Debt market development an unfinished agenda, says Finance Secretary Somanathan

Our Bureau New Delhi | Updated on July 14, 2021

India not turning ‘protectionist’ through Aatmanirbhar campaign, temporary protection to a few targeted industries may be appropriate, he said

The Finance Ministry is fully conscious that the debt market in India is not as well developed as it should it be, according to T.V. Somanathan, Finance Secretary. He said that government’s ‘Aatmanirbhar’ campaign should not be seen as India turning “protectionist” and highlighted that incremental protectionism maybe needed as a “transitional measure” in a few sectors to support “an infant that must grow up”.

Addressing the NCAER organised India Policy Forum 2021, Somanathan noted that the development of the debt market continues to be “somewhat handicapped” by two regulators who look at things very differently.

It maybe recalled that SEBI has been making a case for the unification of the G-Sec and corporate bond markets. It had contended that a unified market would enable trading of government securities (G-secs) on the same platform as corporate bonds, thereby utilising common infrastructure for trading, clearing, settlement and holding of securities. It is perceived that the RBI, which is the government debt manager, is not on the same page as SEBI on this front.


Meanwhile, Somanathan said the government continues to work on its stated position that most of the public sector banks will be eventually privatised. “Banking will be one of the sectors where a bare minimum of the public sector will remain. This is the government’s stated policy,” he said.

He was responding to the suggestion by Montek Singh Ahluwalia (a key member of the erstwhile Congress-led UPA government) that the government must now focus on getting the banking sector reforms done. He highlighted that while the reforms pursued earlier brought in the more easy part of aligning the regulatory framework with Basel norms, the more difficult part of putting the public sector banking system competitively on a par with the private sector banking system was not done as yet.

While the good thing is that private sector banks have been liberalised and allowed to expand, the public sector banks remain under strict government control, Ahluwalia noted.

Ahluwalia suggested that the government must implement the P J Nayak Committee report recommendations so that the control of the Finance Ministry on the public sector banks (PSBs) are reduced and would also ensure that the RBI’s regulatory powers on PSBs come on a par with what the central bank had in the case of private sector banks.


Somanathan, who prefaced his remarks at the meeting with a disclaimer that they were his personal views and not that of the government, he asserted that the government was not looking to turn “protectionist” through the Aatmanirbhar Abhiyan campaign. He, however, noted that government was open to incremental protectionism in certain areas of the economy as a transitional measure for “an infant that must grow up”.

“I know that some of our infants refuse to grow up. But if we can get some of them to grow up, then there is a case in some areas”, Somanathan said.

He underscored the need to distinguish between the multilateral trade liberalisation that happened in the nineties and early part of first decade of this century and the FTAs India has signed with a particular group of countries in the last 20 years.

“The evidence is that some of FTAs have had very large trade diversionary effects. Because some members of FTA are adept practitioners of non-tariff barriers, the benefit side of FTA has not picked up as we thought it would. The important issue for us now is not free trade vs protectionism.

There is no tilt to protectionism (via Aatmanirbhar Abhiyan) but to ensure critical supply chains are available locally and don’t have to depend on imports for intermediate goods needed to make drugs and essential devices or things like that,” he added.

Somanathan said temporary protection to a few targeted industries that have potential to become winners may be appropriate in the current times.

Published on July 14, 2021

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