Inclusion of Indian bonds in global indices later: Arvind Mayaram

MUMBAI: The government and the central bank are engaged in talks aimed at getting Indian bonds included in global debt indices, although it’s not clear when this will happen.

“We are discussing it with different parties involved,” economic affairs secretary Arvind Mayaram said at a conference organised by rating company Crisil. “RBI is fully engaged in this exercise. We should wait for the outcome of deliberations.”

The proposal came up for discussion on attracting overseas investment to help finance the current account deficit while giving support to local markets.

In September this year, a report by Standard Chartered had suggested that India’s inclusion in global bond indices may result in additional inflows of $40 billion. “An inclusion to the global indices would lead to a huge rally in the government bond market,” said Sandeep Bagla, associate vice-president at ICICI Securities Primary Dealership. “The 10-year benchmark bond yield may fall by 40-50 basis points.” The yield on the 8.83%, 10-year bond ended on Thursday at 8.72%, little changed from 8.69% on Wednesday.

Yields and prices move in opposite directions. Officials of the Reserve Bank of India, finance ministry and Securities & Exchange Board of India will meet on December 6 to discuss the matter, according to media reports. RBI governor Raghuram Rajan has also underscored the need for such a move. However, the government needs to relax certain restrictions on foreign institutional investors for this to happen.

Overseas investors can currently invest up to $50 billion in corporate bonds. India could look at making rupee settlements eligible for Euroclear’s debt platform, Mayaram said. Euroclear is one of the world’s largest principal clearing houses.

KP Krishnan, additional secretary, department of economic affairs, explained the new regime of foreign portfolio investors, saying that this had two sub-components. “There is this erstwhile FII (foreign institutional investor), which is a species you are familiar with,” he said. “And there’s a new category called QFI (qualified foreign investor) who potentially include individuals who come directly… through depository participants.”