Retail trade in Government securities started early this year. After the initial enthusiasm not much interest has been shown.

In January 2003, the Finance Minister inaugurated a retail trading system in government securities, by buying Government of India bond of Rs. 1,000. Before this, the participants in the government securities market were usually banks, insurance companies, provident funds and mutual funds.

Since the purchase and sale of government securities requires access to the wholesale market, this market has remained out of reach of the individual investors. To facilitate easier access and wider participation a facility is now provided through the stock exchanges to buy and sell government securities. The system is similar to the one available for buying and selling of shares. Ever since the introduction of the scheme, the response has not been encouraging.

The basic reason of developing government securities market is to develop a diversified financial system with banks and non-banks operating in equity markets and debt markets that can enhance risk pooling and risk sharing opportunities for investors and borrowers. From the government's point of view, a deep and liquid government securities market facilitates public borrowings at reasonable costs.Well-functioning secondary markets are predominantly important where the borrower for government's borrowing needs is substantial. A well developed government securities market provides flexibility to the debt management authorities to exercise various options to optimize maturity as well as interest cost to the government, to minimize the market impact of large government debt operations and, facilitate better coordination between monetary policy and debt management. Retail trading of gilts to broaden the investor base for public debt which would provide stability and liquidity to the markets due to heterogeneous expectations, trading horizons and preferences. Debt market can help develop the derivatives market thereby facilitating hedging mechanisms and enabling greater diversification of risks by participants. Also, the variety of instruments possible in the domestic debt market may result in gains to savers and borrowers.

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