| We don't want to join any party, Reserve Bank of India Governor Shaktikanta Das said at the Bloomberg India Credit Forum on Friday. He was referring to the rate-cutting party kicked off by the US Federal Reserve — “it's very, very risky to cut rates in India right now,” Das said. While India remains the fastest-growing major economy in the world, many economists see signs of a slowdown and expect a lower GDP growth rate in this fiscal than the 7.2% the RBI has forecast. Yet, Das remains bullish. “We are not behind the curve,” he said to Reto Gregori, Bloomberg's deputy editor-in-chief, and “the India growth story remains intact.” This growth-versus-risk balance that characterizes the job of central bankers, policy makers and regulators everywhere is even more pronounced in India, an under-developed nation that needs to urgently expand economic activity and job creation for the largest youth population in the world. That makes it doubly tough for the RBI and securities market regulator Sebi to strike what investors may perceive as a fair trade-off between market opportunity and the ease of doing business. Watch: RBI Governor Das on India's place in a volatile world  Shaktikanta Das in conversation with Bloomberg’s Reto Gregori at the India Credit Forum. Photographer: Dhiraj Singh/Bloomberg Take India's credit market — a critical driver of growth — where two important trends are playing out. The future is non-bank credit, speakers at the Bloomberg India Credit Forum agreed. In recent years, lending activity has expanded from banks and non-banks to the corporate bond market and private credit via alternative investment funds and portfolio management schemes. Though fresh fundraising is set for a second straight record year of over $100 billion, India's corporate bond market is one of the world’s smallest as a percentage of gross domestic product, at just 16%. It's not “deep enough to support the country’s infrastructure finance requirement,” R Shankar Raman, director and chief financial officer at Larsen & Toubro, said to Bloomberg recently. The reasons range from investment restrictions on pension and insurance funds, ostensibly to safeguard customers from high-risk credit, to low foreign investment even though regulators have tried to ease access and direct more borrowing via corporate bonds. India needs more domestic institutions and foreign investors to participate in the bond market, Das acknowledged, saying there are “issues to be addressed.” Work on developing a robust secondary market for corporate bonds is also underway, he said.  (Left to right) Prasanna Balachander, head of global markets, sales, trading and research at ICICI Bank Ltd., Kanchan Jain, CEO of Ascertis Credit Group and Pramod Kumar, CEO at Barclays Plc in conversation with Bloomberg’s Jeanette Rodrigues at the India Credit Forum. Photographer: Dhiraj Singh/Bloomberg In private credit, a booming market globally, India is headed for its first $10 billion year as local alternative investment funds are grabbing a greater share of smaller-sized deals while big foreign players prefer fewer, larger transactions. From acquisition finance to working capital for mid-market companies, private credit is funding activities that conventional financiers are constrained to lend to. That's made it a hotbed of regulatory scrutiny in recent months — from clamping down on the use of alternate funds to evergreen bank loans, to acting against preferential rights for select investors, to a broader do-no-harm style regulation. That, lawyers say, puts a heavy compliance burden on alternative investment funds, potentially driving some offshore. If funds commit to not circumventing adjacent laws pertaining to foreign exchange management, FDI and others, Sebi will have more space to liberalize specific alternative investment fund rules, Ananth Narayan, whole time member at the Securities and Exchange Board of India, said at the forum. Watch: Sebi's Ananth Narayan on easing rules for foreign investors  Ananth Narayan, whole-time member at Sebi, in conversation with Bloomberg’s Menaka Doshi at the India Credit Forum. Photographer: Dhiraj Singh/Bloomberg Even offshore investors are somewhat wary of India's compliance requirements, as the RBI governor conceded. A few foreign portfolio investors have reportedly exited India, citing inability to comply with new beneficial ownership disclosure norms issued by Sebi to curb roundtripping and market manipulation. While Narayan wouldn't comment on how many funds have quit India, he said it has not discouraged foreign investment, adding that since the rule was first discussed in April 2023 the equity market has seen a net foreign inflow of $27 billion. To be clear, foreign investors remain enthusiastic about India's growth story — currently more so in the bond market, where the country's inclusion in international bond indices has drawn billions in new investment to government bonds, than in equity markets where rich valuations and a potential revival of China's economy have led to large outflows. To encourage more foreign flows, Sebi is working on a “risk-based approach” that will significantly cut know-your-customer and other compliance procedures for large “trusted” foreign investors such as sovereign, public retail, insurance and pension funds, Narayan said. India needs all the capital it can get to grow rich before it grows old. And yet, it’s tough to argue with the RBI and Sebi’s often conservative approach — because, as China has recently shown, a growth party can often result in a nasty hangover. | 
