The Reserve Bank of India Governor Bimal Jalan emphasised on the creation of a diversified equity and debt markets, which are less vulnerable to shocks.

Jalan pushed for greater retailing of government securities in order to create a vibrant debt market.

"Eighty per cent of the government securities market is owned by financial institutions and banks; We need to get down to the people as they have an important role to play in providing less vulnerability to shocks," Jalan said.

The RBI governor was speaking on the sidelines of Fixed Income and Money Market Dealers Association's fourth annual conference: 'Bonds and derivatives, the road ahead' in Mumbai.

Jalan said, "The Indian bond/securities market is fairly in its early stages. While the market is liquid, the number of players and volumes are narrow."

Jalan said focus was only on one type of scrip in bond market and demand for modern new instruments introduced by RBI was not seen in the market.

"The macro economy situation is also extremely important for the development of debt market. There has been a certain degree of pessimism in the economy but the circumstances are never as favourable as today," he said.

India  has the highest foreign exchange reserves and even the inflation is low despite the oil shocks and drought, he pointed out.

This makes the 'environment conducive for an active and vibrant financial market ... even when considering the external situation,' he added.

Referring to the fiscal deficit which has been highlighted extensively, Jalan said that while it is definitely a problem, compared to other countries as it has not spilled over to the current account deficit or the inflation rate.

Further, Jalan said that unlike other countries, the fiscal deficit has not been financed through the creation of money or sovereign borrowings overseas.

The government uses the domestic savings, but does not get returns on it, which results in this deficit, the RBI governor said.

He also ruled out any plans for a sovereign debt programme. On financial reforms, he said on the structural side there has not been much progress.

With regard to risk management and prudential norms, Jalan said the central bank would like to bring them at par with international practices.

On the sidelines of the conference, Jalan said the escalation in international crude prices following the threat of a US-led attack on Iraq will have a marginal impact on India's inflation.

He ruled out any repo rate cut, stating that things are going quite well.

Asked whether the central bank would review the gross domestic product estimate, Jalan said: "It will be done in the April credit and monetary policy."

On the US-Iraq conflict, Jalan said there would be marginal impact on inflation in the event of oil prices rising. However, he was quick to add that India will be able to handle it.

Meanwhile, the market did not immediately react to Jalan's comments when he said that he favoured retaining a soft monetary bias, and ruled out a cut in the short-term repo rate for the present.