The government is working on inclusion of Indian sovereign bonds in global bond indices from next year, Economic Affairs Secretary Tarun Bajaj said on Friday. This would attract higher foreign flows as many overseas funds are mandated to track global indices.
It will also help bring in large passive investments from overseas, as a result of which more domestic capital would be available for industry as crowding out would be reduced. "There are some other efforts also which have been made by Reserve Bank of India by allowing FPIs to invest in corporate bonds and the limit has been increased from 9 per cent to 15 per cent. "We are also now working on the inclusion of Indian government sovereign bonds into the global bond indices, and we hope that this should happen in the next year, and this will definitely help," Bajaj said at a virtual conference organised by CII.
This was a long-pending suggestion of foreign investors that was addressed in the Budget this year. In her Budget speech for 2020-21, Finance Minister Nirmala Sitharaman had said, "Certain specified categories of government securities would be opened fully for non-resident investors, apart from being available to domestic investors as well." The specified securities, which will be listed on the indices, will not have a lock-in requirement.
Globally, there are some large institutional investors that track these indices, such as Bloomberg Barclays Emerging Market Bond index, for positional decisions on sovereign papers. To facilitate this, the RBI earlier this year opened certain specified categories of government securities (G-Secs) for non-resident investors as part of an initiative to deepen the bond market. RBI, in a notification, had said that a separate route namely Fully Accessible Route (FAR) for investment by non-residents in securities issued by the Government of India has been notified.
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