Indian Bonds in JP Morgan Index: Transforming India’s Fiscal Landscape and Investor Demand
Why JP Morgan’s Inclusion of Indian Bonds in the JP Morgan Government Bond Index – Emerging Markets Signifies a Mix of Positive News for the Indian Economy and a Growing Demand for Enhanced Fiscal Transparency and Accountability?
Before examining this strategic shift, it’s crucial to scrutinize the relevant statistics underpinning its rationale. India holds an ambitious vision of transforming into a $5 trillion economy by the close of this decade. To realize this bold vision, the Indian government has outlined an ambitious blueprint, encompassing the construction of 30,000 km of highways, expansion of over 200 airports and a doubling of the current port capacity.
However, to actualize this vision of a $5 trillion economy, the government must allocate substantial resources to infrastructure development. The pivotal question is how the government plans to raise the necessary funds for these monumental endeavours. The answer is deceptively simple: through tax collection or bond issuance.
Today, let’s delve into the second avenue: bond issuance. Traditionally, the Indian government would turn to the Reserve Bank of India to issue bonds in the domestic market. Who were the primary investors? Typically, domestic investors formed the bulk of government bond buyers, with foreign investors playing a minor role. Several factors contributed to this dynamic.
As of September 8, 2023, India’s government bond market boasted a size of $1.3 trillion, while the total foreign portfolio investment (FPI) holdings stood at a mere $8.5 billion. Before the Reserve Bank of India introduced the Freely Accessible Route (FAR) window in March 2020, there was a cap on foreign investment in the Indian government bond market. Additionally, foreign
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