FE Editorial : Bond with the best
The Financial Express: Jan 07 2009, 22:49 IST
For 20 years now, there has been talk about bond market development in India. But by and large, the outcomes are unsatisfactory. In most of East Asia, bond market development has been plagued by the fiscal prudence of governments who balance budgets and do not issue bonds. By contrast, India is a hospitable country for bond market development, given massive fiscal deficits and thus a massive scale of debt issuance. Yet, in the week ended January 2, there were about 2,000 trades a day, which is a tiny pace of activity. Even more distressing is the concentration of trading in one or two bonds. In the same week ended January 2, 53% of the activity was concentrated in just two bonds (8.24% 2018 and 7.95% 2032). By any reasonable yardstick, it is hard to say that liquidity has percolated beyond five bonds. India has limped along for such a long time without a plausible bond market that it now seems like a luxury which we can do without. But as the events of 2009 will demonstrate, a bond market is a crucial shock absorber in bad times. The top 1,000 firms of India will be thirsty for debt capital in 2009, and if there had been a proper bond market, this would have made an important difference to economic conditions in 2009. It is important to get going on solving the long-standing problems of the bond market; better late than never.
The problems are: essentially only banks and PDs participate in
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