 
Bond Markets
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Bond Markets
The major part of much needed infrastructure investments need to be financed through the long-term finance offered by the debt market. Banks and other financial institutions don't have the capabilities and resources necessary to raise enough funds and provide finance for such a long term. The Indian people are keen savers, saving nearly 20 % of GDP. A sizeable part of household savings is still attached to fixed-income financial instruments as opposed to the stock market. This is further enforced by the government's plans to reduce its financial involvement in infrastructure. Since the deregulation of interest rates in both the capital and credit markets there have been significant changes in the issuance methods and trading pattern of bonds.
A major problem with the Indian bond market is the thin liquidity. The growing trade at with bonds at the screen-based National Stock Exchange is promising to change this in the future. From July 1994 until July 1999 trade has increased by 2500 %. The wholesale debt market caters to institutional investors such as banks, primary dealers, mutual funds and corporates. Retail markets are yet not well-developed but there are plans to start a retail market at the Bombay Stock Exchange in the near future.
To increase investment from Indians living abroad, the government has issued so-called Resurgent India Bonds, i.e. foreign-currency bonds allowing foreign investors to buy Indian bonds without worrying about exchange risk. The government hope to raise about US$ 2 billion from these. A similar program called Indian Development Bonds, launched in 1991 raises doubts about the effectiveness of this program. The Indian Development Bonds arguably did raise US$ 1.6 billion, but most of this money was formerly stacked abroad. Also, the costs for covering a depreciating rupee were at US$ 447 million.
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