Chief Economic Advisor V Anantha Nageswaran on Friday said inclusion of Indian government bonds into JP Morgan’s benchmark emerging market index from next year will widen investor base, and may lead to appreciation of rupee.
He also said there is potential for currency appreciation following inclusion of Indian bonds in JP Morgan index.
Global financial firm JP Morgan has said that it plans to include Indian government bonds or government securities (G-Secs) into its benchmark emerging market index from June, 2024, a move that will bring down borrowing cost for the government.
The inclusion of G-Secs will be staggered over a 10-month period from June 28, 2024 to March 31, 2025, indicating one per cent increment on its index weight.
“Obviously, the investor base for Indian government bonds widens and it will also in a way, relieve the Indian financial institutions from having to be one of the biggest buyers or subscribers of government bonds and they can actually then lend that money for more productive purposes to private sector, the commercial sector individuals etc,” Nageswaran told reporters.
Replying to a question, he said there will be a tendency for the currency to appreciate just as it happened between 2003 and 2008 when capital inflows into India surged.
“There is a demand for investors to buy the indian government bonds… so in that sense, there is a potential for currency appreciation, when the index inclusion starts to happen or the demand from investors for the Indian government securities starts to rise,” he said.
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.
This was long pending and there were certain issues including with regard to taxation, which the government has ironed out in the last many months.