India Pushes For Major Global Bond Index Inclusion After Tax Relief Measures

After securing a place in several emerging-market bond benchmarks over the past two years, Indian policymakers are now aiming for inclusion in broader global bond indices, including the Bloomberg Global Aggregate Index, which track sovereign debt across both developed and emerging economies.

Recent policy changes suggest the government is trying to remove some of the hurdles that previously kept India outside these widely followed benchmarks.

Market participants believe the latest measures could improve foreign participation in government securities and strengthen India's case during future discussions with global index providers.

Foreign Investors Get A Major Tax Break

A key part of the latest package relates to taxation.

Until now, overseas investors buying Indian government bonds had to factor in taxes on both long-term capital gains and interest income. Those costs often reduced the attractiveness of Indian debt compared with other markets.

The government has now decided to do away with these levies for eligible foreign investors. The move is being viewed as an effort to simplify access and make Indian sovereign bonds easier to own for global funds.

Wider Access To Government Securities

Along with the tax changes, the government has broadened the types of securities that can be availed under the Fully Accessible Route (FAR).

Earlier, foreign investors could primarily access government bonds with maturities of up to 10 years through this framework. The latest expansion now includes 15-year, 30-year and 40-year government securities, along with sovereign green bonds.

The broader investment universe is expected to give global funds greater flexibility while allocating capital to Indian debt markets.

Focus On Bloomberg Global Aggregate Index

India has already secured inclusion in several prominent emerging-market bond indices over the last two years.

In 2024, the country became a member of the JPMorgan Government Bond Index-Emerging Markets and subsequently, it was included in Bloomberg's emerging-market local currency bond benchmark and the FTSE Russell emerging-market index.

However, inclusion in the widely tracked Bloomberg Global Aggregate Bond Index has remained elusive. The index provider had earlier deferred a decision while reviewing market access and operational issues.

Officials are now expected to engage with global index providers again, arguing that several of the earlier concerns have been addressed.

Potential For Fresh Inflows

Market participants estimate that the latest reforms could result in significant foreign investment inflows into India's bond market.

Some estimates suggest that eventual inclusion in additional global bond benchmarks could attract between $7 billion and $11 billion over time. Even before any formal index inclusion, investors expect the policy changes to support demand for eligible government securities.

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The government has also granted special tax-exempt status to the Bank for International Settlements (BIS), a major investor in sovereign debt markets globally. Officials are expected to hold discussions with the institution as part of broader efforts to improve India's standing in international fixed-income markets.

With tax hurdles being removed and market access widened, India is positioning itself more aggressively to attract global bond investors and deepen participation in its sovereign debt market.

Sources:

The Economic Times

Moneycontrol