Inclusion of India in JP Morgan EM debt index could make rupee stronger, reduce borrowing cost : CEA

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government securities in the JP Morgan emerging market debt index has the potential of making the rupee stronger and reduce the government's borrowing costs, chief economic advisor in the finance ministry V Anantha Nageswaran told reporters on Friday. JP Morgan on Friday said it plans to include Indian government bonds, or government securities, in its benchmark emerging market index from June next year. The inclusion of government securities will be staggered over a 10-month period from 28 June 2024 to 31 March 2025, indicating one per cent increment on its index weight.

Nageswaran said, citing private sector estimates, that annual fund inflow into Indian government bonds could be in the range of $20 billion to $25 billion, but added there was no official estimate on potential dollar inflows. It would be a source of financing the current account deficit, he said. Although the development could introduce volatility in the Indian bond market and the currency in times of global uncertainty, the benefits of such inclusion outweigh the risks, Nageswaran said.

The CEA explained that there will be a tendency for the currency to appreciate just as it happened between 2003 and 2008 when capital inflows into India had surged. "When there is demand from investors to buy Indian government bond denominated in Rupee, naturally, the demand for Rupee will increase and everything else being equal, there is a potential for rupee's nominal appreciation," he said. "That is both positive and a challenge because we have to make sure the rupee remains competitive," he said.