authors
Rahul Rangotra

abstract
The paper analyses the various reforms undertaken by the Government of India to improve liquidity and their impact on the size and liquidity of the Indian bond market. The paper considers reforms, such as introduction of system of primary dealers, establishment of Clearing Corporation of Indian Limited as a clearing house, introduction of screen based trading in government securities through Negotiated Dealing System-Order Matching (NDS-OM), trading of bonds through stock exchanges, introduction of delivery versus payment system, etc. initiated by Government of India since 1992. Secondary data is collected for the period ranging from 1992 to 2017 from Reserve Bank of India, Securities Exchange Board of India, Clearing Corporation of India Limited, and National Stock Exchange, for analysis. The impact of reforms on the Indian bond market liquidity has been examined by analyzing the combined gross borrowing of centre and state government through government securities (increased by around 8900 percent from 1991-92 to 2016-17), secondary market transactions in Government Securities (increased by around 430000 percent from September 1994 to September 2017), net corporate debt outstanding (increased by around 225 percent from June 2010 to September 2017), total trade in corporate bond market (increased by around 1450 percent from 2007-08 to 2016-17) and other variables related to the liquidity and size of Indian bond market. In 2008-09 only one company issued corporate debt through stock exchange with issue size of 1500 crore repees but in 2016, 16 companies issued corporate debt through stock exchange with issue size of 29547.15 crore rupees. The impact of reforms found to be positive for all the dimensions and these reforms have significant impact on the size and liquidity of the Indian bond market. The study also found that the government securities market is more liquid than the corporate bond market and liquidity is still low as compare to the developed bond markets. Although liquidity is improving but in order to reduce the dependency on the banking sector, India needs further reforms, particularly in the corporate bond market. The study suggests that, to improve liquidity in the Indian bond market the participation of retail investors need to be increased, access to the trading platform of government securities should be given to the small investors, government securities should be allowed to trade through the demat account and tax benefits should be given to investors for investing in the government securities and corporate bonds.