But this is only the beginning. The bond market is yet to develop and the securitisation market has not reached anywhere. According to the Mistry report, in creating an IFC in Mumbai, the authorities need to comprehend the challenge of developing the BCD nexus — the bond market, the currency market, and the derivatives market (in interest rates and currencies) — as an integral package whose individual components cannot be de-linked.

Are the regulators going slow in developing the markets?

“The RBI is going exactly the appropriate way,” said RBI Governor Y V Reddy. “Some people may have wanted to go fast. By and large, it’s the responsibility of the RBI to ensure that reform is not an end in itself. Reforms have an end... that’s improvement in efficiency. In this you cannot sacrifice stability, pace of reforms and sequencing. And elements of reforms have to be carefully worked out and overall efficiency improved and stability maintained.”

The RBI has admitted that the only area which is lagging is corporate debt, development of which depends on other factors. “When there are no long-term contractual savings, where are the long-term funds? Insurance has just started, pensions funds have not even started. Another requirement is the government securities market that we have established now. If we don’t have a properly developed G-Sec market, there can’t be a corporate debt market. In proper sequencing, in a way we’re reasonably at a good stage. The corporate debt market is now confined to financial institutions; it’s through private placement and there is very little trading, little fair price discovery — these are structural characteristics which have to change. It has started changing,” Reddy said in a recent interview to the The Indian Express.

... contd.