India opened its $1 trillion government bond market to individual investors on Friday as it sought help from the public to fund its ambitious spending plans. Asia's third-largest economy plans to borrow Rs 12.05 trillion ($161.87 billion) via bonds this financial year, ending March 2022, as it embarks on huge investment plans to boost growth amid the pandemic.
This essentially means Individuals can now directly purchase treasury bills, dated securities, sovereign gold bonds and state development loans from primary as well as secondary markets. Prime Minister Narendra Modi on Friday said the new scheme "allows the smallest investor to participate in the country's economic progress".
"Small investors will be assured of good returns on a secure investment and the government will get the resources it needs for infrastructure development and building a new India," PM Modi said.
Retail direct investors will also have an online facility to gift government securities to other retail direct investors.
"A significant milestone in the development of the government securities (G-sec) market, the Reserve Bank of India-Retail Direct (RBI-RD) Scheme will bring G-secs within easy reach of the common man by simplifying the process of investment," the central bank said in a statement.
Governments in developed economies have long allowed individuals to invest in bonds, which usually offer smaller returns than other investments but are seen as safer. Taking cue from other emerging market such as Brazil, the Philippines and Bangladesh, India too is facilitating public access to its sovereign bond market.
Bond experts see this as a crucial step ahead of India's expected inclusion in global bond market indices early next year, which should help the government raise more money from foreign investors. ‘‘If we are going to allow a lot of foreign investments into the bond market, we should also balance it with domestic investors, so that we get more stability," Srinivasan MV from Mecklai Financial said.
India raised Rs 7.02 trillion between April and September, largely from institutional investors. But analysts remain uncertain about the appetite for low-interest long-term government bonds at a time when interest rates are poised to rise as global central banks tighten monetary policy to combat rising inflation. "Appetite may not pick up immediately. It could take some time," Srinivasan said.