Reserve Bank of India’s deputy governor Subir Gokarn said on Saturday the development of a vibrant corporate bond market is essential for quicker transmission of monetary policy and to efficiently finance infrastructure projects.
“The current debate over developing a sound corporate bond market is significantly driven by infrastructure financing," Gokarn said at a conference organised by the BSE.
He said the development of a corporate bond market is essential as foreign capital will play a major role in infrastructure financing, for which a sound bond market is essential. “Considering the fact that foreign capital is going to play a major role in infrastructure financing apart from domestic capital, there is a need for facilitation channels for this capital," he said.
He added that the government’s plan to invest $1 trillion in the sector would only materialise if there is a good corporate bond market, which can be achieved by various regulatory bodies working together. During the 12th Plan, the country aims to invest $1 trillion in the infrastructure sector.
Gokarn also said there should be more diversified liquidity in the government bond market without skewed trading in 10-year benchmark G-Secs.
Referring to regulatory facilitation in this regard, Gokarn said various regulators have to work in tandem to develop an effective bond market. The deputy governor, who is also in-charge of monetary policy in the central bank, said an effective bond market can transmit the monetary policy much faster than the banks.
“A recent concern is that banks, which dominate the spectrum, are very slow transmitters. They simply don't react to policy actions and so policy actions some time don't translate into market outcome," Gokarn said. But he was also pointed out that the big constraint in terms of policy action to market outcomes is the uneven nature of liquidity across the bond market.