A vote of confidence in India’s economic stability
Emerging Markets Bond indices is testament to investors’ confidence in the country’s fiscal discipline and macroeconomic stability. That it has come about while access to the Euroclear settlement system is still pending and with almost no concessions on withholding and capital gains taxes is noteworthy. India will be included in at least one of the JPMorgan Emerging Markets bond indices (and significantly in their JESG variants), the GBI-EM Global Diversified Index suite, beginning 28 June 2024, and thereafter reach 10% of the index weight in a staggered manner over 10 months.
The JPM bond index is one of the three larger global bond indices. The others are the FTSE Russell and Bloomberg Barclays indices. Given the attractiveness of India’s sovereign bond market (in terms of relatively high yields and a stable exchange rate), it is likely that these indices will also eventually consider including India in their respective indices, if capital account controls are further eased.
A de facto partial easing of capital controls began when the Voluntary Retention Route (VRR) was introduced for foreign portfolio investors in 2019. It gave them more choices of investment instruments and exemptions from some regulatory norms. The scope was then significantly expanded with the introduction of the Fully Accessible Route (FAR) series of bonds in April 2020, which allowed non-residents to invest in specified Government of India securities (G-Secs) without being subject to any investment ceilings.
Twenty-three Indian government bonds (IGBs) with a combined notional value of $330 billion ( ₹27.37 trillion) are eligible for inclusion in the JPMorgan indices. The total notional value outstanding of IGBs is over ₹96 trillion. Of this, the
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