The recent move of FM to raise funds for infrastructure development through corporate bonds has finally given thrust to the nascent Indian debt market.
A well-functioning capital market is an important prerequisite not only for financial inclusion, but also for economic development and growth.
In a developed economy, banks and capital markets often complement each other, allowing movement of surplus funds to find their most productive use, and, in the process, freeing up capital and improving liquidity that allows banks to finance a larger number of players than was hitherto possible. Critical to such a movement is the existence of an efficient secondary market where previously issued financial instruments can be traded.
The retails participation is very low in debt market in India, compared to other countries and also compared to the equity financial market in the country. The tax benefits given to these investment options which are above section 80c 1 lakh limit is giving a growth pill to the debt markets.
Better late than never, we are in the game now… welcome the new Indian financial transformation.
If you are pointing toward increase in limit of FII's investment in corporate bond of infrastructure companies. Then this change is not going to increase liquidity as the previous limit of $ 25 billion had never been met. To increase FII in infrastructure projects government has to reduce the lock-in period in these projects(or residual maturity).
ReplyDeleteThanks for expressing your views anuj!
ReplyDeleteAlong with what you have said! I am also pointing upon the 20000 investment, tax exemption offered to the investors who invest in infrastructural bonds. This improves participation in debt market and encourage companies to come up with fixed income securities to rise funds more and more...
Also coming to the increase in FII limit that you have pointed out, the increase in limit(the sentence for its sake of doing) will itself gives trigger to foreign fund inflows... The limit I suppose is not the target but a comfortable level to show.. The increased level shows, we have become more flexible to absorb more funds!!! rest all depends on many economic variables..