The role of the state for retail participation to pick up

Most conversations about getting Indians to invest in bonds take place through two players: SEBI and the central government. While that is a good start, I have come to believe that the next big push for retail participation will come from a less obvious place: our state governments. States raise money from the bond market to build the roads, metros, water systems and power lines that citizens rely on daily. They are also much closer to everyday investors than any regulator in Mumbai or ministry in Delhi. For bonds to actually reach the grassroots levels and to be a familiar name in every household, in my view, the states have to see themselves not just as borrowers, but as builders of that investor base.

States borrow from the bond market, but only a few retail investors participate

State governments are among the largest borrowers in India’s bond market, with the ICRA estimating the gross state government security issuance at ₹13.4-14 lakh crore in FY27*. Between October and December 2026 alone, the RBI’s indicative calendar had put the state borrowing at about ₹3.6 lakh crore**.

*ICRA estimate of gross state government borrowing for FY27, as of October 2026. It is an estimate, not actual issuance.

**RBI indicative calendar of market borrowings by state governments/UTs for October–December 2026, released 1 October 2026 (₹3,60,820 crore). Actual borrowing may differ from the indicative calendar.

Most state government securities, commonly called

State Development Loans or SDLs, are held by institutional investors such as banks, insurers, provident funds and mutual funds. Retail investors can also access government securities through channels such as RBI Retail Direct, which has offered individuals access to government securities since November 2021. Retail investors can also access government securities through channels such as RBI Retail Direct, which has offered individuals access to government securities since November 2021.

RBI Retail Direct allows investment in specified government securities with a minimum bid of ₹10,000, in multiples of ₹10,000, and offers free account opening and maintenance*.

*Based on RBI Retail Direct scheme features.

In my view, SDLs deserve greater awareness among individual investors. They are obligations of state governments and may offer a yield premium over comparable central government securities. However, yields vary with market conditions, and SDLs are not free from investment risk. Their prices can move with interest rates, and selling before maturity depends on the availability of buyers in the secondary market.

. The gap is awareness, and here states have a role that no other player can play. For example, a Maharashtra or Tamil Nadu bond could, in a real sense, be the people of that state lending to their own government. The gap is not simply about access. It is also about awareness and familiarity.

A resident of Maharashtra or Tamil Nadu may not think of a state government bond as a way to participate in the state's financing. Yet, in a broad sense, these securities represent a way for investors to lend to the government that funds public infrastructure and services in their state.

SDL issuance is also becoming more predictable. In Q1 FY27, the RBI piloted a benchmark issuance strategy with nine states, using predefined tenure buckets announced in advance. The framework was extended to additional states and a Union Territory from Q2, and the RBI announced further expansion to cover 26 states and Union Territories from Q3 FY27*.

*Based on RBI communications on the Benchmark Issuance Strategy for SDLs, including the indicative calendar for October–December 2026. The strategy aims to standardise issuance and improve transparency and liquidity.

In my view, a more predictable issuance calendar could make it easier for investors to understand when securities may be available and compare different maturities. Better information, however, must go hand in hand with an understanding of price, yield and risk

Municipal bonds: Investing in what the city builds

One of the most tangible stories in fixed income is a bond that helps finance something people can see: a metro line, a water treatment plant or a road connecting neighbourhoods. Municipal bonds can help fund such projects, although their risk depends on the issuer's financial position, the security structure and the terms of the issue.

India's municipal bond market remains relatively small, but it has continued to develop. According to SEBI's municipal bond statistics, municipal corporations had raised approximately ₹4,540 crore through 31 bond issues as of March 2026*.

*Based on SEBI's municipal debt securities data as of 31 March 2026.

The Union Budget for 2026–27 proposed an incentive of ₹100 crore for a single municipal bond issue exceeding ₹1,000 crore**, alongside the existing AMRUT incentive framework for smaller issues.

**Based on the Union Budget 2026–27 speech dated 1 February 2026. Eligibility and applicable conditions should be checked against the relevant scheme guidelines.

The opportunity is significant, but cities cannot build a sustainable municipal bond market through issuance alone.

Their ability to borrow depends on their financial position, revenue base and capacity to meet their obligations. State governments influence several of these factors through fiscal policy, transfers and the framework within which urban local bodies operate. They can also consider supporting pooled financing structures, allowing smaller municipalities to access the market collectively where appropriate.

In my view, a stronger municipal bond market requires both credible city finances and a framework that gives investors the information they need to assess the risks.

Trust travels through local channels

Outside the major metros, many families learn about financial products through people and institutions they already know. It may be a local cooperative bank where they have held savings for years, a self-help group federation, or a teacher who first explains how a fixed deposit works.

States influence or support many of these networks, from cooperative institutions to self-help group programmes and public financial-literacy initiatives. This gives them an opportunity to help make financial education more accessible in regional languages and in places that digital platforms may not reach on their own.

Imagine a state including basic information about bonds in its financial-literacy programmes, explaining how government securities work, how investors can access them, and what risks they should understand before investing.

The goal should not be to persuade every household to buy bonds. It should be to help people understand what bonds are, how they differ from deposits and other investments, and how to evaluate their risks.

That distinction matters. Wider participation will be sustainable only if it is built on informed decisions rather than familiarity alone.

Where states can start

In my view, five practical steps could help states support broader awareness and participation in the bond market:

1. Make information about state borrowing accessible. Publish clear information about SDL auctions and government securities in regional languages, with links to official resources explaining how eligible investors can participate.

2. Improve issuance predictability. Continue working within standardised tenure buckets and published calendars, while communicating clearly that indicative borrowing schedules can change.

3. Strengthen municipal finances. Support stable revenue frameworks for urban local bodies and explore pooled financing structures for smaller towns, where appropriate.

4. Explore retail-friendly issuance structures. Where permitted under applicable regulations and suitable for the particular issue, consider structures that make municipal and other eligible bond offerings easier for individuals to understand and access.

5. Use existing financial-literacy channels. Incorporate neutral, risk-aware information about bonds into suitable programmes delivered through schools, cooperatives and self-help groups. The focus should be education, not product promotion.

India's corporate bond market could grow significantly over the coming years. NITI Aayog's December 2025 report, Deepening the Corporate Bond Market in India, projected that the market has the potential to exceed ₹100–120 lakh crore by 2030, subject to reforms and continued market development*.

*NITI Aayog, “Deepening the Corporate Bond Market in India”, December 2025. This is a projection for the corporate bond market, conditional on further reforms, and not its current size.

Much of the growth in India's debt markets will depend on institutions, regulation and market infrastructure. But whether ordinary households become more informed participants will also depend on how accessible the information is, how easily investors can understand their options, and how much confidence they have in the process.

States already ask citizens to place their trust in public institutions through their votes and taxes. Over time, they could also help citizens better understand how government borrowing works and how bond markets finance public infrastructure.

For me, that is the opportunity: not simply to encourage more people to invest in bonds, but to build the awareness, access and understanding that allow participation to grow responsibly.