Lack of vibrant debt mkt hits projects: FM

Written by Reuters | Mumbai, March 28: | Updated: Mar 28 2008, 20:44pm hrs
Finance Minister P Chidambaram on Friday said that corporate bonds will play a critical role in the growth of the economy, but absence of a vibrant market in the country for such a security is proving to be a major handicap.

Speaking at a function to launch the country's first electronic trading system for corporate bonds, Chidambaram said, "We need USD 500 billion over the next five years to develop infrastructure. But absence of a vibrant bond market is a major handicap," he said.

He pointed out that currently, it is mainly the government-owned companies that are issuing bonds and the portion of bonds issued by the corporates is meagre.

The government, however, has taken a series of measures to boost the corporate bond market and many more measures are in the pipeline.

"Sebi is finalising draft regulations on corporate bonds. It is planning to simplify the issuance and listing of bonds," he said.

The minister said there is a need to develop a seamless pan-India market for corporate bonds, but there are different stamp duty rates imposed by different state governments. Chidambaram said he has asked the empowered committee of state finance ministers to consider it. Uniform stamp duty will increase the revenues of the states, not reduce it, he said.

Responding to a query as to why the government has imposed restriction on investments by foreign institutional investors in debt instruments, Chidambaram said it was an issue of monetary management. The RBI is cautious about expanding issuance of corporate bonds to the FIIs, he added.

"There is a scope for increase. But it is the regulator which has to take the call," he said.

Responding to criticism that the government was not going ahead with reforms in corporate bond market with any degree of urgency, the minister said the R H Patil Committee has made several suggestions to boost the market.

The government has already accepted and implemented many of the suggestions. The withdrawal of TDS on bonds was a major step announced in the budget, he said.

"We can look forward to implementation of Patil Committee recommendations in a few month's time," he said.