Economic Survey Targets Debt Market Growth

India's Economic Survey 2026 aims to strengthen corporate bond markets and increase household savings through tax-and-regulatory changes. The newly released report, presented in Parliament on Wednesday, suggests that households appear more willing to invest in equities than bonds, but that they may look to bond investments to maintain diversified portfolios. Chief Economic Advisor (CEA) V. Anantha Nageswaran says that while equity market capitalisation in India is estimated to be over 130% of GDP, bond market capitalisation is only 16-17% of GDP, far below the levels seen in the U.S. and China.

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Efforts to develop a robust bond market will include improving insolvency processes and creating a unified trading system in order to improve investor confidence and liquidity in the bond market through structured reforms.

Key Reform Suggestions

To improve bond market development and infrastructure, regulators should align their policies by creating a joint circular or single-window system for bond issuers. The Economic Survey also calls for creating new procedures to improve the effectiveness of the insolvency process, which ultimately will support future upgrades to facilities supporting the development of the corporate bond market, specifically unified trading infrastructures. 

Mutual funds are also seeking the restoration of indexation of debt securities and the establishment of a new Debt-Linked Savings Scheme (DLSS) that would allow for a five-year lock-in period and faster recovery from losses that would not qualify under Section 80C.

There have been many improvements to the bond market infrastructure by both the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), including up-to-date request-for-quote platforms and new retail access programs. However, there is a need for improved coordination between the two entities. 

Easing of restrictions on foreign portfolio investors and discussions related to the United States’ trade negotiations with India provide positive momentum for future foreign investments into India's bond markets. The secondary bond market is currently trading between ₹7000 crores and ₹10,000 crores daily. However, more than 80% of these trades are from the largest issuers.

Market Challenges and Benefits

Shallow liquidity, dominance by top-rated corporate bonds, and limited opportunities to securitise are some of the major issues plaguing corporate bonds. The existence of several overlapping regulatory authorities in India (namely, Sebi, RBI, and the Ministry of Corporate Affairs) create barriers for mid-market players. In addition, stringent disclosure requirements, restrictions on the types of investments institutions can make, and ineffective recovery mechanisms increase overall financing costs and risks in the corporate bond market.

Creating a more vibrant corporate bond market can provide a competitive and efficient means for firms to fund projects at lower interest rates through price discovery. Increases in mid-market company activity could lead to job creation through an increase in manufacturing as intermediary fees become lower. Programs such as partial guarantees or blended finance have the potential to provide funding to smaller issuers who currently do not qualify for AAA-rated bonds.

Path to Vibrant Debt Ecosystem

The shift of households toward debt will be an asset in building resilience to future equity-based market cycles. According to the Association of Mutual Funds in India (AMFI), reductions in debt fund inflows due to indexation changes that create comparability with longer-term assets are necessary. Niti Aayog highlights both the burden of disclosure and the limitations in bond risk pricing that restrict institutional fund flows into these asset classes.

The development of a deeper bond market could provide more efficient capital to further develop all aspects of the Indian economy. Based on survey results, this provides an opportunity to address perceived obstacles to creating a successful bond market by promoting accurate, honest risk pricing, thereby enabling broader participation and reducing costs in the mid-segment.