“Today, it is not equipped to do so.” That was Deloitte’s verdict on India’s debt market, set down in its “State of Financial Services in India” report and aimed at one specific job: paying for the country’s next stretch of growth.
The consultancy’s argument starts with money. India’s economy is moving into a period that will need far more long-term capital than before, and the debt market as it stands cannot supply it efficiently. Deposits used to carry much of the load. They no longer can. “Changing household consumption and savings patterns mean that we can no longer rely on bank deposits to the extent we have in the past to fund rising credit demand,” the report said. With India aiming to become a USD 7.3 trillion economy by 2030, it added, the debt market has to close the gap.
Where the market falls short
Deloitte listed the faults plainly. Price signals along the yield curve are muted. Lenders and investors do not distinguish well between borrowers or between instruments, so risk is priced loosely. And a heavy volume of offshore non-deliverable forward trading in the rupee often works against the domestic market. The corporate bond market, in particular, is thin next to those of global peers, according to a summary of the report published by NexNews Network.
The warning came with a deadline of sorts. “As global conditions tighten, these issues will directly impede growth,” the report said.
Three reforms
Deloitte proposed three structural changes.
The first is a deeper market. That means more investors taking part, better liquidity, and tighter links between money, bond and derivatives markets, so that short-term funding, long-term capital and hedging support one another. The report also suggested rationalising reserve requirements for stable market borrowings, and rethinking measures such as the credit-deposit ratio so that market-based funding is not penalised.
The second concerns interest rates, which Deloitte wants to see become “genuinely market-driven”, anchored by a strong benchmark yield curve across tenors and risk categories. The current approach draws criticism: “Continued reliance on the administered repo rate weakens monetary policy transmission,” the report said.
The third is about where the rupee gets priced. Deloitte wants domestic currency markets made more appealing to global investors, so that more of the price discovery for the rupee happens inside India and less of it offshore. NexNews Network, summarising the report, named Singapore and London as centres where much of that activity now takes place.
Why the pressure is building
The same summary says the report points to a large infrastructure pipeline, energy transition projects and industrial expansion, all needing financing that bank lending alone cannot deliver. Deloitte also flagged debt financing for small and medium enterprises as a way to support entrepreneurship, along with digital platforms and market-based financing to cut costs.
Deloitte placed debt markets among a handful of priorities for the financial services sector, alongside improved financial inclusion, wider use of artificial intelligence and higher foreign capital inflows. It said the reforms would help build a financial system able to support India’s long-term investment needs as the economy expands over the coming decades.
Sources
- India's debt market not equipped to finance next phase of growth, needs structural reforms: Deloitte
- India's debt market needs structural reforms to support growth: Deloitte
- India's Debt Market Needs Reforms for Growth: Deloitte | NexNews Network
