New Delhi: India’s long-term developmental aspirations require significantly more capital than what the banking system and equity markets alone can provide, and corporate bonds are best suited to fill that gap, said NITI Aayog CEO B.V.R. Subrahmanyam Thursday at the launch of a report on the corporate bond market.
Corporate bonds are debt securities issued by companies to fund their business activities, thereby offering investors regular interest payments and return of the principal amount at maturity.
Launching the report ‘Deepening the Corporate Bond Market in India’, he noted that “India’s equity markets are one of the most efficient in the world, but the corporate bond market is still a baby, especially when compared with global peers”.
For context, the US corporate bond market is larger than its equity market, while in India the equity market ($4 trillion) is nearly seven times the size of the corporate bond market ($642 billion).
According to Subrahmanyam, the imbalance between the equity and corporate bond markets could become a “bottleneck on growth” as India moves into a phase of growth where infrastructure, housing, and industrial expansion projects require long-term funding.
“The lack of a developed corporate bond market on a par with the equity market is going to become a bottleneck on growth and therefore, we actually need to develop and deepen the corporate bond market,” he said.
The report underscores that India’s ambition to become a $30 trillion economy by 2047 hinges on the availability of long-term and low-cost capital. Corporate bonds play a critical role in providing such capital, especially for infrastructure development, climate-transition projects, industrial investment and growth of micro, small and medium enterprises (MSMEs).
India must diversify its financing channels because equity alone cannot meet the country’s diverse capital needs in strategic sectors such as infrastructure, MSMEs, and emerging technologies, the report cites.
“A balanced and resilient financial architecture, anchored in both equity and debt markets, is essential for India to accelerate its developmental trajectory and unlock the full potential of its demographic and economic dividend,” it states.
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Current landscape and cross-comparison
India’s corporate bond market has expanded in the last few years with outstanding issuances rising from Rs 17.5 trillion in FY2015 to Rs 53.6 trillion in FY2025, recording an annual growth rate of nearly 12 percent, notes the report.
While the corporate bond market accounted for 14 percent of India’s GDP in 2023, it remains well below countries like South Korea (79 percent), Malaysia (54 percent), and China (38 percent).
“Markets such as the USA and China collectively account for over half of the global corporate bond market,” the report states.
Among the market participants, India’s corporate bond market is dominated by domestic institutions such as insurance companies, banks, and mutual funds, with limited retail and foreign participation.
The report states that around 98 percent of corporate bond issuances in India are conducted via private placements (when a company sells securities directly to a small, pre-selected group of sophisticated investors), which are primarily accessed by institutional investors and are not available to the general public.
According to the report, retail participation in outstanding corporate bonds in India remains below 2 percent. This is the trend globally, but in markets like China and the US, retail investors can access bonds more easily through mutual funds, exchange-traded bonds, and online bond trading platforms.
Challenges faced by corporate bonds
While India’s corporate bond market saw growth over the last decade, it remains constrained due to regulatory overlap between the Securities and Exchange Board of India, Reserve Bank of India and the Ministry of Corporate Affairs.
Another major challenge is that the rating landscape in India remains skewed in favour of high-rated and low-risk bonds. India has one of the highest shares of AAA-rated corporate bonds in the world, with around 94 per cent of issuances coming from AAA or AA-rated firms, while mid-rated bonds (BBB and A categories) comprise only around 5 percent.
The report notes that over-reliance on top-rated instruments limits the growth of a diversified market and restricts access to capital for mid-sized companies and MSMEs.
Another hurdle for corporate bonds in India is lower liquidity due to the weak secondary trading market. “India’s Annual Bond Turnover Ratio in secondary markets of 0.3 is lower than that of regional peers like Indonesia (1.17) and China (1.16), indicating a relatively illiquid secondary bond market,” the report states.
According to the report, India’s bond market is characterised by “buy-and-hold” investment strategy, resulting in limited price discovery and restricted exit opportunities.
NITI Aayog recommendations
To unlock the full potential of the bond market, the think-tank’s report outlines a strategy implemented through a phased approach.
In the short-term phase (1-2 years), efforts must be targeted towards streamlining regulations and procedures, enhancing coordination among regulators, and improving legal clarity. Simultaneously, market infrastructure must also be strengthened through digital access, reliable credit ratings, and robust trading platforms.
Over the medium-term phase (2-4 years), NITI Aayog recommends deeper structural reforms and institutional capacity-building. The regulatory framework will need to evolve to support a unified architecture, effective resolution mechanisms and a conducive environment for innovation.
The market infrastructure would be upgraded for scale and resilience, while the issuer base would need to be widened through the promotion of new asset classes.
In the longer-term (4-6 years), the report recommends the need for a dedicated corporate bond market regulator. It also suggests establishing digital platforms that enable global access and allows for cross-border issuance and trading of corporate bonds.
According to the report, the coordinated implementation of these measures could enable India’s corporate bond market to reach Rs 100-120 trillion by 2030.
(Edited by Nida Fatima Siddiqui)
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