DEBT MARKETS

MANTH JAIN - 23
HARSH JAIN -22
MEET JAIN -24
JAINAM JOGANI - 31
SAMYAK KOTHARI - 35
What is the Union Budget?

The Union Budget of India is the annual financial

statement of the government of India, presented by the
Finance Minister of India in the Parliament. It details the
government's income and expenditure for the financial
year. It also outlines the government's plans for
economic development and welfare programmes.

The budget is presented in two parts: the revenue

budget and the capital budget. The revenue budget
outlines the government's income and expenditure,
while the capital budget outlines the government's
investments and borrowings.
Government Borrowing Program
The government borrows money in order to finance its various activities, such as infrastructure
development, welfare programs, and other public services.

Government borrowing programs are an important part of the Union Budget and play a significant
role in the economic development of India.

Sovereign Rating of India

A sovereign rating is a credit rating given to a country that indicates its ability to meet its financial
obligations.

India is rated as one of the most stable economies in the world, and its sovereign rating reflects
this stability.
GDP Growth Rate

GDP growth rate is the rate of growth in the value of all

goods and services produced in the country over a period of
time.

It is an important indicator of economic performance and an

important factor for investment decisions in the country.

India gdp growth rate for 2021 was 8.68%, a 15.28%

increase from 2020. India gdp growth rate for 2020 was -
6.60%, a 10.33% decline from 2019. India gdp growth rate
for 2019 was 3.74%, a 2.72% decline from 2018. India gdp
growth rate for 2018 was 6.45%, a 0.34% decline from 2017
Inflation

Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure,
such as the overall increase in prices or the increase in the cost of living in a country. But it can also be more
narrowly calculated—for certain goods, such as food, or for services, such as a haircut, for example.
Whatever the context, inflation represents how much more expensive the relevant set of goods and/or
services has become over a certain period, most commonly a year.

Inflation is the sustained increase in the general level of prices for goods and services in an economy over a
period of time.

Inflation can erode purchasing power and have a negative effect on savings, investments and economic
growth.

Average Inflation Rate in India

The country's retail inflation, which is measured by the consumer price index (CPI), accelerated to 6.50% in
Jan. 2023. Inflation data on the wholesale Price Index (WPI), which calculates the overall prices of goods
before selling at retail prices, eased to 4.73% during the period.
Tax Collection Monetary Policy of RBI
Tax collection and monetary policy are two distinct functions that are performed by different entities
in India. Tax collection is the responsibility of the government while monetary policy is formulated
and implemented by the Reserve Bank of India (RBI).

The RBI is responsible for formulating and implementing monetary policy in India with the objective
of maintaining price stability and ensuring adequate credit flow to support economic growth. The
primary tools used by the RBI to implement monetary policy include open market operations,
reserve requirements, and the policy interest rate.

Open market operations involve the purchase or sale of government securities in the market, which
influences the amount of liquidity in the system. Reserve requirements refer to the proportion of
deposits that banks are required to hold with the RBI.
What is a Debt Market?
The Debt Market is the market where fixed income securities of various types and features are
issued and traded. Debt Markets are therefore, markets for fixed income securities issued by
Central and State Governments, Municipal Corporations, Govt. bodies and commercial entities like
Financial Institutions, Banks, Public Sector Units, Public Ltd. companies and also structured
finance instruments. The bond market broadly describes a marketplace where investors buy debt
securities that are brought to the market by either governmental entities or corporations.
Classification of Indian Debt Market

Indian debt market can be classified into two categories:

Government Securities Market (G-Sec Market): It consists of central and state

government securities. It means that, loans are being taken by the central and
state government. It is also the most dominant category in the India debt market.

Bond Market: It consists of Financial Institutions bonds, Corporate bonds and

debentures and Public Sector Units bonds. These bonds are issued to meet
financial requirements at a fixed cost and hence remove uncertainty in financial
costs.
Main Features of Debt Securities
Main Features of Debt Securities

1. Issue date and issue price :Debt securities will always come with an issue date and an issue price at which
investors buy the securities when first issued.

2. Coupon rate:Issuers are also required to pay an interest rate, also referred to as the coupon rate. The
coupon rate may be fixed throughout the life of the security or vary with inflation and economic situations.

3. Maturity date:Maturity date refers to when the issuer must repay the principal at face value and remaining
interest. The maturity date determines the term that categorizes debt securities. Short-term securities mature
in less than a year, medium-term securities mature in 1-3 years, and long-term securities mature in three years
or more. The term’s length will impact the price and interest rate given to the investor, as investors demand
higher returns for lengthier investments.

4. Yield-to-Maturity (YTM) :Lastly, yield-to-maturity (YTM) measures the annual rate of return an investor is
expected to earn if the debt is held to maturity. It is used to compare securities with similar maturity dates and
considers the bond’s coupon payments, purchasing price, and face value.
Evolution of Indian Debt Markets
The Indian debt market has traditionally been a market with participation restricted to few institutional players
mainly banks. The banks were the major participants in the government securities market due to statutory
requirements. The turnover in the debt market too was quite low a few hundred crores till the early 1990s. The
debt market was fairly underdeveloped due to the administered interest rate regime and the availability of
investment avenues which gave a higher rate of return to investors. The government securities market accounts
for more than 90 percent of the turnover in the debt market. It constitutes the principal segment of the debt market.

In the early 1990s, the government needed a large amount of money for investment in development and
infrastructure projects. The government realized the need of a vibrant, efficient and healthy debt market and
undertook reform measures. The Reserve Bank put in substantial efforts to develop the government securities
market but its two segments, the private corporate debt market and public sector undertaking bond market, have
not yet fully developed in terms of volume and liquidity.

The Reserve Bank of India regulates the government securities market and money market while the corporate
debt market comes under the purview of the Securities Exchange and Board of India (SEBI).