India not pitching for bond inclusion to index providers anymore: Govt source

In 2022, key index providers such as JP Morgan and FTSE Russel retained India's bonds on their watch lists.

The Indian government is not looking to make a pitch to index providers to push for the inclusion of its bonds in global indices anymore, a senior government official said.

In 2022, key index providers such as JP Morgan and FTSE Russel retained Indian government bonds on their watch lists. Though a review is due at the end of the current quarter ending September, the government has not recently been in discussions with index managers, according to the official who spoke on the condition of anonymity.

Talk of Indian government bonds being included in global bond indices picked up after a report by an inter-departmental group of the Reserve Bank of India (RBI) last month said gains from adding government bonds to global indices are greater than the risks. A report by BofA Securities further sparked speculation on the same as it pointed out that the need for further diversification of index constituents may lead to the index providers going ahead with India’s inclusion despite frequently cited operational difficulties for smaller investors.

Tax matters

Tax concessions are still "definitely off the table", the official said, adding, "If index providers want to forcefully make us part of it (indices), then it is a different thing but we are not applying."

The country's taxation structure has been frequently cited as a hurdle to Indian government bonds (IGBs) getting listed on global indices. This month a report by S&P Global said that India's capital gains tax regime is a significant constraint driving the exclusion of IGBs from global bond indices.

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, according to a report by Moneycontrol on August 31, 2022, citing a government official. Waiving capital gains for foreign investors would put domestic investors at a disadvantage, the report said, adding, preferential tax treatment for foreign investors to become "Euroclear-able" has been opposed by the Indian government.

The S&P Global report cited above said that the inclusion of Indian government securities in major bond indexes could attract an initial inflow of $20-40 billion, increasing to $180 billion over the next decade, as per market estimates.