NEW DELHI: India needs a more active and innovative fixed-income market to meet the investment needs of the country as it aims to become a USD 5-trillion economy in the coming years, RBI Deputy Governor BP Kanungo has said.
He said the importance of the fixed-income market cannot be overemphasised as they help in meeting the funds requirement of the sovereign and sub-sovereign bodies across the globe.
They also substantially meet the external funds requirements of financial as well as non-financial firms.
The aggregate value of outstanding fixed-income instruments is estimated to be in excess of USD 100 trillion in contrast with the value of the global stock market around USD 70 trillion.
The daily trading volume of the fixed-income instruments also exceeds that in the stock market by a factor of three.
"As the most important segment, the fixed-income market in India has to grow to cater to the investment needs of an economy that aspires to become a USD 5-trillion economy in the near future," he said, while speaking at the 20th FIMMDA-PDAI Annual Conference in Moscow on August 31.
While the Reserve Bank of India (RBI) and other sister regulators will continue to draw the contours of growth with financial stability in mind, the market needs more activity, innovation and enterprise from the community of participants in this market, he said.
In India, government securities, which constitute the largest segment of the fixed-income market, stand at about Rs 58 lakh crore, treasury bills accounting for another about Rs 6 lakh crore.
The RBI's deputy governor further said that according to estimates, five years down the line, the demand for bonds will significantly outstrip the supply.
He stressed that Irdai, Sebi and PFRDA could also help in the development of interest rate markets.
"For instance, short-selling activity could benefit if a wider pool of securities lenders can be developed.
Insurance and pension funds, mutual funds have significant holdings of government securities that could be used to lent to short sellers," he said.
FIMMDA is a representative body of participants in the fixed-income market in India.
PDAI has played a seminal role in development of the primary market in government debt over the past two decades.