What do India and the European Union have in common when it comes to corporate bonds? Both endeavour to deepen and accelerate growth in their respective markets, and both have unleashed schemes to do so (a remarkably grandiose one in the case of the EU); both, alas, will struggle to get very far.

Why? Because both miss a critically fundamental point: you can't create a functioning capital market just because it happens to be politically expedient any more than you can create a functioning capital market by shunting together a bunch of rules and have policymakers and regulators act imperiously in the hope that market agents will do what they want. That way lies ruin, usually via a raft of unintended consequences.

What am I referring to? In the case of the EU, I refer to the Capital Markets Union (CMU). In the case of India, I must point out SEBI's consultation paper: Designing a Framework for Enhanced Market Borrowings by large Corporates.

A veritable army of technocrats, consultants, regulators, politicians and market participants has been working on CMU for years. For the sake of transparency, I'm pro-European and avidly opposed to Brexit. But you can only go so far: dewy-eyed efforts to reach the end-game of an open, free, single cross-border corporate bond market across the European bloc – one that sits above all the domestic markets – are aiming to solve a problem that doesn't really exist. As such, those efforts fatally miss the point.

Declaring that Europe needs to transform its capital market stratification so it resembles the US in terms of the proportion of capital-raising derived from bonds rather than banks is futile. It's a political pipe-dream. European federalists hate the country-based orientation of European financing – deriding it as capital markets parochialism – not out of any deep-seated concern about the array of funding options open to European companies, but because it doesn't mirror their European political grand plan and the jobs (i.e. theirs) that go with it.

The sheer depth and breadth of recommendations contained in the November 2017 report by the European Commission's Expert Group on Corporate Bonds ("Improving European Corporate Bond Markets") summed up the problem. Sections of the report were almost laughable (perhaps intentionally?), such as suggesting blowing up or reforming large chunks of the post-crisis EU regulatory architecture governing banking and finance.

It called for amendments to the Market Abuse Regulation, Solvency II and the Prospectus Regulation; harmonisation around different interpretations of UCITS and AIFMD provisions; harmonisation around ranking of creditors and definition of insolvency triggers; rules around order inflation in new issues; adjustments to Liquidity Coverage Ratio haircuts and Net Stable Funding Ratio factors; amendments to the leverage ratio around certain credit derivatives; centralised data collection; and a streamlining and consolidation of overlapping and inconsistent rules and reporting requirements. Enough said.

All of that flashed through my mind as I read SEBI's latest plan to enhance India's corporate bond market. The plan is wonky in the extreme. The plan, laid out in a consultation paper, follows extremely wonky comments made by finance minister Arun Jaitley in his February budget speech.

As a plan, it's up there with the most preposterous I've seen for some time. India wants to force – yes force – large Indian corporates (those with INR 1 billion or more in outstanding borrowings) by law to raise a quarter of their long-term funding needs (defined as one year and above) in the bond market. The alternative is to face fines. And that excludes External Commercial Borrowing and inter-company borrowing.

On a two-year look-back, companies with deficiencies in their bond borrowing will face fines of between 0.2% and 0.3% of the shortfall. That's the most ridiculous thing I've ever heard. It indicates the most monumental lack of understanding of how markets work, and how the processes of capital formation and price discovery function.

More to the point, why is India even thinking about pursuing this absurd path? Because Indian banks are riddled with non-performing exposures and the government is concerned they won't be able to meet increasing corporate and particularly infrastructure financing needs as the investment cycle shifts up a gear. This is not about developing a liquid and vibrant corporate bond market; that's a distant afterthought.

In the Realpolitik of bond issuance, who do you think is going to hold the balance of pricing power? You can bet your bottom dollar it's not borrowers. Try and picture a conversation between a company (which may be running behind on its bond issuance) that has to issue in the bond market and investors. How do you think that's going to go? How on earth will companies build their demand curves? They'll be condemned to higher pricing.

The only logical follow-on to forcing companies to tap the bond market is to force institutional investors by law to allocate a set percentage of their portfolios to corporate bonds at a certain spread. Or face fines.

FM Jaitley also wants India's risk-averse institutional investors to start buying lower-rated paper, but nothing too serious: he wants the focus of investor attention to broaden eventually from Double A and above to include Single A securities, if necessary by using credit enhancement/guarantee structures. But what about below Single A, where Indian companies need all the help they can get? Forget it. They're not even on the radar.

The Indian domestic bond market has been evolving as a funding source over the past few years and, as SEBI itself pointed out, bond financing overtook bank financing (51% vs 49%) in fiscal year 2016-17. That said, because of local regulations, bond issuance is predominantly (90%) in private placement format and 70% comes from the financial sector. Corporates account for just 20% of issuance.

When everything is said and done, doing away with things like the Debenture Redemption Reserve, which makes corporate bond issuance in the public market uneconomic by requiring profit set-asides, or giving bondholders priority in insolvency and other IBC benefits are likely to be positive. But a fines-based capital market?

SEBI is seeking public comment on its proposed framework. The deadline is August 13. My public comment: ditch it - it's sheer madness.