Missing Markets for Risk Transfer

 

 

 
Missing Markets for Risk Transfer

Corporate Bonds

A liquid corporate bond market can play a critical role in a nation’s economy because it supplements the banking system to meet the requirements of the infrastructure as well as the corporate sector for long-term capital investment and asset creation.

The current system of bank financing has already, and will increasingly, become less adequate for an economy as large and as ambitious as India’s. Spreading credit risk from banks balance sheets more broadly through the financial system would lower the risks to financial stability. More.

India has been distinctly lagging behind other emerging economies in developing its long-term debt market (LTDM), be it corporate or municipal bonds. The equity market has been more active, developed and at the centre of media and investor attention. Traditionally, larger corporates have used bank finance, equity markets and external borrowings to finance their needs. Small and medium enterprises face significant challenges in raising funds for growth. More..

Large fiscal deficit, high interest rates, inadequate market infrastructure, lack of transparency, excessive regulatory restrictions on the investment mandate of financial institutions, and distortionary tax and stamp duty regime are some of the key issues that may potentially hamper the development of a well-functioning corporate debt market in an emerging economy. South Africa is one such economy where the long term debt market (LTDM) reforms lasted nearly two decades starting from early 1980s. Read more – Part 1 & Part 2

Some of the issues in the Indian context are structural and a few are regulatory road-blocks. There is a need for detailed assessment of supply-side, demand-side, secondary-market and hedging related issues.

Coming soon: Our paper on lessons from South Africa for the Indian corporate debt market

Municipal Bonds

The 74th Constitutional Amendment Act (74 CAA) enacted in 1993 was a critical piece of legislation meant to herald a fundamental shift in the philosophy of governance in India, by articulating a vision of decentralised power and responsibility through the provision of constitutional status for urban local governments . More..

It incorporated provisions for devolution of certain powers and functions to Urban Local Bodies (ULBs). More..

We are working on assess the municipal financing scenario in India in more detail, with a specific focus on the municipal bond market. Our objective is to think through the institutional and policy changes for municipal bond market reform.

Unemployment Insurance

Unemployment benefits enable households to smooth consumption at times of job-related distress, which is especially critical for middle and low income households who may otherwise slip into poverty. Unemployment support forms one aspect of the overarching framework of social security, and is implemented by using a combination of different types of mechanisms. More..

Many countries around the world have implemented unemployment support programs. Assessing some of these experiences enables us to assess critically the lessons for the Indian context. Many countries across Eastern Europe, East Asia and South America have implemented unemployment support programs. Read More on Unemployment Insurance – Hungary & Poland..

Unemployment support is not a new subject in India. The nature of the labour market in India has driven the mix of approaches used to confront this issue. A combination of legislation and government programs has been used to provide support to households in periods of unemployment.

We will work on designing unemployment insurance mechanisms that enable coverage of larger sections of the informal workforce, in a viable, sustainable manner.

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