India Planning To Enter Bond Indexes, In Talks With JP Morgan, others

India is reportedly into discussions with JP Morgan and others, to enter into benchmark indices for emerging market debt, in a quest to boost the inflow of billions of dollars in investment, which will require flexibility to some restrictions on foreign inflows, says a report from Reuters citing sources familiar with the matter.

Officials expected to hold talks with other fund managers also

A source familiar with the development told Reuters that Finance Minister P Chidambaram along with other officials are looking forward to hold talks with big fund managers like Pimco, Capital International and Standard Life.

India is looking forward to allure billions of dollars managed inactively by keeping a watch on global indexes as the country is marred by the current account deficit and weak rupee. India, however, cannot enter the indexes managed by JP Morgan and others as it exercises substantial restriction of foreign investment in onshore debt.

In a report last month, Standard Chartered Bank mentioned that an entry in the popular government bond indexes will help the country to pocket $20 billion-$40 billion in additional flows over a year.

Indian government bonds and the rupee surged following this report from Reuters, with the benchmark 10-year bond yield falling 4 bps on the day to 8.42 percent. Rupee surged around 61.39/40 per dollar on Thursday gaining some ground against the dollar from 61.95 before the report.

India needs to ease the rules

India needs to bring in some flexibility in its rules on registration and documentation for facilitating the entry of foreign institutional investors in the India debt market and giving them greater investment freedom in the government debt if it wants to qualify for the widely-followed JP Morgan Government Bond Index.

India has taken many efforts to bring in the flexibility in investment rules; however, the nation has been suspicious in lifting all restrictions due to volatility of global flows. Credit rating of India is only a step ahead of junk status, but downgrading will not affect the market index eligibility of the country.

In order to get admitted to the index, India will resort to changing rules for foreign institutions to invest more in government debt, which is capped at $30 million for now.