Centralized financial development of India until the early 1990s left relatively little scope for developing an active government-securities (G-secs) market. These securities paid administered, artificially low interest rates, which limited the market to the financial intermediaries (mainly banks) that needed the securities to comply with stringent statutory liquidity-ratio requirements (38.5 percent in 1991). Meanwhile, the money market expanded its liquidity, developed new instruments, and underwent operational changes. High fiscal deficits in the preceding years had raised the government’s borrowing, which had been accommodated by the Reserve Bank of India through issuing ad hoc Treasury bills. In 1991 the bank commissioned a special report that would examine the structure of the market for G-secs, help broaden the market, identify procedural hindrances, review procedures for setting sale and purchase prices of securities, and recommend how a separate security house could be set up.

Prepared by T. N. Anantharam Iyer, Executive Director, RBI, this report offered a strategy for developing the securities market. It made suggestions for changing the market’s institutional structure, implementing the changes in three phases over five to seven years, and establishing a specialist Government Securities Trading House. It also stated the need for setting guidelines for integrating fiscal, monetary, and debt-management policies; rationalizing the term structure of interest rates; and making changes in securities’ structure and pricing. Over the subsequent decade, the G-secs market grew rapidly. The government did away with the administered-interest-rates system and replaced it with an auction system to facilitate price discovery. With a consensus between the Finance Ministry and the Reserve Bank of India, monetization of the fiscal deficit through issuing Treasury bills was slowly phased out. Repurchase agreements were introduced for short-term liquidity adjustment, foreign institutional investors were allowed to invest in G-secs, and G-secs began to be traded on stock exchanges. Between 1992 and 2003, the outstanding stock of central-government securities increased nine times from INR 769 billion to INR 6,739 billion. It doubled as a proportion of GDP, from 14.7 to 27.3 percent.

The report aimed to address structural issues in India's government securities market, such as administered interest rates and reliance on statutory liquidity requirements. Its phased reforms and institutional changes sought to create a market-driven system, enabling transparency and sustainable growth.