Economic Survey for Developing an Integrated Bond-currency-derivative Market

To tide over the problem of illiquidity, the pre-budget Economic Survey has pitched for developing an integrated bond, currency and derivative market at par with equities.

"A major objective should be to develop the bond-currency derivative (BCD) nexus to equity market quality levels," said the Economic Survey 2013-14, tabled in Parliament on Wednesday.

A well-functioning 'BCD Nexus' is an integrated market featuring government bonds, corporate bonds and currencies.

The move would help in achieving liquidity as the "financial markets continue to suffer from illiquidity".

With a proper BCD Nexus, interest rate futures would allow trading on government bond interest rates, and credit derivatives would allow trading on credit spreads and defaults. These would be linked with the stock futures and index futures.

The survey said that a capable bond market is required for the next wave of infrastructure financing.

It noted that most households are cut off from large parts of the financial system and "bank-centric notions" of financial inclusion have limited value.

Besides, there are concerns about balance sheet quality with banks and a subset of non-financial firms, it said.

To address the problems of Indian financial sector, a high level FSLRC (Financial Sector Legislative Reforms Commission) has proposed the draft IFC (Indian financial code) and sets the course for a modern financial system.