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Do you think the government of India should facilitate the development of a burgeoning Corporate Bond market? If so, explain why?

Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

5. Do you think the government of India should facilitate the development of a burgeoning Corporate Bond market? If so, explain why? (250 words)

Reference:  Insights on India

Why the question:

The question is based on the theme of corporate bond market.

Key Demand of the question:

One is

Directive:

Explain – Clarify the topic by giving a detailed account as to how and why it occurred, or what is the particular context. You must be defining key terms where ever appropriate, and substantiate with relevant associated facts.

Structure of the answer:

Introduction:

Explain what is the corporate bond market?

Body:

The answer body must have the following aspects covered:

Discuss the concept of corporate bond market first in detail.

In India, the Government bond market has experienced a steady growth over the years due to the need to finance the fiscal deficit. The Government bond market, which is around 39.5 per cent of GDP in end-2010 in India compares favorably to most other Asian countries. The corporate bond market on the other hand is just 1.6 per cent of GDP in end-2010 and small in relation to the economy’s size. From 2008 to 2010 corporate bond market in India in value terms grew from $7.85 billion to $24.99 billion.

 In comparison to other countries such as South Korea ($380.62 billion) and China ($ 522.09 billion), the Indian corporate bond market appears to be under-developed. The under development of the corporate bond market in India is not incidental and is mainly attributable to the structure of the Indian financial system and regulatory structure.

Currently corporates and business get majority (almost all) of the lending from banks. Banks are exposed to numerous other risks. If bank’s credit is exposed to a bad company (say kingfisher) than any default by that company (in repayment) can cause harm to depositor, who otherwise wouldn’t have opted to get exposed to this bad company. 

Comment on the aspects of facilitation of it by the govt.

Conclusion:

Conclude with way forward.