India’s Bloomberg aggregate index entry hinges on demand, rupee

Published 9 June 2026 · local

Mumbai: India has removed some of the biggest hurdles cited by Bloomberg Index Services to including sovereign debt in its Global Aggregate Bond Index, but

Mumbai: India has removed some of the biggest hurdles cited by Bloomberg Index Services to including sovereign debt in its Global Aggregate Bond Index, but weak investor appetite, elevated hedging costs and concerns over the rupee's slide could still keep the country out of one of the world’s most influential bond benchmarks, market participants said. The government and the Reserve Bank of India (RBI) on Friday unveiled a slew of measures aimed at attracting foreign capital, including tax exemptions for foreign portfolio investors (FPIs), an expansion of the universe of securities eligible under Fully Accessible Route (FAR) and steps to facilitate overseas investment into Indian debt markets. Also Read | A delayed report holds back call on HDFC CEO Jagdishan's new term The government exempted FPIs from income tax on interest income and capital gains arising from investments in government securities. The exemption, effective 1 April 2026, will apply to all interest and capital gains earned by FPIs on G-Sec investments from that date onwards. A similar income-tax exemption has been granted to the Bank for International Settlements (BIS). Quick answers to key questions • 5 QUESTIONS 1 What measures has the Indian government taken to attract foreign investors to its bond market? ⌵ The Indian government has introduced tax exemptions for foreign portfolio investors on interest income and capital gains from government securities, expanded the universe of securities eligible under the Fully Accessible Route, and facilitated overseas investment into Indian debt markets. 2 Why are elevated hedging costs a concern for foreign investors in Indian government bonds? ⌵ Elevated hedging costs make Indian government bonds less attractive compared to alternatives like US Treasury yields, leading to reduced demand from global fund managers for inclusion in major bond indices.

3 How has the Reserve Bank of India (RBI) aimed to reduce the hedging costs for foreign investors? ⌵ The RBI has announced measures such as a concessional forex swap facility for public sector undertakings and will cover the full hedging cost for authorized dealer banks mobilizing fresh foreign currency non-resident deposits. 4 Should foreign investors be optimistic about India's inclusion in the Bloomberg Global Aggregate Bond Index? ⌵ While recent measures have improved operational conditions, the ultimate inclusion will depend on global investors perceiving sufficient value in Indian government bonds amidst ongoing economic challenges. 5 What impact do tax exemptions on G-Secs have on foreign portfolio investment in India? ⌵ Tax exemptions on government securities are expected to enhance foreign portfolio investment by making Indian bonds more appealing, thereby facilitating government borrowing at lower interest rates. “The tax compliance issue has gone and they’ve also increased the FAR securities universe. So, it does definitely increase the chance of us being included in the index,” said Gaura Sengupta, chief economist at IDFC First Bank. Among the key steps, the RBI expanded the universe of securities eligible under FAR, which allows foreign investors to invest in designated G-sec without quantitative restrictions, to include all new issuances of 15-year, 30-year and 40-year government bonds. Decision deferred While the measures address several operational hurdles flagged by Bloomberg when it deferred a decision on India’s inclusion in January, market participants said the focus has now shifted from market access to whether global investors see sufficient value in Indian government bonds. The next major review update for the Bloomberg Global Aggregate Index is scheduled in mid-2026.