As the manager of public debt and the regulator of the bond market, the Reserve Bank is focused on the government securities market in India. Since the economic liberalization in 1991, it has adopted several measures to introduce efficient security auction methods, broaden the range of government bonds, develop primary markets and create platforms like the Negotiated Dealing System–Order Matching (NDS-OM) framework. It also strove to elongate and enrich the risk-free yield curve, broaden the investor base and create institutions like the Clearing Corporation of India (CCIL) for efficient trading and risk management of statutory liquidity ratio securities. As a result, central and state governments are able to finance a substantial portion of their fiscal deficits through market borrowing, and the yield curve has been extended to longer tenors. The investor base has widened, foreign participation has increased and interest rate derivative markets have also improved. The liquidity and maturity profiles, in the Indian bond market, compare favourably with those of their East Asian peers. JEL Classification: G10, G12, H63
Bhandia et al. (Fri,) studied this question.