Supercharging one key market is crucial to India’s $5 trillion goals
Nothing illustrates that challenge better than the 47 trillion rupee ($559 billion) corporate bond market. It’s one of the world’s smallest as a percentage of gross domestic product, at just 16%, even after record growth. Bankers in Mumbai say doubling that ratio would better help finance ambitious goals, like becoming a $5 trillion economy in the next three years.
One of the major impediments is a longstanding rule from authorities that makes it hard for long-term investors like insurers and pension funds to go big on infrastructure. The regulation bars them from investing in notes rated below AA, which in India are deemed risky because they’re hard to offload in a smaller market during times of stress.
Spending on roads, ports and bridges, as well as on all kinds of capital expenditure, is set to reach about 110 trillion rupees ($1.3 trillion) between 2023 and 2027, an increase of 70% from the previous five years, according to the National Stock Exchange of India. The company notes market will likely cover just one-sixth of that amount, it said. That’s due in part to those restrictions, given many infrastructure borrowings carry lower or no ratings.
“The corporate bond market is not deep enough to support the country’s infrastructure finance requirement,” said R Shankar Raman, director and chief financial officer at Larsen & Toubro Ltd., India’s top engineering company. For these reasons, the firm has tended to rely mainly on its own cash and bank loans for funding, and has only tapped the bond market once in
