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1) India’s inclusion in Global Bond Indices

Topic: GS3-Economy


  • JP Morgan has decided to include India in its Government Bond Index-Emerging Markets (GBI-EM) index.
  • The Indian government had been trying hard to include the government debt in the large global bond indices since almost a decade.
  • This article will discuss on how this inclusion would benefit India.


  • The inclusion is slated to commence from June 28, 2024, and will extend over 10 months with 1 per cent increments on the index weighting, as the country is expected to reach the maximum weighting of 10 percent as per JP Morgan.
  • Nearly two dozen Indian government bonds with a combined notional value of $330 billion will be eligible.
  • Total flows could top $45-50 billion over the next 12-15 months alone once India is part of the third key bond indices.

What are global bond indices?

  • Global bond indices include the emerging debt markets that closely monitor local currency bonds that are issued by governments of various developing nations.
  • JP Morgan and Bloomberg–Barclay’s are the popular global bond market indices.


  • Global bond indices help investors track the movement in bonds in multiple jurisdictions and aid in relative comparisons.
  • Indices are benchmark or guides to investments by mutual funds, pension funds and other large investors that typically prefer to hold onto investments for longer periods.
  • In the bond market, there are indices that track high-yield risky bonds, emerging market bonds and government bonds.

What basic criteria is required for index inclusion?

  • Conditions that enable easy flow of money into the country is predominant.
  • The countries must meet parameters on liquidity, safety, and returns.
  • The main parameters include
    • The size of the market
    • The country rating
    • Ease of access

Country-level criteria for index inclusion includes:

  • Absence of restrictive laws on movement of capital
  • Availability of forex
  • Adequate hedging mechanism
  • Tax laws
  • Settlement of trade

Financial Times Stock Exchange and Bloomberg–Barclay’s

  • These are two other notable global bond indices — the FTSE EM Index and the Bloomberg Barclays EM bond index.
  • Buy India’s inclusion in JPM Index does not automatically lead to India’s inclusion in these indices.
  • This is because the procedural requirements and conditionalities are more stringent and these may be contingent upon tackling operational hurdles such as custody and settlement, clarity on taxation and Euroclear.
  • (Euroclear Bank is a provider of settlement services for cross-border transactions, whether bonds (domestic or international), equities, derivatives or investment funds.)
  • However, there is no denying that once the Indian government bonds are included in the above benchmark bond index (JPM Index) it will impart a positive momentum and catalyse larger portfolio inflows on a sustainable basis.

What are the benefits of being included in global bond indices?

  • Reduced pressure on commercial banks The inclusion in the global bond index will reduce the pressure felt by commercial banks to absorb the majority of government bonds.
  • Ease the constraints around the financing of India’s twin deficitsthe fiscal and current account deficits by providing an alternate source of funds.
  • It will also deepen India’s bond markets, increase liquidity, widen the ownership of G Secs and lower the pressure on yield.
  • Strengthen the investor base Inclusion in global indices would strengthen a key investor base -foreign institutional investors.
  • Surge in investmentIf India is included in the global bond index, it will attract passive inflows, which in turn will result in the surge of active foreign fund inflows.
  • Confidence in Indian rupee It will benefit the Indian rupee as there will be increased confidence, resulting in further strength and stability.
  • Equity inflows With a stronger rupee, equity inflows are also likely to rise.
  • Stable exchange rate A steady flow of dollars keeps the exchange rate from depreciating too much.


  • Rising crude oil prices pose a headache for the fisc and any relief via petrol or diesel price cuts or other sops will become tougher.
  • Reliance on foreign funds for funding domestic deficits entails significant macro risks as was seen during the global financial crisis.
  • The inclusion will also expose Indian debt markets to greater volatility and link it to the unpredictability of passive flows which allocate capital based on the weightage assigned by the index provider.
  • Further, several operational hurdles will need to be ironed out—
    • The ability to clear and settle Indian debt on an international platform like Euroclear,
    • repatriation of funds, and tax complexities including removing or lowering the capital gains tax compared to what domestic investors would pay.

Way Forward:

  • Over time, the ongoing reform process, easier market access and transparency will shape and hasten the country’s integration into global markets, resulting in an unparalleled market development, long-term capital inflows, and innovative financial products.

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