A trend analysis of reforms in the Indian bond market

Abstract

The paper analyses the impact of various reforms undertaken by the government of india to improve liquidity, transparency, and security in the Indian bond market. It considers reforms initiated by government of india since 1992 that include introduction of system of primary dealers, establishment of Clearing Corporation of India Limited as a clearinghouse, introduction of screen-based trading in government securities through negotiated dealing system-order matching (NDS-OM), trading of bonds through stock exchanges, introduction of delivery versus payment system, etc. Time series graphs are used for analysis by collecting secondary data from Reserve Bank of India, Securities and Exchange Board of India, Clearing Corporation of India Limited, and National Stock Exchange. Indian government securities market has changed significantly in the last two decades. The impact of reforms on the Indian bond market is examined by analyzing the combined gross borrowing of center and state government through government securities (increased by around 8900% from 1991-92 to 2016-17), secondary market transactions in government securities (increased by around 430,000% from September 1994 to September 2017), net corporate debt outstanding (increased by around 225% from June 2010 to September 2017), total trade in corporate bond market (increased by around 1450% from 2007-08 to 2016-17), and other variables related to the liquidity and size of Indian bond market. The impact of reforms is found to be positive for all the dimensions but have significant impact only on the size and liquidity of the Indian bond market. The study concludes with strategic implications.