India G-Secs reforms aim for Bloomberg Global Aggregate index inclusion and higher FPI inflows

Government sources said recent reforms to lift foreign portfolio investment in Government Securities were linked to a key goal. The aim was to support the entry of sovereign bonds into Bloomberg’s flagship Global Aggregate index. The sources said the steps were designed to widen participation and raise steady overseas inflows into Indian G-Secs.

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The government rolled out several changes on Friday to increase Foreign Portfolio Investor participation in Government Securities. The moves were intended to deepen India’s capital market, sources said. Measures covered tax relief and simpler rules, along with a wider set of eligible bonds under the Fully Accessible Route.

Government Securities reforms target Bloomberg Global Aggregate index

Key policy changes included exemptions on interest income tax for FPIs. The package also offered relief on long-term capital gains and short-term capital gains. The government also expanded specified securities under the Fully Accessible Route, known as FAR. Investment norms were streamlined to make access easier for overseas investors.

The Reserve Bank of India also announced several steps on Friday to draw foreign capital into India. Government sources linked the RBI actions to the wider push on G-Secs. The sources said these combined efforts were meant to support higher foreign participation across the bond market.

"We are hopeful that the steps taken last week on G-secs will help government bonds get included in the Bloomberg Global Aggregate Bond Index,\" government sources said. The sources said index entry would deepen the bond market. The sources also said it could increase the inflow of passive funds tracking the index.

Government Securities talks with RBI focus on Bloomberg Global Aggregate index

Sources said the finance ministry held four meetings in the last two months. The meetings involved three RBI Deputy Governors, covering different portfolios. The discussions focused on resolving issues tied to potential index inclusion. Sources said the measures were tailored to deepen the bond market.

In January, the index provider said India’s inclusion was under review for the USD 3-trillion index. The next update was expected by mid-2026. Sources said, \"We should have got into the Bloomberg Global Aggregate Index in January.\" Sources added that efforts began around two months ago.

India officially entered the JP Morgan Government Bond Index-Emerging Markets on June 28, 2024. Government sources said the Bloomberg index effort remained a priority alongside earlier milestones. The reforms and central bank steps were presented as part of a wider plan. The plan focused on stronger demand and deeper trading in G-Secs.

With inputs from PTI