India Bond Market Opens to Global Funds

India is intensifying its efforts to secure inclusion in key global bond indices, such as the Bloomberg Global Aggregate Index. This renewed push follows the government's decision to exempt foreign investors from capital gains and withholding taxes on sovereign debt. Additionally, the range of investable long-dated securities has been significantly broadened.

Officials from the Reserve Bank of India and the finance ministry are also planning discussions with the Bank for International Settlements (BIS), which has been granted special tax-exempt status. These measures are anticipated to attract between $7-11 billion in new investments. Index operators had previously cited concerns regarding tax benefits, market access, and settlement processes, many of which have reportedly been addressed.

Clarity on trade settlement oversight is expected to further enhance the likelihood of India's inclusion in the Bloomberg Global gauge. Market participants anticipate immediate inflows of approximately $5 billion into specified bonds even before formal inclusion talks. Inclusion in major indices typically leads to substantial foreign fund inflows, lower borrowing costs for the government, and a deeper bond market, potentially strengthening the rupee.

India has already been integrated into the JP Morgan Global Bond Index-Emerging Markets since June 2024, with planned inclusions in Bloomberg's EM Local Currency Government Index from January 2025 and the FTSE Russell Emerging Market Index since September of the previous year. However, Bloomberg's Global Aggregate Bond Index deferred India's inclusion earlier in the year due to operational and market infrastructure issues.