Almost two years ago, we wrote a note pointing to the strenuous efforts the Indian rulers were making to get Indian government bonds added to international bond indices. After two years of stalling and starting, the rulers’ efforts have finally succeeded: JP Morgan has now decided to add Indian government bonds to its “emerging markets government bond index” (GBI-EM), starting in June 2024.[1] The effects of this will be seen with a lag, over the next few years, but the impact will be far-reaching.

What are bond indices? International investors invest in baskets of government bonds of different countries. These baskets, or indices, are constructed by certain giant financial firms in the developed world, who certify that the bonds are stable, plentiful, and easily traded; and that each country’s economic policies make it creditworthy. Once a country’s government bonds are added to such an index, a certain amount of foreign investment would tend to automatically flow into its bonds. Read More