Govt not keen on India's inclusion in global bond indices: FinMin official

Finance ministry official says not engaged in dialogue regarding it

The government is not keen on India’s inclusion in global bond indices, a finance ministry official told Business Standard, amid speculation that the incorporation might get deferred to next year. The official said the government was neither having any dialogues, nor taking any specific steps towards it. 

“We are not working to be included in the global bond indices. Nothing is being changed to get bond inclusion. We have not taken any step on the inclusion of G-Secs in the bond index. We are not even convinced that it’s a necessary thing. If others like JP Morgan are taking steps suo moto, that is up to them, but we are not doing anything in this direction. If it (inclusion in such indices) happens on its own, fair enough,” the senior bureaucrat said.

The buzz around India’s entry into global bond indices has been triggered following an August 16 note published by Goldman Sachs, saying it expected India to be included in JP Morgan’s Government Bond Index-Emerging Markets in 2023. The move was expected to bring in about $30 billion of flows in a year.

However, the senior official sees it as a wrong expectation. While refuting speculation over the delay in inclusion, the official said the government was not even engaged in a dialogue regarding it. “So there is no point of delay,” he added.

Inclusion in a global bond index may exert pressure on the government to adhere to fiscal discipline and ensure that its bonds retain investment grade. At present, while India’s bonds are of investment grade, they are one notch above a junk rating by all sovereign rating agencies.

The finance ministry has been reluctant to provide any tax incentive such as rationalisation of capital gains tax for inclusion of G-Sec into global bond indices. However, global bond index providers have reportedly been reaching out to India recently for the inclusion of its sovereign debt on their platforms, as the exclusion of Russia from international capital markets has led to the need to draw in a large emerging market economy. 

Madan Sabnavis, chief economist of Bank of Baroda, said the government’s concerns were related to the settlement in India and taxes. “Investors would like to go through the Euroclear system and be tax exempted. The concept is good and can draw in some dollars through FPI if G-Secs are included in global indices. This could help in times like this when the current account deficit is widening. The market expects its inclusion and hence the 10-year yield has come in lower. Clear guidance from the government will help markets,” he added.

The Indian government began considering listing its securities for an inclusion in global bond indices as far back as 2013. However, restrictions on foreign investments in Indian debt meant that the country had to roll out a number of steps before its securities could be eligible.