Inclusion of India’s Fully Accessible Route (FAR) Bonds in Bloomberg Emerging Market Local Currency Index

Inclusion of India’s Fully Accessible Route (FAR) Bonds in Bloomberg Emerging Market Local Currency Index

Subject : Economy

Section: External Sector

The Indian government’s Fully Accessible Route (FAR) bonds to be included in Bloomberg EM Local Currency Index.

1. Inclusion Details:
   1. FAR bonds included with an initial weight of 20 per cent of their full market value in September 2024.
   2. Weight increased in 20 per cent increments every month until January 2025.
   3. By January 2025, FAR bonds will be weighted at 100 per cent of their full market value in the indices.
2. Index and Capping:
   1. Upon full inclusion, FAR bonds will be fully capped at 10 per cent within the Bloomberg Emerging Market 10 per cent Country Capped Index.
   2. Indian rupee to become the third-largest currency in the Bloomberg Emerging Market Local Currency Index, following the Chinese Renminbi and the South Korean’s Won.
3. Background:
   1. Reserve Bank of India introduced FAR bonds as securities exempt from foreign investment restrictions in April 2020.
4. Index Composition:
   1. As of November 30, 2023, the index would include 32 Indian securities, representing 99 per cent of a $5.96 trillion index.
5. Market Developments:
   1. India remains excluded from Bloomberg Global Aggregate and related indices.
   2. Bloomberg will continue to monitor related market developments.

Fully Accessible Route (FAR) – Key Points:

• Introduction:
  • The Reserve Bank of India (RBI) has introduced the ‘Fully Accessible Route’ (FAR) from April 1, 2020.
  • This channel allows non-residents to invest in specified government bonds without any restrictions.
• Budget Announcement:
  • The FAR initiative opens certain specified categories of government bonds fully for non-resident investors.
• Investment Ceilings:
  • Under FAR, eligible investors can invest in specified government securities without any investment ceilings.
• Operational Coexistence:
  • FAR operates alongside the existing routes, namely the Medium Term Framework (MTF) and the Voluntary Retention Route (VRR).
• Benefits:
  • Substantially eases access for non-residents to Indian government securities markets.
  • Facilitates inclusion in global bond indices.
  • Attracts stable foreign investment in government bonds.
• Voluntary Retention Route (VRR):
  • VRR is another scheme introduced by the RBI to encourage Foreign Portfolio Investors (FPIs) for long-term investments in Indian debt markets.
  • Provides operational flexibility and exemptions from certain regulatory requirements.
  • Requires a minimum retention period of three years, with FPIs maintaining a minimum of 75% of the allocated amount in India.
  • Investment limits are available on tap and allotted by Clearing Corporation of India Ltd. (CCIL) on a ‘first come first served’ basis.