“Today, it is not equipped to do so.” That was Deloitte’s verdict on India’s debt market in its “State of Financial Services in India” report, which says the market cannot yet fund the country’s next stage of growth.
The firm’s argument starts with a shift in how Indians save and spend. “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. India wants to become a USD 7.3 trillion economy by 2030, and Deloitte says the debt market has to close that funding gap efficiently. Economic expansion ahead will need far more long-term capital than before.
Where the market falls short
Deloitte lists three problems. Price signals along the yield curve are muted. Risk is not adequately differentiated across borrowers and financial instruments. And heavy offshore trading in non-deliverable forwards (NDFs) on the rupee often moves out of step with the domestic market.
The report warned that “as global conditions tighten, these issues will directly impede growth.”
Three reforms
The first recommendation is a deeper debt market. Deloitte wants wider investor participation, better liquidity and closer integration of the money, bond and derivatives markets, so that short-term funding, long-term capital and hedging tools support one another. It also suggests rationalising reserve requirements for stable market borrowings and rethinking measures such as the credit-deposit ratio to favour market-based funding.
Second, interest rates should be “genuinely market-driven,” backed by a strong benchmark yield curve across tenors and risk categories. The firm is blunt on the current setup: “Continued reliance on the administered repo rate weakens monetary policy transmission.”
Third, India’s domestic currency markets should become more appealing to global investors, so that more of the rupee’s price discovery happens inside the country rather than offshore.
Deloitte said these changes would produce a more efficient financial system able to meet India’s long-term investment needs as the economy grows over the coming decades. Stronger debt markets sit alongside improved financial inclusion, wider use of artificial intelligence and higher foreign capital inflows among the priorities it sees for the financial services sector.
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
