The question is that can we really proceed on the assumption that there is a genuine government securities market, and hence reinforce more marketisation by rapidly reducing SLR or do we ensure a viable market borrowing programme and reduce SLR in tandem? Here again RBI has to assess the sensitivity of the fisc to interest rate burden, in case SLR is reduced rapidly?
The importance of SLR status for bonds issued by government has come to the fore recently when oil bonds issued by Government of India turned out to be illiquid despite carrying a higher yield of 25 basis points over SLR-eligible bonds of similar maturity. The reform of debt markets in India, as we go along, should recognise these realities.