3. What are the recent reforms introduced in the bond market by the government? Why are these reforms so important for the economy? Examine. (15 Marks)
Candidates need to write about the recent reforms introduced in the bond market by the government and their importance for the economy.
Introduction:
The budget is a time for allocating expenditure to different uses. It is also a time when the government spells out economic reforms. The Bond Market in India with the liberalization has been transformed completely. The opening up of the financial market at present has influenced several foreign investors holding up to 30% of the financial in form of fixed income to invest in the bond market in India.
The Recent Reforms Introduced in The Bond Market by The Government:
The system of auction introduced to sell the government securities.
The introduction of delivery versus payment system by the Reserve Bank of India to nullify the risk of settlement in securities and assure the smooth functioning of the securities delivery and payment.
The computerization of the SGL.
The launch of innovative products such as capital indexed bonds and zero-coupon bonds to attract more and more investors from the wider spectrum of the populace.
Sophistication of the markets for bonds such as inflation indexed bonds.
The development of the more and more primary dealers as creators of the Government of India bonds market.
The establishment of a powerful regulatory system called the trade for trade system by the Reserve Bank of India which stated that all deals are to be settled with bonds and funds.
A new segment called the Wholesale Debt Market (WDM) was established at the NSE to report the trading volume of the Government of India bonds market.
Issue of ad hoc treasury bills by the Government of India as a funding instrument was abolished with the introduction of the Ways and Means agreement.
Why are these reforms so important for the economy?
India needs to develop a bond market where pension and insurance companies can invest their green finance into long-term investible projects.
The bond market reforms need as much emphasis as public investment in infrastructure.
The bond market in India has diversified to a large extent and that is a huge contributor to the stable growth of the economy.
The bond market has immense potential in raising funds to support the infrastructural development undertaken by the government and expansion plans of the companies.
Conclusion:
Bonds are interest bearing debt certificates. Bonds under the bond market in India may be issued by the large private organizations and government company. The bond market in India has huge opportunities for the market is still quite shallow. The equity market is more popular than the bond market in India. At present the bond market has emerged into an important financial sector. Hopefully in coming time the bond market will get better.
