Towards a unified market for trading gilts in India

Abstract

This paper argues for a reconsideration of most elements of this design. Government securities are a unique asset class to which all Indians should have non discriminatory access. Segregated markets are unacceptable. Nor are monopolies desirable since intense competition is the principal mechanism for fostering innovation and investor protection. Market manipulation is unacceptable in any financial market even if this manipulation is performed by the state itself. Moreover market manipulation to reduce interest rates would reintroduce financial repression through the back door and would reverse the principal success of the financial sector reforms initiated in 1991. The paper proposes an alternative design for the government securities market and also a new regulatory architecture. Unified markets, non discriminatory access to all classes of investors, intense competition and investor protection are the key elements of the proposed design.