The primary role of the Discount and Finance House of India (DFHI) in the Indian money market is to develop an active secondary market in money market instruments. Here's a detailed explanation:

Introduction to the DFHI
The Discount and Finance House of India (DFHI) was established in 1988 as a subsidiary of the Reserve Bank of India (RBI). It was set up to promote the development of the money market in India and provide liquidity to the market participants. The DFHI operates as a primary dealer in government securities and plays a crucial role in the Indian money market.

Developing an Active Secondary Market
One of the key functions of the DFHI is to develop an active secondary market in money market instruments. The secondary market refers to the buying and selling of already issued financial instruments. In the case of the money market, these instruments include Treasury Bills, commercial papers, certificates of deposit, and other short-term debt instruments.

The DFHI acts as a market maker and provides liquidity to the market participants by actively buying and selling these money market instruments. This helps in improving the depth and liquidity of the market, making it easier for investors to trade these instruments. The presence of an active secondary market ensures that investors have a ready avenue to buy and sell their money market instruments, thereby enhancing the overall efficiency of the market.

Benefits of an Active Secondary Market
An active secondary market in money market instruments offers several benefits:

1. Enhanced liquidity: Investors can easily buy and sell their money market instruments, ensuring liquidity and flexibility in their investment portfolios.

2. Price discovery: The secondary market allows for the determination of fair prices for money market instruments based on supply and demand dynamics. This helps in efficient price discovery.

3. Risk management: An active secondary market enables investors to manage their risk exposures by quickly adjusting their holdings of money market instruments based on market conditions.

4. Access to capital: An active secondary market facilitates the mobilization of funds by issuers of money market instruments, providing them with an efficient avenue to raise capital.

5. Market transparency: The presence of an active secondary market promotes transparency as market participants can easily access information on prices, trading volumes, and other relevant data.

Overall, the DFHI plays a crucial role in developing and maintaining an active secondary market in money market instruments in India. This helps in promoting liquidity, price discovery, risk management, and overall efficiency in the Indian money market.