Indian Govt. securities joining Global Bond Index •JP Morgan | ECONOMY by VIVEK SINGH

Indian Govt. securities joining Global Bond Index

•JP Morgan and Bloomberg will include (in June 2024) Govt. of India bonds/securities in their ‘Global Bond Index’. This will enable Govt. of India to access foreign debt capital easily.

•A ‘bond index’ includes bonds of different entities like different corporations and Governments.

•An investor can invest either in the bonds of a single institution/company/government or they can invest in a "Bond Index (fund)" where the money will be put in bonds of various institutions/Governments proportionately as per the weights of the different bonds in the "Bond Index".

•If a foreign investor wants to purchase Govt. of India bonds, then they need approval of SEBI. But if foreign investors are investing through bond index (fund) then every foreign investor does not require SEBI approval, rather, only the (JP Morgan) bond index (fund) will require SEBI approval as a foreign portfolio investor (FPI). [So basically whenever a foreign investor invests in JP Morgan bond index fund then this fund will purchase Govt. rupee denominated bonds]

•This could lead to billions of dollars worth of inflows into India’s rupee-denominated government debt. (Earlier there was a discussion that its foreign currency denominated.... but actually it will be rupee denominated. In the book also its written foreign currency denominated but it will be Rupee denominated)

•Everything else remaining same, an incremental source of demand from foreign investors will bring down the government cost of borrowing and will free up the liquidity for domestic financers to deploy in more productive assets. This will also result in increase in liquidity in Indian Govt. securities.

•But it could also expose the country to a greater degree of exchange rate risk and potentially lead to volatility in the rupee if external conditions were to turn adverse.

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