Why in the News?
Bloomberg Index Services Ltd deferred India’s inclusion in the Bloomberg Global Aggregate Bond Index for the second time, stating that recent market reforms need to be fully reflected in operational practice before inclusion.
What is the Bloomberg Global Aggregate Bond Index?
- A global benchmark tracking investment-grade government and corporate bonds.
- Widely followed by global institutional and passive investors.
- Inclusion can attract passive foreign capital inflows into a country’s bond market.
Why was India’s Inclusion Deferred?
- Recent tax reforms are yet to be fully implemented in market operations.
- Automated trading systems are not fully operational across investor regions.
- Foreign investor onboarding and account opening remain cumbersome.
- Bloomberg seeks evidence of sustained operational efficiency before inclusion.
Significance
- Inclusion could attract an estimated $20-30 billion in foreign investment.
- Expands the investor base for Indian Government Securities (G-Secs).
- Helps reduce government borrowing costs.
- Enhances India’s integration with global financial markets.
Challenges
- Operational bottlenecks in trading and settlement.
- Complex onboarding process for foreign investors.
- Global market uncertainty affecting capital flows.
- Need for robust market infrastructure despite policy reforms.
Government Securities (G-Secs)
- Debt instruments issued by the Government of India to finance fiscal deficits.
- Considered virtually risk-free as they carry a sovereign guarantee.
India’s Recent Bond Index Inclusions
- JPMorgan Government Bond Index Emerging Markets (GBI-EM): June 2024.
- Bloomberg Emerging Market Local Currency Government Index: January 2025.
- FTSE Russell Emerging Markets Government Bond Index: September 2025.
June 2026 Reforms
- Removal of withholding tax to improve investment attractiveness.
- Removal of capital gains tax for eligible foreign investors in specified government bonds.
[2011] Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. Which of the following statements best represents an important difference between the two?
(a) FII helps bring better management skills and technology, while FDI only brings in capital.
(b) FII helps in increasing capital availability in general, while FDI only targets specific sectors.
(c) FDI flows only into the secondary market, while FII targets primary market.
(d) FII is considered to be more stable than FDI.