India wants to be the world’s next big manufacturing base. Deloitte says the bond market that would pay for it is not up to the job.
The warning is in the firm’s “State of Financial Services in India” report, released June 28. Deloitte’s central finding is that the economy is entering a period needing much more long-term capital than the existing debt market can efficiently provide.
The report ties this to a change in how Indian households behave. “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,” it said. The country’s goal is a USD 7.3 trillion economy by 2030, and the report said the debt market “is not equipped to do so” at present.
Where the market falls short
Deloitte listed specific weaknesses. Price signals along the yield curve are muted. Risks are not adequately separated across borrowers and financial instruments. And heavy offshore trading of the rupee through non-deliverable forwards (NDFs) often runs at odds with the domestic market.
The firm did not soften the consequences. “As global conditions tighten, these issues will directly impede growth,” the report warned.
Recommended fixes
Deloitte put forward three structural reforms. The first would deepen the market by drawing in more investors, improving liquidity and tying the money, bond and derivatives markets together, so that short-term funding, long-term capital and hedging tools work in step.
The second would make interest rates “genuinely market-driven,” backed by a strong benchmark yield curve across different maturities and risk categories. The report blamed the current setup: “Continued reliance on the administered repo rate weakens monetary policy transmission.”
The third aims to make India’s domestic currency markets more appealing to global investors, so that more rupee price discovery happens at home rather than offshore.
Deloitte said the changes would build a more efficient financial system able to meet India’s long-term investment needs over the coming decades. It also named stronger debt markets, better financial inclusion, wider use of artificial intelligence and higher foreign capital inflows as priorities 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 not equipped to finance next phase of growth, needs structural reforms: Deloitte
