Indian Democracy Through Bond Market
The bond market is a platform through which the Government of India as well as corporates raise capital to pay down debt or to make capital expenditures.
At present, the Government bond market and corporate bond market are separated and follow different regulatory regimes. Out of the total bond market, 80% of the bond market is dominated by the Government and the remaining 20% is left for the corporate sector.
At present, 95% of corporate bond issuances in the country are concentrated in the top three rating categories ( AAA, AA+, AA ) and 97% of the trading is in these categories. This means that most Indian companies cannot access the bond market to raise funds for business purposes. The situation is worse for infrastructure companies or projects.
So the corporates are heavily dependent on bank finance as they have limited access to the corporate bond market. To get bank finance easily, these corporations have to support the political parties and their leadership. These political parties are supported by corporations through donations or election funding. Most of the time, donations to political parties do not go in a transparent way. Thus a complex nexus is built between the political parties and the Indian corporations.
This nexus between corporations and political parties is not good for the development of healthy democracy. To break this nexus, there should be a vibrant bond market.
This deep and vibrant bond market will make capital available to corporations. This will reduce the dependence of corporations on the banking system and particularly on the political class.
So, a vibrant bond market will help to flourish the Indian democracy.