Government borrowing seen hurting corporate bond market in India

The central government's huge borrowing programme is acting as a damper on the development of corporate debt market in India, Reserve Bank of India executive director Deepak Mohanty said today.

"If government reduces borrowing programme, fiscal consolidation happens, then there is demand for corporate bonds," said Mohanty.
He also called for reforms in the pension and insurance sector to boost demand for corporate bonds, which in turn would help in financing infrastructure needs.

Mohanty was addressing a conference on `Investment and its Financing: What causes private investment to remain relatively low in Asia?" 

While acknowledging country specificities, especially as regards savings and investments behaviour, he said the RBI has identified the impediments to investment growth and some types of policy measures that could address existing bottlenecks.

He said, financial sectors can better channel savings towards corporate investment; corporate bond markets could be further expanded; stock markets can be made more attractive for savers as an investment option.

While the driving forces for investment differ from country to country and explain some of the strengths and vulnerabilities of a country's development pattern, there are avenues for improvement and a vast array of opportunities to increase investment from today's somewhat subdued level, he said.