Executive Summary

Finally after a long period of courtship of about 10-years, one of the global bond index providers (JP Morgan) has decided to include India in its family. While India allows foreign ownership of domestic bonds in a regulated manner, this act of global listing (within the Emerging Markets suite) would add a new dimension to India’s appeal as a destination for foreign investment.

As per the JP Morgan’s Index Governance Review 2023, India will be included in the GBI-EM Global Diversified index suite and relevant derivative benchmarks, starting June 28, 2024, and is expected to acquire a weight of 10% in a phased manner by March 31, 2025. As of Aug 31, 2023, the total AUM for GBI-EM GD indices stood around USD 236 bn. With India projecting to garner a 10% weight in the index, this would amount to an estimated USD 23.6 bn of FPI debt investment flow between Jun-24 and Mar-25.

From a medium to longer term perspective, the most important benefit for India would accrue in the form of lower borrowing cost for the government. FPIs held only 1.4% of g-secs as of Mar-23 which is significantly lower than the median of 13.4% seen in case of most ASEAN+3 nations. The share of FPI ownership in g-secs could potentially jump to 4.1-4.9% by end of Mar-25 if the other index owners also make an announcement to include India in their respective bond indices.

The longer term benefits of such index inclusion are significant. The act of listing on international exchanges is likely to prod both monetary and fiscal policymakers to lean on the side of macroeconomic stability, prioritize rules-based policymaking over discretion, and keep the progress on the path of economic reforms.

Suman Chowdhury
Chief Economist & Head of Research, Acuité Ratings & Research