Move over equities, bonds are India’s next savings frontier

Move over equities, bonds are India’s next savings frontier

• India's household savings shift heavily toward equities over the past decade.
• Corporate bond market remains shallow at ~16–17% of GDP.
• This imbalance exposes households to higher volatility from equity dominance and restricts the economy's access to stable, long-term funding sources beyond banks.
• Economic Survey emphasizes developing a deep corporate bond market as the next frontier for household finance to enable balanced portfolios, better income stability, and reduced risk-taking driven by tax disparities between equity and debt.

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At a time when markets are locked in debate over the wide tax gap between equity and debt investments, the Economic Survey has turned the spotlight to what it calls the next frontier of household finance: the development of India’s corporate bond market.

While households have rapidly embraced equities over the past decade, participation in market-based debt instruments has lagged significantly. The Survey notes that although the share of household deposits has declined and equity exposure has risen, ownership of pension, insurance and bond-linked assets has remained largely stagnant between FY19 and FY24.

This imbalance has left debt securities accounting for only a small portion of household financial assets, limiting portfolio diversification and income stability. The under-penetration of retail debt investment is also reflected in the shallow depth of India’s corporate bond market, which stands at roughly 16–17 per cent of GDP. By comparison, corporate bond markets in the United States and China account for around 40 per cent and 36 per cent of GDP, respectively.

In contrast, India’s equity market capitalisation has surged to more than 130 per cent of GDP, highlighting the widening gap between equity and debt market development. According to policymakers, this skewed structure exposes households to greater volatility while restricting the economy’s access to stable long-term funding.

The Survey argues that building a robust debt capital market requires coordinated efforts across the ecosystem — including issuers, investors, arrangers and rating agencies — to act as market builders rather than passive participants. Key priorities include improving transparency, enhancing price discovery, and expanding risk assessment beyond the narrow universe of AAA-rated issuances.

It also calls for greater financial innovation, while stressing that standardisation and product simplicity will be crucial to attracting retail participation. Instruments such as partial credit guarantees and blended finance structures could enable mid-tier companies to tap bond markets, broadening the issuer base and unlocking growth capital.

Equally important is improving secondary market liquidity. The Survey points out that India’s bond market remains dominated by buy-and-hold investors, limiting price discovery and trading depth. Encouraging active participation and developing efficient trading infrastructure would help create a more dynamic market ecosystem.

For households, a deeper bond market would provide access to stable, income-generating products that complement equity exposure. From a macroeconomic perspective, it would lower borrowing costs, mobilise domestic savings more efficiently and reduce dependence on bank credit. The Survey concludes that a well-functioning bond ecosystem is essential for building resilient household portfolios — and for creating a mature, balanced financial system capable of supporting India’s long-term growth ambitions.