MUMBAI: India government bonds or government securities are set for inclusion in the global bond index from Friday.
JP Morgan will add Indian government bonds to its Government Bond Index-Emerging Markets (GBI-EM) from June 28. It is the first time ever that Indian government bonds would be included in this index.
Government securities inclusion in the global bond index will have a positive impact on the Indian economy.
Indian bonds will have a 10 per cent weightage in the JP Morgan Emerging Markets Bond Index. The weightage of India's government bonds will be gradually increased in this index in a phased manner from June 28, 2024, to March 31, 2025, by one per cent each in the next 10 months.
JP Morgan announced the inclusion of Indian bonds in GBI-EM in September 2023, since then there has been an inflow of more than $10 billion into Indian bonds.
The move will enable foreign inflow to accelerate into Indian bonds. Demand for Indian government bonds will increase due to the inflow of foreign investment. This will increase the size of the Indian bond market. Besides, liquidity and efficiency will also increase.
Till now, only banks, insurance companies, and mutual funds have been major investors in government bonds. Now, a large number of global investors will be able to invest in Indian bonds. This will reduce the bond yield and will also reduce the cost of borrowing for the government which is expected to reduce the fiscal deficit.
Demand for the rupee will increase due to foreign inflow and hence it may remain strong in the coming months.