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India not desperate to get bonds added to global indices, says govt official

Talk of India's inclusion in global bond indices has picked up after Goldman Sachs published a note earlier this month, saying it expects India to be included in JPMorgan's Government Bond Index-Emerging Markets in 2023

August 31, 2022 / 12:38 PM IST

The Centre is not "desperate" to get Indian government bonds listed on global indices and will stick to its stance of not granting tax exemptions that have been sought to facilitate the move, a senior official said.

"As much as people would like to believe that India is desperate (to get listed on global bond indices)...we are not desperate," a senior official told Moneycontrol on condition of anonymity.

"I agree there are benefits from getting listed on these indices, but not at any cost. We are open, we will talk. But we can't be told to do this, do that," the official added.

Talk of India's inclusion in global bond indices has ramped up in recent days after Goldman Sachs published a note earlier this month saying it expects India to be included in JPMorgan's Government Bond Index-Emerging Markets in 2023.

"After Russia was removed from the index earlier this year, the current GBI-EM Global Diversified Index has become slightly more concentrated with Brazil, China, Indonesia, Malaysia, Mexico, South Africa, and Thailand all at or near the 10 percent market weight cap, with several other markets with very small weights," Goldman Sachs said in a note, reviewed by Moneycontrol, on August 16.


"Adding India, which is a large, deep and a high-yielding market, would help to diversify the index as well as boost the average yield of the overall index. Such a move should be beneficial to various stakeholders, including EM investors and the Indian government," it added.

Also read: Why India should pursue inclusion in global bond indices

The tax hurdle

However, taxing the gains made by foreign investors from the sale of Indian government bonds once they have been listed on the indices has been a sticking point between the Centre and Euroclear, the Belgium-based platform preferred by investors to settle securities transactions.

"Bond index inclusion with the kind of tax benefits they are looking for will not be (possible)… The whole thing got stuck on the tax part," the official quoted above said.

Taxes on capital gains is a no-go for Euroclear as calculating it poses issues for its systems, according to Goldman Sachs.

Waiving capital gains on foreign investors would put domestic investors at a disadvantage. As such, preferential tax treatment for foreign investors to become "Euroclear-able" has been opposed by the Indian government.

Being "Euroclear-able", though, is not mandatory to be listed on global bond indices. The government official cited above said.

"It can happen without the tax exemption that has been sought… We said no to the tax concessions. If that becomes clear, then of course, the government will take appropriate decisions," the official added.

China and Indonesia, both part of the GBI-EM Global Diversified Index, are not "Euroclear-able".

Also read: Q1 GDP: Experts say India may post 15% growth on base effect, economic recovery

Passive investment flow

India's inclusion in global bond indices is being keenly eyed as it would open the doors to passive investments worth billions of dollars.

As per Goldman Sachs' calculations, being a part of JPMorgan's GBI-EM Global Diversified Index could bring in $30 billion into Indian government bonds over a 10-month period assuming India gets a 10 percent weight in the index.

Similarly, if India becomes part of the Bloomberg Global Aggregate index, Goldman Sachs sees another $10 billion worth of inflows with a weight of around 0.44 percent.

When asked if the Indian government was pursuing inclusion in multiple indices, the source mentioned above said discussions hadn't "reached that stage".
Siddharth Upasani is a Special Correspondent at Moneycontrol. He has been covering the Indian economy, economic data, and monetary and fiscal policies for nine years. He tweets at @SiddharthUbiWan. Contact:
first published: Aug 31, 2022 12:35 pm
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