Developing the Market for Corporate Bonds in India

Abstract

The corporate bonds market is not only underdeveloped in India in comparison with the equity market, but also considerably lags that market in point of time. Despite various efforts, the corporate bonds market has not expanded to any meaningful extent. In this paper, we identify the elements of an appropriate legal framework that undergirds a liquid and vibrant corporate bonds market. These elements are the proper and timely enforcement of contracts, a robust corporate insolvency framework, standardization and transparency in the primary markets, and greater protection against opportunistic behavior between creditors and borrowers. Our central argument in this paper is that the weaknesses in these elements in India amount to legal impediments that inhibit the smooth operation of the bonds market in India. Consequently, any reform process ought to address these legal impediments.