There are good tidings for the Indian economy in general and the Indian debt market in particular. After JP Morgan included India in its widely tracked emerging market debt index five months ago, Bloomberg – a global business and financial information service provider — last week included India Fully Accessible Route (FAR) bonds in the Bloomberg Emerging Market (EM) local currency government index, with related indices to be phased in over a ten-month period starting on January 31, 2025.

The Bloomberg move paves the way for Indian debt to potentially become part of a considerably large Bloomberg index that encompasses trillions of dollars of debt. The inclusion of Indian bonds in these two key indices – JP Morgan and Bloomberg – could attract billions of dollars of foreign investment in the Indian government securities (G Sec) market. This could potentially lead to a decline in Indian bond yields and strengthen the rupee.

Referring to the Bloomberg move, a spokeperson of the agency commented, “This step for our EM local index is very significant and will really allow investors to understand the eco-system around Indian government bonds. Assuming India maintains its investment grade status, we will continue to keep India on review for the Bloomberg Global Aggregate Index.” The global aggregate is an index that is intended to measure the entirety of the investment grade market. It manages over $ 60 trillion in debt.

India’s FAR is a separate channel introduced by the Reserve Bank of India for non-resident investment in government securities with effect from April 1, 2020. Within just four years, two leading financial agencies have included these bonds in their indices. Bloomberg has announced that the weight of FAR bonds will be increased in increments of 10 per cent of their full market value every month over the ten-month period ending October 2025 — at which point they will be weighed at their full market value in the indices.

Once completely phased into the Bloomberg Emerging Market 10 per cent country capped index, India is expected to join both China and South Korea as markets that reach the 10 per cent cap. Within the market cap weighted version of the index, India is expected to be the third largest country after China and South Korea.

This is an important marker in the development of India’s financial markets and a reflection of India’s growing importance in the global economy. India’s continued emergence as a global financial centre promises to be one of the most significant economic developments of this decade, and Bloomberg is committed to bolstering it by connecting more investors to India.

The Indian economy is on a steady growth trajectory and the inclusion of Indian FAR bonds in Bloomberg’s Emerging Market local currency government index marks a key milestone amidst the measures India has taken to open its bond markets. Financial experts, including Anita Mishra, HSBC India’s markets and securities services head, estimate that inclusion of Indian government securities in the global indices of J P Morgan and Bloomberg would lead to combined inflows of $ 35-45 billion over the next 15 months. Such inflows of foreign money into government bonds are expected to free up room for investment in the private sector, provide a protective buffer for the rupee and lead to the Reserve Bank of India further building up its foreign exchange reserves.