Eco Survey calls for strengthening India's long-term debt market

New Delhi, Jan 29 (PTI) India needs to strengthen debt markets to enable companies to raise long-term funds required for the development of infrastructure and undertaking climate financing, according to the Economic Survey, which was tabled in Parliament on Thursday.

The document was unveiled ahead of Finance Minister Nirmala Sitharaman presenting the annual Budget for the 2026-27 fiscal year on February 1.

"To finance sustained growth, India must strengthen long-term capital markets," the Survey said, observing that corporate bond markets remain "shallow and illiquid" dominated by top-rated issuers.

In addition, securitisation is limited, municipal bonds are underdeveloped, and pension and insurance funds remain conservative investors due to regulatory and cultural inertia, it pointed out.

The Survey said coordinated measures could address these barriers by rationalising tax treatment of debt instruments.

Currently, debt instruments are taxed at the investor's applicable income tax slab, whereas equity instruments (listed shares/equity mutual funds) are taxed at 20 per cent for short-term gains and 12.5 per cent for long-term gains.

Apart from rationalising tax treatment of debt instruments, the Survey also suggested creating credit enhancement facilities for lower-rated issuers; standardising securitisation structures and disclosures; building municipal financial capacity and pooled bond mechanisms; revising investment guidelines for long-term funds and strengthening financial market infrastructure and insolvency systems.

"Such reforms would supply the scale and maturity needed for infrastructure and climate financing while lowering the economy's cost of capital," the Survey noted.

The reforms taken together aim to shape a financial system that is "stable yet competitive, diversified yet resilient, and innovation-friendly yet safe".

The Survey noted that the secondary market remains shallow, with an annual bond turnover ratio of just 0.3, significantly trailing major Asian peers. PTI SP TRB