The Finance Ministry is actively collaborating with the Securities and Exchange Board of India (SEBI) to develop measures that would strengthen India's corporate bond market. This initiative builds on broader regulatory initiatives aimed at improving liquidity, expanding participation, and reducing reliance on bank financing for long-term capital needs. As per ET Now, this collaboration represents a significant step toward addressing the current challenges in India's corporate bond market, which lacks the depth and liquidity required to support the country's financial infrastructure.
The government is actively working to attract overseas capital and strengthen India's position as a key financial centre, according to Alok Tiwari, joint secretary at the Department of Economic Affairs (DEA). Speaking at the FICCI Capital Markets Conference on Wednesday, Tiwari emphasized that 'Foreign capital has to be welcomed. Foreign capital has to be attracted' to support India's growth ambitions. He acknowledged that foreign capital has not been very forthcoming recently, though the cycle appears to have turned in July. 'There are still some hiccups' in the current cycle, as noted by Tiwari, but there is 'broad consensus' within the government, regulators and market participants on the need to attract overseas capital. The government is working on addressing these concerns with broad consensus among government, regulators and market participants on the need to attract overseas capital.
India's corporate bond market faces a critical depth crisis that constrains the entire financial ecosystem. India's corporate bond market is approximately 15 to 18 percent of GDP, far below South Korea at roughly 80 percent and China at about 36 percent. This stark size comparison explains why Indian firms remain heavily dependent on banks for long-term financing, creating a practical maturity mismatch where infrastructure companies seeking twenty-year funding have essentially one option: banks whose own funding is largely short-term deposits. The market's shallowness forces Indian banks into a maturity mismatch they are not designed to carry, making infrastructure funding particularly challenging. 'The corporate bond market does not have the kind of depth, at least liquidity and participation in the secondary market which it should have', according to Tiwari, making it one of the priorities of the DEA.
The government is streamlining the statutory architecture for foreign investment through comprehensive reforms. According to Tiwari, the Foreign Exchange Management (FEM) and related rules are being recast and are currently open for public consultation by the Reserve Bank of India. The aim is to make the framework more principle-based, easier to follow and navigate for investors. As reported by ET Now, the government has recast Foreign Exchange Management Act (FEMA) rules to streamline foreign investment, with public comments invited on the revised provisions. This modernization effort represents a significant step toward making India more attractive to foreign capital.
The government is advancing comprehensive regulatory reforms beyond foreign investment frameworks. Tiwari highlighted the proposed Securities Markets Code as an 'important piece of forward looking legislation' aimed at creating a new regulatory paradigm. The code includes decriminalisation of minor infractions, while strengthening investor protection and regulatory accountability. These reforms are part of the broader transformation of India's capital markets, which have undergone significant structural changes driven by rising investor participation, greater regulatory sophistication and modernisation of the legal framework. The debt market has also expanded substantially during this period, indicating the broader success of these market development initiatives.
