The Corporate Debt Market in India: An Analytical Study of Macroeconomic and Institutional Issues

Prior to the reforms of the early 1990s, development policy in India was based on centralized planning dominated by the public sector, with the marked absence of well-developed corporate industrial and banking systems, as well as an efficient market for secondary and tertiary activities. While there had been some private initiatives in the industrial scene, participation of private banks and institutions in the financial market was almost non-existent. Public sector banks and financial institutions accounted for nearly 75–80 per cent of financial intermediation in India. Economic development in India hinged on captive investments in government securities by the public financial institutions, and on direct lending to the public sector units. Rates of interest on government debt were administered and the rate of interest on central bank financing was hugely subsidized. At the same time, exposure to foreign capital was limited.