United States presents a more liquid and mature corporate debt market that caters to various segments. Less than 5% of U.S. bond issuances come from AAA-rated categories, with over 60% in the A- and BBB-rated categories.
Furthermore, the dominance of private placements in India limits public offerings, deterring access for small and medium-sized firms. The secondary market remains shallow, with India's annual bond turnover ratio in secondary markets at a mere 0.3, lower than Indonesia's 1.17 and China's 1.16.
Pathway to a Competitive Market
Implementing these recommended measures is expected to create a more vibrant corporate bond market. This, in turn, can help lower the cost of capital for Indian companies through competitive pricing, improved liquidity, and efficient price discovery. The Economic Survey 2025-26 underscores that such reforms are not just beneficial but imperative for India to catch up with its global counterparts and support sustainable economic growth.
