Govt renews push for Global Bond Index inclusion; foreign inflows of up to $11 bn expected

The government is preparing to renew its efforts to secure a place for its sovereign bonds in leading global debt benchmarks, including the Bloomberg Global Aggregate Index, following a series of policy measures aimed at making the country's bond market more attractive to overseas investors, according to a report in The Economic Times.

The government has recently exempted foreign investors from capital gains and withholding taxes on certain investments, while also significantly expanding the pool of long-term government securities available for investment. Officials believe these steps address several longstanding concerns raised by global index providers.

As part of the push, officials from the Reserve Bank of India (RBI) and the Finance Ministry are expected to engage with the Basel-based Bank for International Settlements (BIS). The latest tax changes grant BIS a special tax-exempt status in India, aligning it with the treatment it receives in other jurisdictions. The institution is a major investor in government securities globally and plays an influential role in international financial markets.

Government officials estimate that inclusion in additional global bond indices could attract between $7 billion and $11 billion in fresh foreign inflows into Indian debt markets. Authorities are expected to continue discussions with major bond index providers, with officials noting that engagement with these organizations is already ongoing, the ET report said. 

According to officials, previous reservations from index operators largely revolved around taxation, ease of market access, settlement mechanisms, and regulatory oversight. Recent reforms are seen as significant progress in addressing these issues.

Market participants believe that greater clarity around trade settlement and regulatory supervision could improve India's chances of joining the Bloomberg Global Aggregate Index, a benchmark tracked by some of the world's largest fixed-income funds for passive investment allocations.

Even before any formal announcement on index inclusion, analysts expect the recent policy changes to trigger immediate foreign investment interest. Industry estimates suggest that designated Indian government bonds could attract around $5 billion in inflows in the near term as global investors position themselves ahead of potential benchmark inclusion, the report added.