Pre-Budget Expectations: FICCI Pushes for Deeper Corporate Bond Market

Ahead of the Union Budget 2026, industry body Federation of Indian Chambers of Commerce and Industry (FICCI) has called for measures to expand and deepen India’s corporate bond market, arguing that a more robust debt ecosystem is critical to sustaining long-term infrastructure investment, financial resilience and economic growth.

To bridge the massive infrastructure funding gap required for a $5 trillion economy, industry body FICCI has urged the Centre to dismantle structural barriers in the corporate bond market. In its pre-Budget note, FICCI said developing a deep and liquid debt market will be essential to finance infrastructure and corporate expansion at scale. The body urged the government to focus on improving market liquidity, widening the investor base, strengthening market infrastructure and removing structural barriers that limit participation.

A key concern flagged by FICCI is the low participation of non-financial corporates in the bond market. “While financial sector entities raise nearly 49% of their domestic debt through bonds, non-financial private companies and public sector undertakings rely far less on market borrowings, at 21% and 34%, respectively,” the apex body said in a note.

Currently, SEBI mandates only listed corporates rated AA and above to meet 25% of incremental borrowings through bond issuances. FICCI has proposed expanding this framework to include all investment-grade issuers from BBB– to AAA, thereby widening the pool of eligible market borrowers.

BBB– represents the lowest investment-grade rating, indicating that issuers can service debt under normal conditions but carry higher risk than top-rated borrowers.

FICCI also pointed to regulatory changes by the Reserve Bank of India, which removed earlier requirements for large corporates—those with aggregate sanctioned credit limits above ₹10,000 crore—to raise a portion of incremental funding from capital markets. The move, it said, may have reduced incentives for large companies to diversify away from bank lending. The industry body has called for reinstating an incentive-based framework to encourage market borrowing, alongside lowering borrowing thresholds and including both listed and unlisted firms to expand bond supply.

However, market participants caution that broadening the issuer base would need to be accompanied by stronger disclosure norms, investor safeguards and risk-based pricing, particularly for lower-rated and unlisted entities, to avoid credit stress.

To boost long-term patient capital, FICCI has recommended easing investment constraints on insurance companies and pension funds, which together account for nearly 40% of the corporate bond market. Suggestions include raising exposure limits to sub-AAA instruments, revising approved investment thresholds, allowing provident funds to invest in bonds issued by InvITs and REITs, and linking insurer exposure limits to assets under management or net worth to support operational infrastructure assets. “Further, a policy shift to encourage patient capital investors to fund operational infrastructure projects is required,” FICCI said.

FICCI has also sought a review of the tax treatment of debt mutual funds, arguing that the removal of indexation and taxation at slab rates has reduced their share in total mutual fund assets and limited their participation in corporate bond markets.