The Indian Debt Market is one of the markets that is least understood by many. This article discusses in greater detail, the various issues related to Debt Market in India.

The Indian Debt Market and particularly, the Government Securities Market have undergone a significant transformation since the advent of reforms to the financial markets in 1991-92. The primary objective behind the reforms has been to moderate liquidity growth, contain inflationary pressure, and conduct public debt management in a cost-effective manner.

During the first five years of reforms (1991-96) efforts were made to facilitate market borrowing with price discovery which is done through auctions, restrict automatic monetization by fixing a cap on the `during-the-year and end-of-the-year borrowed amount' by the government, developing appropriate instruments, introducing a Delivery-Versus-Payment (DVP) system in order to mitigate settlement risk, promote greater transparency of prices, and introduce a system of marking to market in the valuation of government securities held by commercial banks.

Post-1996 reform has focused mainly on the market microstructure. The emphasis was on introducing a system of Primary Dealers (PDs) and Satellite Dealers with underwriting or bidding commitment for 100% of the issue of government securities; introducing various tenors of T-Bills; establishing Ways and Means Advances (WMAs) to the Central Government to bridge temporary mismatches in its receipts and payments; permitting Foreign Institutional Investors (FIIS) to invest in government securities including T-Bills both in primary and secondary markets; expanding the players in the repos market by allowing non-bank participants to borrow and lend in that market; switching from yield-based to price-based auctions to facilitate finer bidding; making price auctions uniform in case of 91-day T-Bills on an experimental basis; establishing 100% gilt funds to promote retail holding of government securities; issuing long-dated securities for 20 years to serve as a benchmark for private debt issues; and to extend maturity period for the government.

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