Finance Minister Nirmala Sitharaman
Finance minister Nirmala Sitharaman on September 5 said that she is not sure if the government is holding back the inclusion of sovereign bonds on global indices.
“I don’t know whether we are holding it (bond index inclusion) back but I think the global situation between 2020 — because this was one of the announcements that I had made in 2020 February budget — but post that, because of the pandemic and also because of the global evolving situations, the flow has not been as quick as we wanted it,” Sitharaman said at Ashwamedh – Elara India Dialogue 2022.
“I am sure it will come to its natural, logical conclusion sooner.”
The comments come amid speculation that Indian government bonds could be included on JPMorgan's Government Bond Index-Emerging Markets as early as this month.
The inclusion in global bond indices is being keenly eyed as it would open the doors to passive investments worth billions of dollars.
India caps foreign investment in bonds as a percentage of outstanding debt but has allowed unfettered access to foreign investors through a special category called Fully Accessible Route, under which some bonds can be bought outside of the prudential limits.
Foreign flows into Indian bonds turned positive in August after six consecutive months of outflows.
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 told Moneycontrol in late August.
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.
The government’s position has been that it will not give up its right to tax bond gains.
The finance minister also spoke about behemoth Life Insurance Corporation of India's (LIC) recent listing: "Strategic divestment has taken place in LIC. So we shall go ahead with the banking sector reform as well. Even on that the Cabinet has given a clearance; we have mentioned it in the budget. We shall take it forward."
Earlier in May, the Cabinet Committee on Economic Affairs had given its in-principle approval for strategic divestment along with transfer of management control of IDBI Bank. It added that the extent of shareholding to be divested by the Centre and LIC shall be "decided at the time of structuring of the transaction in consultation with the central bank".
LIC (as promoter) and the Centre (as co-promoter) together hold more than 94 percent of IDBI Bank (49.24 percent and 45.48 percent respectively).
The LIC board passed a resolution to reduce stake in IDBI Bank through divestment, while the government envisages strategic stake sale with intent to relinquish management control.
While presenting the budget on February 1 this year, Sitharaman had announced that the government has approved a policy of strategic divestment of public sector enterprises that will provide a clear roadmap for divestment in all non-strategic and strategic sectors. Banking is among the strategic sectors.
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