India Needs Banks and Bond Markets to Share Funding Load, Says CEA
Chief Economic Advisor V Anantha Nageswaran has called for a “dual-engine” financing model where banks and debt markets share the burden of funding India’s long-term growth, stating that banks alone cannot meet the massive investment needs over the next 15-20 years.
Key Takeaways
- CEA Nageswaran advocates for a “dual-engine” model where banks and bond markets share funding responsibilities.
- Bond markets must move from “periphery to center” for India to achieve sustained 7% growth.
- Mid-sized firms need systematic, affordable access to bond markets alongside increased liquidity.
Speaking at the Trust Group’s India Debt Capital Market Summit on Friday, Nageswaran emphasized that a deep and resilient debt market is crucial for strengthening the entire economy.
“If India is to grow at 7% for the next two decades in real terms, debt markets must move from the periphery to the center of capital allocation,” Nageswaran said.
He noted that while equity markets showcase India’s growth story, debt markets will determine whether these aspirations are adequately financed.
Expanding Access Beyond Large Corporations
The CEA highlighted the current concentration where only large, well-rated companies dominate bond market fundraising. He stressed the need to enable mid-sized firms to access capital markets “systematically and affordably.”
Nageswaran also called for increased market liquidity, urging investors to move away from the practice of holding papers until maturity.
The Dual-Engine Financing Vision
Nageswaran proposed a clear division of financial roles between banks and debt markets over the coming years.
“Banks continue to lead in financing working capital needs, operating credit and relationship-driven lending, while debt markets should increasingly lead in long-duration financing. A dual-engine financing model is not optional; it’s foundational.”
He explained that banks cannot single-handedly finance massive investments required in , logistics, manufacturing scale-up, healthcare, technology infrastructure, and urbanization over the next 15 years.
To reinforce market liquidity, Nageswaran recommended active market making, greater participation from pensions, provident funds and insurers, and the development of diverse financial instruments.
