EUR 125.00 For Business Accounts Only

MOSL: ECOSCOPE: What would the inclusion in global bond indices mean for the Indian economy? Net impact may not be large

ECOSCOPE: What would the inclusion in global bond indices mean for the Indian economy? Net impact may not be large

 

• The noise around the inclusion of India’s sovereign bonds in global bond indices is growing stronger. In this note, we discuss our views on the likely impact of such an inclusion on India’s domestic bond yield, the Indian Rupee (INR), and economic growth. Assuming ceteris paribus, the impact of the inclusion is pretty straightforward. Higher demand for Government of India (GoI) securities would raise prices, lower bond yields, and strengthen the INR. With a lower risk-free rate, it would have the potential to reduce the cost of borrowing across borrowers. Nevertheless, there would be no ceteris paribus and hence the actual impact would not be so straightforward.
• GoI had paved the way for increasing the foreign holdings of GoI securities in the Union Budget 2019–20. “India’s sovereign external debt to GDP is among the lowest globally at less than 5%. The Government would start raising a part of its gross borrowing programme in external markets in external currencies. This will also have beneficial impact on demand situation for the government securities in domestic market,” Ms Nirmala Sitharaman stated in her first as India’s finance minister on 5th July 2019 during the second innings of the NDA government. GoI took a further step in the subsequent when the FM announced that “Certain specified categories of Government securities would be opened fully for non-resident investors, apart from being available to domestic investors as well.”