G-secs to ‘soon’ join global bond indices

G-secs to ‘soon’ join global bond indices

Subject – Economy

Context – Framework finalised: G-secs to ‘soon’ join global bond indices

Concept –

• The government has finalised most of the background infrastructure and sorted out the supply-side issues to prepare India’s entry into global bond indices.
• The Finance Ministry and the Reserve Bank of India (RBI) have worked out most requirements for overseas trading and settlement of Indian bonds.
• The move is expected to attract foreign inflows in the debt market, help the government is its market borrowing programme and keep a check on yields.
• The plan to list a set of government securities in global bond indices has been in the works for many years now.
  • The then Finance Minister Arun Jaitley, in the Union Budget 2014-15, proposed allowing international settlement of Indian debt securities, as it was expected to result in a reduction in bond yields and an increase in liquidity in domestic bond markets.
  • The Budget 2020-21 had proposed to remove limit on foreign investment in some government securities, as a first step towards their inclusion in global bond indices.
  • The RBI had, on March 30, notified a fully accessible route for investment by non-residents in government securities without any ceilings.
  • In July, the RBI unveiled a scheme allowing domestic retail investors to directly participate in the G-sec market. They can open and maintain a ‘Retail Direct Gilt Account’ with the RBI through a portal, which will also provide access to primary issuance of G-Secs and the secondary market as well.
• The Financial Markets Regulation Department of the RBI, which is entrusted with the development and regulation and surveillance of G-secs market, has created a framework for international settlement of gilts.
  • This would allow overseas investors to put money in government debt papers without the need to register as FPIs.
• Retail investors would not be affected as much, this is more towards institutional investors.

Why the global investors were hesitant before?

Global investors suggested not to include India’s government bonds in global bond index due to capital controls, custody and settlement and other operational snags.