India Set for a Major Shift with NITI Aayog’s Bond Reform Roadmap

India stands on the cusp of a historic economic transformation. As the country accelerates toward its ambition of becoming a developed nation under Viksit Bharat @2047, the need for long-term, low-cost capital has never been greater. This is the moment where financial architecture becomes as critical as physical infrastructure.

In this backdrop, NITI Aayog has released a landmark report — “Deepening the Corporate Bond Market in India”— outlining a strategic roadmap to turn India’s corporate bond ecosystem into a globally competitive, resilient, and inclusive marketplace. The report makes one thing abundantly clear: India cannot achieve its growth ambitions without a robust corporate bond market powering capital formation.

Corporate Bond Market Triples in a Decade, Yet Lags Global Peers

Over the last decade, the corporate bond markethas quietly tripled, rising from ₹17.5 trillion in FY2015 to ₹53.6 trillion in FY2025. Yet, despite this remarkable growth, the market remains far behind global peers, contributing only 15–16% to India’s GDP — compared to 79% in South Korea and 54% in Malaysia. India is growing, but its credit arteries need widening.

NITI Aayog’s report signals that India now has a real opportunity to unlock a bond market potentially worth ₹100–120 trillion by 2030. The question is: What stands in the way?

The Structural Barriers Holding India Back

As India’s investment needs swell — from infrastructure and industry to MSMEs and green technologies — several deep-rooted obstacles continue to restrict the corporate bond market’s full potential.

1. Bank Dependence is Still the Default

India’s private sector still leans heavily on banks, which account for nearly half of total domestic credit. The contrast with global markets is stark — China stands at 194% of GDP and Thailand at 148%. MSMEs remain the most underserved, receiving only 19.3% of total bank-adjusted credit.

This dependence strains banks and limits India’s ability to channel diversified capital to high-growth sectors.

2. Ratings Concentration Limits Market Depth

Nearly 94% of bond issuances come from AAA or AA-rated companies. Mid-rated issuers — often innovative, emerging, or infrastructure-heavy — form barely 5% of the market.

In contrast, mature markets like the US see most issuances in the A, BBB, and even high-yield categories. India’s narrow rating spectrum chokes risk capital and stifles broader market participation.

3. Liquidity That Doesn’t Flow

Despite higher issuance, India’s secondary bond market lacks the vibrancy it needs.
The turnover ratio sits at a muted 0.3, far behind Indonesia and China. Average daily trading volumes have barely moved in six years.

Illiquidity creates a vicious cycle: poor trading discourages participation, and low participation keeps liquidity thin.

4. Fragmented Regulation Slows Down Issuances

The bond market sits under multiple overseers — SEBI, RBI, and MCA — each with overlapping compliance rules. This fragmentation leads to delays, higher issuance costs, and confusion for issuers.

Private placements, which require fewer disclosures, now account for 98% of all issuances. Public bond offerings have collapsed from 13% in FY2014 to just 2% in FY2024.

5. India’s Recovery Mechanism Still Struggles

The Insolvency and Bankruptcy Code (IBC) brought discipline and structure, but bottlenecks persist.
Average resolution time is 713 days — more than double the mandated limit.
Recovery rates remain modest:

• IBC: 39%
• SARFAESI: 27.8%
• DRTs: 9.9%
• Lok Adalats: 2%

Investors continue to price these delays into risk premiums.

6. Retail Investors Are Missing

Retail participation remains under 2%, held back by limited financial literacy, platform access challenges, and tax complexity.
Meanwhile, Thailand clocks nearly 39% retail participation, demonstrating what simplified access and attractive policy incentives can achieve.

India’s bond market has grown — but not yet democratised.

A Phased Blueprint to Build a World-Class Bond Market

NITI Aayog’s report doesn’t just diagnose problems — it offers a transformative, sequenced reform plan across regulatory, infrastructural, and market dimensions. The roadmap envisions an India where corporate bonds stand shoulder-to-shoulder with global benchmarks.

Short-Term Actions: Clear the Roadblocks

• Streamline disclosures and approval processes
• Harmonise regulations across SEBI, RBI, and MCA
• Strengthen trading platforms and expand digital market access
• Enable mid-rated issuers with credit enhancement tools

These steps aim to quickly boost confidence, reduce friction, and broaden participation.

Medium to Long-Term Actions: Build for Scale

• Establish a unified regulatory architecture
• Strengthen market-making capabilities for deeper liquidity
• Expand product offerings: long-tenor bonds, securitised assets, green bonds
• Encourage greater participation from pension funds, insurance companies, and foreign investors
• Invest in advanced market infrastructure using AI, data dashboards, and distributed ledger technology

This phase aims to create resilience, transparency, and global competitiveness.

A Future Where India’s Bond Market Powers Its Growth Story

NITI Aayog’s report envisions a market that stands not as a supporting actor but as a central pillar of India’s financial transformation. A deep corporate bond market can:

• Allocate capital more efficiently
• Reduce systemic dependence on banks
• Create liquidity and stability across the financial system
• Finance India’s long-term developmental priorities sustainably

As India enters a new era of economic ambition, the corporate bond market has the potential to become one of the country’s most powerful engines of growth.

If reforms unfold as envisioned, the next decade could witness India transitioning from a bank-dependent system to a diversified financial powerhouse — one capable of supporting a multi-trillion-dollar economy on its path to Viksit Bharat @2047.