Global bond index entry on RBI's radar

Last week, Reserve Bank of India Governor Raghuram Rajan said there was talk of bringing India into some global bond indices. For this, he said, discussions with international index agencies and investment banks that created these indices would have to be held. "Sometimes, they require a pace, and we have to examine (that) before we can be comfortable," he said. Here's a brief primer on bonds:

What is a bond index?
It is an index used to measure the performance of bonds based on the market value that form a part of the index.

What are the various types of bond indices?

Such an index may comprise government securities, corporate bonds, high-yield bonds, etc.

Which are some of the well- known bond market indices?
Popular ones include the Barclays Capital aggregate bond index, the JP Morgan government bond index, the Salomon Smith Barney world government bond index, the Merrill Lynch domestic master and the Salomon broad investment grade index.

What is the purpose of these indices?
These indices give a sense of direction to investors, primarily institutional investors looking to buy or sell in the market. By looking at the index, one knows whether the bond market is bearish or bullish.

How will India gain by becoming a part of one of these indices?

Indian bonds would find more recognition.

Being a part of a global index would help attract more flows from foreign institutional investors (FIIs) into Indian bonds. It would also lead to the development of the Indian debt market. Inclusion of India in one of these indices would primarily benefit institutional investors.

What does India need to become part of such an index?
To become a part of one of these global indices, there is a need for more reforms in the debt market. Experts say an important step in this direction is enhancing the FII limit in Indian bonds.

How long would it take for India to be a part of one of these indices?

Experts do not see it happening overnight; it might take up to a year for this to materialise.