To further the expansion of the economy, CII feels India must continue to work on removing infrastructure bottlenecks and further strengthen the financing of infrastructure development. CII projects investment requirement in infrastructure development to the tune of Rs 64.3 lakh crore during the period 2014/15 – 2018/19 and private sector will have to play a crucial role in achieving the desired goal. 

Corporate Bond Market (CBM), as a stable and reliable source of finance, provides a pivotal mechanism for sustaining business investment, infrastructure development, and economic growth. CII in its report “Corporate Bond Market: Benchmarking Global Best Practices into Indian perspective” has analysed the role Corporate Bond Market has played in infrastructure development for many economies globally and brings out key recommendations for the policymakers to implement in the Indian context. 

“Indian economy is at crossroads where development of Corporate Bond Market is required for meeting the funding requirements of the industry and the economy. Thus, it becomes imperative to study the successful global models for benchmarking best practices and devising an implementable roadmap for the Indian economy” said, Mr Chandrajit Banerjee, Director General, CII. 

For an emerging economy like India, Corporate Bond Market can play a pivotal role for financing infrastructure development as evidenced from the successful models of various countries. It is, therefore, possible for India to learn from the experiences of other countries in developing its CBM. 

Speaking on the report, Mr Banerjee added, “CII has studied the global best practices and models for development of CBM with special emphasis on benchmarking global best practices for the Indian market and deriving policy solutions to guide the future reform agenda”. 

The CII report analysed the models of both emerging and developed countries like Brazil, Chile, South Korea, China, Singapore, Japan and the United Kingdom, and noted that a variety of regulatory and market actions stimulated market growth in these economies. On careful examination, CII recommends, India needs to focus on few key measures (but not limited to) like broad based development of Government securities market, supportive taxation structure, uniform stamp duty, enhance institutional participation by re-visiting investment norms, institute a robust credit enhancement framework and most importantly strengthen bond holder protection mechanism.

 
CII’s key recommendations in the Indian context for the development of CBM: 

·         Broad-based development of G-sec market as precursor to CBM development

 It is well established that a developed and well-functioning Government securities market acts as the most important pre-condition for the development of CBM. It is evident that global economies like Japan developed a healthy and vibrant Government bond market which played a vital role in development of CBM. In India, Government bonds form the major part of the Indian bond market, though, the development of G-sec market has not been uniform across maturities. Development of Government bond market across maturities is a pre-requisite to develop a smooth yield curve which may help the corporates to price their bond issues across maturities.

 ·         Rationalizing taxation and stamp duties structure

Taxation is the most critical part of the structure of Capital Markets. Participants particularly retail investors are very sensitive to high rates of taxation on their investments in Capital Markets. High taxation rate particularly in the debt market is hampering the development of Indian CBM. India being an emerging market should undertake a review of their taxation regime / framework to enable the CBM to operate on a more level playing field with the equity market & government bond market for the investors and the loan segments of banking sector for the borrowers.

·         Enhancing institutional investments in corporate bonds

In the Indian context, the investment norms of insurance companies, banks, pension funds are heavily skewed towards investment in government and public sector bonds which acts as a detriment to the corporate bond market development. As a broad-based demand side reform, a concentrated push is required to relax norms for long term institutional investors viz. insurance companies and pension funds, mutual funds and provident funds to enhance investment in corporate bonds.

·         Instituting a robust credit enhancement mechanism

In the Indian context, policy makers need to look at providing greater credit enhancement facilities. Currently, banks have been permitted to offer partial credit enhancements to corporate bonds by way of providing credit facilities and liquidity facilities to the corporates but this need to be enhanced further. It is recommended to increase availability of credit enhancements by different institutions including banks which would allow less than investment grade bonds to be eligible for investment by insurance companies, Provident Fund and Pension funds.

·         Addressing weakness in the secondary market

In the Indian context, improving secondary market liquidity in the CBM will improve participation by a large number of investors and would reduce cost of raising resources. For creating an active secondary market for the Indian CBM, market infrastructure and trade transparency needs to be improved. Centralized database in respect of corporate bonds on outstanding amount, settlement value and traded volume to eliminate fragmentation of information is a must. Also, consolidation of the G-Sec outstanding should be undertaken.

·         Strengthening of bond holder protection mechanism

Measures to deepen and develop the CBM must be complemented by robust regulatory and supervisory frameworks.

In India, the main issue is the delay in enforcement of contracts. India ranks 186 and 121 out of 189 countries in enforcement of contracts and resolving insolvency respectively as per the Doing Business Report, 2014 of World Bank. The biggest hurdle to build the CBM is the uncertainity on the insolvency regime. Certainty on time frame for resolving a default and a trend line of recovery is necessary to build up investor confidence for investing in debt securities across all types of ratings. Thus India needs to enhance the quality of supervision as well as strengthen bankruptcy and restructuring regulations.

New Delhi