Source: Business Standard
Context:
India is currently executing major capital market reforms to secure the inclusion of its government bonds in the prestigious Bloomberg Global Aggregate Bond Index. The reforms include scrapping withholding and capital gains tax on foreign G-sec investments, expanding the Fully Accessible Route (FAR) to new 15-, 30-, and 40-year G-secs, and operational improvements in registration, settlement, and tax processes. Bloomberg Index Services is expected to seek investor feedback on India’s inclusion later this month. Analysts estimate that inclusion could bring USD 20-25 billion in passive foreign investment at a 7-10 per cent index weight (a small share of the global index, but large for India).
The Index
- Name: Bloomberg Global Aggregate Bond Index.
- Maintained by: Bloomberg Index Services Limited.
- Nature: A flagship international fixed-income benchmark.
- Tracks: Investment-grade, fixed-rate bonds globally, including sovereign, supranational, and corporate debt.
- Coverage: Multi-currency, multi-trillion-dollar global debt markets.
- Used by: Sovereign wealth funds, pension funds, insurers, and global asset managers.
India’s Inclusion Status
- India has been a candidate for inclusion for years, but operational gaps have delayed it.
- Bloomberg is expected to seek investor feedback later this month on adding Indian G-secs to the Global Aggregate Index.
- Estimated index weight for India: 7-10 per cent of the Emerging Market component (about 0.6 to 1.0 per cent of the overall index in practice).
- Estimated passive inflows on inclusion: USD 20-25 billion.
What Are FAR Bonds?
- FAR (Fully Accessible Route) was introduced by the RBI in 2020.
- Under FAR, specified G-secs can be bought by FPIs, NRIs, and OCIs without any investment cap.
- The FAR is central to India’s index inclusion strategy, as global indices require unrestricted foreign access.
- The FAR list has been expanded in 2026 to include all new 15-, 30-, and 40-year G-secs.
India’s Position in Global Bond Indices Hierarchy
- JPMorgan GBI-EM Global Diversified Index: India included June 2024 onwards, phased over 10 months to reach 10 per cent weight.
- Bloomberg EM Local Currency Government Index: India included in 2025.
- FTSE Russell EM Government Bond Index: India included in September 2025.
- Bloomberg Global Aggregate Bond Index: India’s next major target.
How Does an “Aggregate Bond Index” Work?
- Tracks the performance of a basket of bonds.
- The basket includes investment-grade, fixed-rate bonds in multiple currencies and issuer types.
- Each bond is weighted by market value, with adjustments for liquidity and other rules.
- Investors can:
- Passively replicate the index through ETFs or index funds.
- Actively manage by deviating from the index and measuring performance against it.
Key Risks and Cautions
- Foreign portfolio flows can be volatile.
- A sudden reversal (a “sudden stop”) can hurt the rupee and bond yields.
- India still needs to manage its rupee, current account, fiscal deficit, and macro stability.
- Index inclusion is not a one-time event; continued reform momentum matters.
Practice MCQs
Q1. With reference to the Bloomberg Global Aggregate Bond Index, consider the following statements:
- It is a flagship international fixed-income benchmark tracking investment-grade, fixed-rate bonds globally.
- It is maintained by Bloomberg Index Services Limited.
- It is widely tracked by sovereign wealth funds, pension funds, insurers, and global asset managers.
- India is already a constituent of the Bloomberg Global Aggregate Bond Index.
How many of the above statements are correct?
(a) Only one (b) Only two (c) Only three (d) All four (e) None
(Statement 4 is wrong; India is a candidate, not yet a constituent, of the Bloomberg Global Aggregate Bond Index.)
Q2. With reference to the Fully Accessible Route (FAR), consider the following statements:
- The FAR was introduced by the RBI in 2020.
- Under FAR, specified G-secs can be bought by FPIs, NRIs, and OCIs without any investment cap.
- The FAR list has been expanded in 2026 to include new 15-, 30-, and 40-year G-secs.
- The FAR applies only to corporate bonds and excludes Indian government securities.
Which of the above are correct?
(a) 1, 2 and 3 only (b) 1, 3 and 4 only (c) 2 and 4 only (d) 1 and 4 only (e) All four
(Statement 4 is wrong; the FAR applies to Indian Government Securities (G-secs), NOT only corporate bonds.)
Q3. With reference to India’s bond index inclusion journey, consider the following statements:
- India was included in the JPMorgan GBI-EM Global Diversified Index starting in June 2024.
- India was included in the Bloomberg EM Local Currency Government Index in 2025.
- India was included in the FTSE Russell EM Government Bond Index in September 2025.
- India was the first country to be included in the JPMorgan GBI-EM Global Diversified Index when it was launched in the 1990s.
How many of the above statements are correct?
(a) Only one (b) Only two (c) Only three (d) All four (e) None
(Statement 4 is wrong; the JPMorgan EM index existed long before India’s inclusion, which happened only in June 2024.)
Q4. With reference to the macroeconomic significance of global bond index inclusion, consider the following statements:
- Inclusion can bring more predictable, long-term passive inflows from index trackers.
- Inflows can help fund India’s current account deficit in a non-debt-creating way.
- Larger foreign holdings in G-secs can lower the government’s borrowing costs over time.
- Once India is included in a major global bond index, it can stop pursuing further macro reforms.
Which of the above are correct?
(a) 1, 2 and 3 only (b) 1, 3 and 4 only (c) 2 and 4 only (d) 1 and 4 only (e) All four
(Statement 4 is wrong; inclusion is not a one-time event, and continued reform momentum is needed to sustain foreign confidence.)
Answer Key
- (c), Statements 1, 2, 3 are correct; Statement 4 is wrong because India is a candidate, not yet a constituent, of the Bloomberg Global Aggregate Bond Index.
- (a), Statements 1, 2, 3 are correct; Statement 4 is wrong because the FAR applies to G-secs, not only corporate bonds.
- (c), Statements 1, 2, 3 are correct; Statement 4 is wrong because India was included in the JPMorgan EM index only in June 2024.
- (a), Statements 1, 2, 3 are correct; Statement 4 is wrong because inclusion is not a one-time event and continued reforms are necessary.
Exam Relevance
| Exam | Relevance |
|---|---|
| UPSC Prelims | GS Paper III on Indian Economy (Bond Index, G-secs, FAR, FPI, Capital Flows) |
| UPSC Mains | GS Paper III on Indian Economy, External sector, Monetary policy, Capital markets |
| BPSC and State PCS | Economy, Capital markets, Current Affairs |
| Banking (RBI Gr B, SBI PO, IBPS, NABARD) | Very high importance, G-secs, bond markets, FAR, FPI |
| RBI Grade B | Core area on external sector and monetary policy |
| SEBI Grade A and IRDAI Grade A | Capital markets, FPI flows, bond markets |
