The announcement of India’s inclusion, starting June 28, 2024, in JP Morgan’s widely tracked Government Bond Index-Emerging Markets (GBI-EM) is a milestone event. India’s inclusion is yet another shining example of India’s growing importance in the world economy.
It is expected that India will achieve its maximum weightage of 10% in this $213 Bn Global Diversified Index by March 31, 2025. The press statement issued by JP Morgan mentioned that through this instrument, global investors will invest in 23 Indian Government Bonds with a combined notional value of $330 Bn. India’s weightage in this index will annually fetch $23 Bn in investments. However, various agencies like HSBC and Goldman Sachs have suggested that the actual investment could be much higher. As per the news agencies, it is estimated that the inclusion could prompt inflows of nearly $30 Bn.
Government bonds, also called sovereign bonds, government securities or G-Sec, are debt instruments issued by governments to raise funds for a defined period at a variable or fixed interest rate. As these bonds are issued by governments, they are practically risk-free, gilt-edged instruments. India’s G-Sec market, currently valued at $1.2 Trillion, is dominated by domestic investors. Interacting with the media on this news, Dr. V. Anantha Nageswaran, the Chief Economic Advisor to the Government of India, said that the Indian government bond market is the third largest among emerging economies after China and Brazil. However, foreign ownership currently stands at less than 2%, among the lowest compared to other emerging markets.
The inclusion of India in the JP Morgan GBI-EM index will not only help India raise more funds and integrate the Indian economy with the world economy but also increase the investor base for government securities and help India meet the growing borrowing needs of the country. Furthermore, this step will be good for India’s balance of payments, debt management and strengthening the Rupee in the process. As a consequence of these stable long-term global investments, Indian banks, the largest investors of government securities, will be able to lend more domestically, leading to infrastructure creation and employment generation.
The inclusion will help India realise the goal of a $5 Trillion economy by 2030. Inclusion in JP Morgan’s GBI-EM is just a start, it is expected that India will soon be included in the index of other financial institutions as well. In fact, there are already news reports on India being considered for inclusion in the Bloomberg Fixed Income Indices. Similarly, India is on the watchlist of FTSE Russell’s Emerging Markets Global Bond Index. It is important to note that together, JP Morgan, FTSE Russell, and Bloomberg Barclays manage over $5 Trillion of assets.
The Reserve Bank of India has been engaging with the above-mentioned index providers for the inclusion of Indian Government Bonds in the global bond indices. Furthermore, RBI’s July 2023 Report of the Inter-Departmental Group on Internationalisation of INR has underlined that the benefits of index inclusion outweigh the associated risks linked to such index inclusion, like increased sensitivity of domestic policy to external spill overs.
Overall, the inclusion is a testimony to the demand for being a part of India’s growth journey.
https://www.businesstoday.in/latest/economy/story/indias-inclusion-in-jpmorgan-bond-index-could-bring-23-bn-inflows-says-fm-sitharaman-400862-2023-10-05https://www.business-standard.com/economy/news/will-boost-rupee-cea-on-inclusion-of-indian-bonds-in-jpmorgan-index-123092201234_1.htmlhttps://rbi.org.in/scripts/PublicationReportDetails.aspx?ID=1244#CH4https://indianexpress.com/article/business/economy/political-stability-decisiveness-key-for-indian-economys-growth-fm-8970514/
