What will happen: According to reports, foreign inflows into Indian bonds are expected to reach a decade-high of $2 billion by June 28, 2024, coinciding with their inclusion in the widely-followed JPMorgan Global Emerging Market Bond Index.
This influx will be the second-largest on record, surpassed only by the $2.7 billion surge in August 2014, which was fueled by prospects of a credit rating upgrade.
By March 2025, India will hold a 10% weight in the JPMorgan Emerging Market Index, which tracks over $200 billion in assets, implying at least $20 billion in passive inflows over the next 10 months.
According to Reuters, foreign investors have purchased over $10 billion worth of Indian government bonds, reaching record ownership levels. Since JP Morgan announced India’s inclusion in the index nine months ago, net purchases of eligible bonds have totaled ₹841 billion ($10.08 billion).
Benefits: The inclusion is set to generate substantial economic benefits for India, such as increased foreign investment, reduced borrowing costs, and enhanced financial stability. With over $200 billion in assets tracking the JPMorgan index, India’s weight will reach 10% by March 2025, indicating total passive inflows of at least $20 billion over the next 10 months.
Foreign investment in government debt can release domestic financial resources for private-sector investments in India, promoting economic growth. Experts predict an annual inflow of $30-$40 billion in foreign investments over the next five years, potentially freeing up an equivalent amount of domestic capital.reports added.
Increased demand for Indian bonds will lower borrowing costs. As demand rises while supply remains limited, yields will decrease, resulting in higher bond prices.
RBI Action:The Indian central bank, Reserve Bank of India (RBI), has been closely monitoring the rupee to prevent it from hitting record lows. According to Reuters, the RBI remains vigilant about inflows and speculative positioning on the currency but has not implemented additional surveillance measures.
The RBI has indicated its intention to strategically increase its forex reserves, thereby preventing sudden appreciation of the rupee.
Strong Economy: India has set ambitious goals to become a developed nation by 2047, through the “Vision India@2047” project led by NITI Aayog. The objective is to achieve a $30 trillion economy with a per-capita income of $18,000-20,000.
These initiatives aim to boost India’s growth through overseas investments, reduced borrowing, and enhanced infrastructure, fostering strong economic growth and policy development.
Written by Omkar Chitnis
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