JP Morgan’s move to include Indian government bonds in its global emerning market bond indices could potentially lower the country’s sovereign borrowing costs, help finance the current account deficit and free up liquidity for domestic financiers to deploy in more productive assets, Chief Economic Advisor V. Anantha Nageswa ran said on Friday.
In a September 21 note, JP Morgan conveyed India’s inclusion into its emerging market bond in-dices from June 28, 2024, starting with a 1% exposure to 23 “index eligible” bonds with a “combined notional value of $330 billion”.
The bonds’ inclusion would be staggered over 10 months till March 2025 when the Indian securitieswere expected to reach their maximum weight of 10%, it said.
Benefits of inclusion
“Everything else being equal, an incremental source of demand should see the… government’s borrowing costs come down but the order of magnitude is difficult to deter- mine at this stage,” Mr. Na- geswaran said, replying to a query from The Hindu.
Foreign ownership in the Indian government bonds market, reckoned to be the third-largest among emerging markets at $1.2 trillion, is less than 2%, oneof the lowest among its peers. Higher foreign ow- nership would “relieve” the Indian financial system from having to be these bonds’ biggest buyers and thus be in a position to lend that money for more productive purposes, Mr. Nageswaran observed.
The move may also trigger some appreciation of the rupee, which could prove a challenge as keeping it competitive is also important, and expose bond and currency markets to external turbulence, but on balance, the benefits outweigh such concerns, the CEA said.