Deloitte has a blunt message for India’s financial system: the debt market cannot pay for what comes next.
The firm’s “State of Financial Services in India” report says the economy is heading into a stretch that will demand far more long-term capital than before. The existing market, it concludes, cannot meet that need efficiently. Deloitte wants structural reforms to improve liquidity, price discovery and participation.
Part of the problem is where the money has come from. “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 has set a goal of becoming a USD 7.3 trillion economy by 2030, and Deloitte says the debt market must close the funding gap to get there. “Today, it is not equipped to do so.”
The report also looked abroad. “As global conditions tighten, these issues will directly impede growth,” it warned.
Three recommendations
Deloitte’s first proposal is to deepen the market. That means bringing in more kinds of investors, improving liquidity, and linking the money, bond and derivatives markets so that short-term funding, long-term capital and tools for hedging risk support one another.
Second, it argues interest rates should become “genuinely market-driven,” anchored by a strong benchmark yield curve that covers different tenors and risk categories. The firm was direct about the current setup. “Continued reliance on the administered repo rate weakens monetary policy transmission,” the report said.
The third recommendation concerns the rupee. Deloitte wants India’s domestic currency markets to appeal more to global investors, so that more rupee price discovery happens at home and less in offshore markets.
Taken together, the report says, the changes would produce a more efficient financial system able to support India’s long-term investment needs as the economy grows over the coming decades. It named stronger debt markets as one of several priorities for financial services, alongside better financial inclusion, wider use of artificial intelligence and higher foreign capital inflows. The findings were reported by ANI.
Sources
- India's debt market not equipped to finance next phase of growth, needs structural reforms: Deloitte
