Indian Economy : News,Discussions & Updates


Russia's Exclusion Potentially Paves Way For India Into Global Bond Index​

India has the biggest bond market among emerging economies that's not covered by global indexes, but bankers say that may change soon, potentially drawing in billions of dollars in inflows. Russia's recent exclusion is one reason why.

Morgan Stanley expects an announcement that India will be included in JPMorgan & Chase Co.'s emerging markets bond index as early as mid-September with the actual entry in the third quarter next year.

Goldman Sachs Group Inc. sees that announcement coming in the fourth quarter this year and inclusion in the second or third quarter in 2023. Both expect India's weight at 10%, the maximum for a country in the index, and potential inflows of $30 billion from the move.

Getting high-yielding Indian sovereign bonds into global indexes would make it easier for overseas investors to put their money into Asia's third-biggest economy with its $1 trillion debt market.

It would follow many false starts over the years that resulted from wariness about debt inflows and disagreements including one on tax breaks for foreigners.

Russia's exclusion from the JPMorgan gauges after it invaded Ukraine may have added to incentives for the index compilers to fill the hole with Indian debt.


JPMorgan, one of the major index providers, has been collecting feedback from investors over including India in its Government Bond Index - Emerging Markets Global Diversified, or GBI-EM.

More than 60% of real money investors are ready or almost ready for India's inclusion, a Morgan Stanley survey showed. A spokesperson for JPMorgan in India declined to comment.

“India would offer much needed diversification to the GBI-EM index given the different structure of its economy, and so would be a strong addition to the index from a long-term perspective,” said Nivedita Sunil, portfolio manager for Asia and EM debt at Lombard Odier (Singapore) Ltd.

“We have held consultations with the index provider and we are broadly supportive of it,” she added.

Bond traders in India have had their hopes dashed in the past on index inclusion.

There were widespread expectations in February that the government would announce a tax break for foreign investors in the budget that would facilitate trading of the nation's debt on platforms such as Euroclear.

Dashed Expectations

Instead, the budget was silent on the issue. Officials have said they decided not to exempt international bond transactions from taxes, and they would like settlement of bonds to be done locally.

“India has its own size and heft to act on its own,” said Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management.

“But it is important to make a strategic decision and stick with it, rather than send out conflicting signals.”

Meanwhile, in the GBI-EM index Russia had a weight of about 8% before it was removed, and now there are seven countries with a weight of 10% each and 13 countries sharing the remaining 30%, according to the Morgan Stanley note.

“The exclusion of Russia has made the index more concentrated and unbalanced,” Morgan Stanley strategists Min Dai, Madan Reddy and Gek Teng Khoo wrote in a note early September.

“Hence JPMorgan has more incentive to include India even without Euroclear, as long as GBI-EM investors don't object to that.”


India is currently ‘on track' to be placed on index watch for inclusion in JPMorgan's bond index, according to the bank. It's also on the FTSE Russell watch list to get into its emerging market debt index.

Bloomberg LP is the parent company of Bloomberg Index Services Ltd, which administers indexes that compete with those from other service providers.

Renewed market talk on index inclusion helped revive flows into rupee-denominated bonds last month after six continuous months of outflows.

Foreign inflows will be crucial to meet the nation's ever-growing bond supply as its funding needs expand. Yields are headed for a third month of decline with the benchmark 10-year bond yield down more than 30 basis points since June.

Authorities have taken some steps to ease rules for foreigners. Recent regulations like allowing custodian banks to pre-fund trades on behalf of foreign investors and extended settlement timings are examples, according to Goldman Sachs. Still, key issues remain.

“We think the two biggest operational challenges are account opening time and the burdensome trading requirements,” said Eric Lo, a fixed-income fund manager at Manulife Investment Management.

He said it can take up to nine months to open a local India bond trading account, but operational constraints like those aren't a “show stopper” for the firm to invest in the market.

Data Focus: India pips China in creating new unicorns in first half of 2022​

Bengaluru ties with Shenzhen for sixth spot in cities with most unicorns​

Though the Indian start-up ecosystem is going through a tough funding environment, there is some good news. India has created the second-highest number of unicorns - 14 - in the first half of 2022. The US tops the list, with 138 start-ups, achieving a valuation of $1 billion in this period, according to the latest Hurun Global Unicorn Index.

China’s zero-Covid policy, a series of lockdowns, and an economic slowdown seem to have affected start-ups in that country. China created just 10 new unicorns in the first half of 2022, despite having the second highest number of unicorns globally.

India ranks third in the number of unicorns created. “India consolidated its Top 3 spot with 68 unicorns, led by online educator BYJU’S worth $22bn, followed by on-demand delivery start-up Swiggy ($11bn) and fantasy sports platform travel-stay finder Dream11 ($8bn). A further 56 unicorns were started by Indian co-founders outside India, taking the total to 124 unicorns founded by Indians around the world,” the report noted.

Bengaluru accounts for 2.5 per cent of the world’s unicorns. It added six new unicorns this year until June. New York and San Fransisco have the highest number of unicorns. “San Francisco retained the title of ‘World Unicorn Capital’ with 176 unicorns, up 25. New York overtook Beijing to take the second spot with 120 unicorns, up 35. Beijing with 90 unicorns dropped to third, followed by Shanghai with 69. London with 39 unicorns was fifth, followed by Bengaluru and Shenzhen with 33 unicorns each,” the report says.

The top players​

BYJU’s, Swiggy, Dream11 and OYO feature in the list of top 100 unicorns worldwide. While BYJU’s holds the 14th rank with a valuation of $22 billion, Swiggy, Dream11 and OYO hold the 45th, 75th and 91st ranks respectively. The list also features InstaCart, a unicorn co-founded by an Indian, Apoorva Mehta, outside India.

At the same time, 147 unicorns saw their valuations drop between January and June 2022. “81 unicorns from the last year saw their valuation drop below $1bn, of these 36 were from the US and 35 from China, led by Ping An Healthcare Technology, which had a valuation of $9bn last year,” the report says.

What the future looks like​

In June, Hurun Research Institute released its Future Unicorn Index, according to which India will have 122 new unicorns in the next two to four years. It also listed 51 companies that could become unicorns by the end of 2022.

India 5th largest recipient of FDI in April-June quarter: Finance Ministry​

India retained its status as an attractive destination among a set of developed and developing economies, as the 5th largest recipient of FDI in the April-June quarter, said the Monthly Economic Report of the Department of Economic Affairs, Ministry of Finance.

According to the report released on Saturday During Q1 of 2022, India was the 5th largest recipient of FDI among the defined set of developed and developing economies, as a buoyant growth outlook coupled with steady improvement in ease of doing business and supportive government policies retained India as an attractive business destination.

The momentum has sustained in Q2 of 2022 as well with FDI inflows of USD 16.1 billion. India's exports grew at the second highest rate in this quarter despite the ongoing global slowdown, indicative of strong demand for Indian goods.

India's forex reserves were the 3rd largest as compared to other economies, adequate to cover 9 months of imports, which is higher than most of the other economies. High foreign exchange reserves, sustained foreign direct investment, and strong export earnings have provided a reasonable buffer against the monetary policy normalization in advanced economies and the widening of the current account deficit arising from the geopolitical conflict.

The report says that after recovering from multiple waves of COVID-19 and the negative spillover of the Russia-Ukraine conflict, strong economic growth in Q1 of 2022-23 has helped India go past the UK to become the world's fifth-largest economy. The real GDP in Q1 of 2022-23 is now nearly 4 per cent ahead of its corresponding level of 2019-20, marking a strong beginning to India's growth revival in the post-pandemic phase.

In the next three quarters of the current year, India's real GDP needs to grow by (only) 5.4 per cent on average every quarter to achieve the growth rate of 7.2 per cent in 2022-23 as projected by the RBI.

Department of Economic Affairs report said, the contact-intensive services sector is likely to drive growth in 2022-23 building on the release of pent-up demand and near universalization of vaccination. A sharply rebounding private consumption backed by soaring consumer sentiments and rising employment will sustain growth in the months ahead.

According to the report, increase in private consumption and higher capacity utilization in the current year has further reinvigorated the capex cycle to take the investment rate in Q1 of 2022-23 to one of its highest levels in the last decade. The crowding-in of private investment has also been assisted by rising capital expenditure of the government that until August 2022-23 has been 35 per cent higher than the corresponding level of last year.

The government's spending on capital expenditure is likely to be sustained as buoyancy in revenue growth is expected to remain undiminished in the balance period of the current year.

Broad-based growth in economic activity during Q1 of 2022-23 is reflected in improvements in employment indicators. Net payroll additions in EPFO doubled in this quarter compared to the corresponding period last year. The Periodic Labour Force Survey (PLFS) shows the unemployment rate in urban areas shrink for the fourth consecutive quarter to be at 7.6 per cent in Q1 of 2022-23, lower than the corresponding pre-pandemic level. Work demanded under MGNREGS has been diminishing since May and was at its lowest in August 2022, compared to the corresponding period of the previous two years, signalling a possible reduction in the unemployment rate in rural areas.

The growth momentum of Q1 has sustained in Q2 of 2022-23 as well as the robust performance of high-frequency indicators (HFIs) during July and August of 2022. The composite PMI for India rose to 58.2 in August 2022 signalling a sharp pace of expansion. However, in contrast, the Global composite PMI has entered the contractionary phase declining to 49.3 in August 2022 with a slowdown mainly evident in advanced economies.

In times when slowing growth and high inflation are afflicting most of the major economies of the world, India's growth has been robust and inflation is in control. Rapid coverage of vaccination and well-calibrated short-term policy measures have skilfully navigated the economy through turbulent times, preparing a strong foundation to build a prosperous nation in the years ahead.

India rules out tax policy changes for inclusion of bonds in global indices​

India has ruled out any changes to tax policies that will make it easier for the nation’s bonds to be included in global indexes, according to people familiar with the matter.

The government doesn’t plan to waive capital gains taxes, and it’s concerned that foreign inflows will increase the volatility of local markets, said the people, who didn’t want to be identified discussing policy matters. Those taxes have been a stumbling block in previous negotiations.
FTSE Russell and JPMorgan Chase & Co. are due to unveil the results of their index reviews in coming weeks, with investors piling into Indian bonds on bets the country will replace Russian debt. While the index compilers could proceed to include the securities without changes, discussions earlier fell apart over the government’s demand to retain the right to tax capital gains, dashing analysts’ predictions of $30 billion of foreign inflows.

“Unlike equities, Indian bonds have failed to attract any sizable pool of foreign capital,” said Pankaj Pathak, a fixed-income fund manager at Quantum Asset Management Co. “India’s inclusion would add diversification to the index, enhance the yield and expand the market opportunities for global debt investors. So, the benefits might outweigh the concerns.”

India’s bond market is the largest in the emerging world that’s not already included in global indexes. The nation’s benchmark 10-year bond yield has dropped around 30 basis points since the middle of June as local banks and foreign investors boosted their holdings. The yield fell seven basis points on Tuesday to 7.29%.

Money managers frequently track global bond indexes when making allocation decisions, and inclusion often lead to billions of dollars of inflows.

The government wants to be self-reliant in its funding, and is prepared to handle any selloff in its debt market should inclusion fail to happen, the people said. The nation is borrowing a record 14.3 trillion rupee ($176 billion) this fiscal year.

JPMorgan Survey
A JPMorgan investor survey found that funds want India to replace Russia, which was excluded after the invasion of Ukraine, said a money manager with access to the results. Still, the survey also showed investors wanted the government to ease some rules, the person said, asking not to be identified as the discussions are private.

The ability to access India’s debt market through an international central security depository, such as Euroclear, better transaction efficiency and clarity on taxes were cited as some of the key remaining hurdles to index inclusion, the fund manager said.

The people didn’t say if JPMorgan had made any specific requests for its review. A finance ministry spokesperson didn’t respond to calls seeking comments, while JPMorgan declined to comment.

“For passive foreign investors, it will be very important to get a solution to trade on standard platforms,” said Rajeev De Mello, a global macro portfolio manager at GAMA Asset Management in Geneva. Still, “not all investors are operationally ready but the largest active investment firms have already set up their infrastructure to support their emerging market teams who have been investing in India for many years.”

Unrelenting Stance

India’s bonds will likely only be included in JPMorgan’s index early next year as the government still needs to address operational issues, Reuters reported, citing people with knowledge of the matter.

“The market was expecting inclusion of Indian bonds into key global bond indexes,” said Arnob Biswas, a strategist at SMC Global Securities. A delay “brings more downside risk to the rupee and we are possibly heading below 82.30-82.50 to a dollar in coming weeks.”

The rupee has declined almost 9% this year, and closed at 81.5762 to the dollar on Tuesday.

India’s introduction of the so-called Fully Accessible Route in 2020, which removed limits on foreign ownership on some bonds, and other changes had bolstered investor optimism over index inclusion. The unrelenting stance on a tax waiver, that would facilitate settlement on a platform such as Euroclear, may undermine the attractiveness of Indian bonds even if they’re included.

FTSE Russell will unveil the results of its review on Thursday, a spokesperson said. JPMorgan hasn’t revealed a date as yet for its announcement.

Bloomberg LP is the parent company of Bloomberg Index Services Ltd, which administers indexes that compete with those from other service providers.