India says it did not offer any tax incentive to get its bond included in JPMorgan's EM index

After JPMorgan Chase & Co. announced it will include Indian government bonds (IGBs) into its benchmark Emerging Market index from June 2024, a government official on September 22 told CNBC-TV18 that the inclusion has happened without any tax incentive.

"India is expected to reach the maximum weight of 10 percent in the Global Diversified index (GBI-EM GD)," JPMorgan said in a note, adding that the inclusion will begin in a staggered manner from June 28 to March 31, 2025, implying an inclusion of 1 percent weightage per month.

Following the development, Economic Affairs Secretary, Ajay Seth, said JPMorgan's move is a welcome one and shows its confidence in the Indian economy.

"We will discuss the implications...we don’t look into the future...It is their decision and they have indicated what percentage they are looking for," he said, adding that these are market forces and the flow will come out of that.

Currently, 23 Indian government bonds (IGBs) with a combined notional value of $330 billion are index eligible, the JPMorgan note said.

The GBI-EM GD accounts for nearly $213 billion of the estimated $236 billion benchmarked into the GBI-EM family of indices.

India was the last big emerging market that had not joined others like China on the global debt indices.

(India's) index inclusion follows “the Indian government’s introduction of the FAR program in 2020 and substantive market reforms for aiding foreign portfolio investments,” the team led by the firm’s global head of index research, Gloria Kim, said in a statement. Almost three-quarters of benchmark investors surveyed were in favor of India’s inclusion in to the index, they said.

The move comes at a time when expectations that India may be added to international gauges had been rising in the recent months as providers looked to diversify index constituents. Russia’s invasion of Ukraine had seen it drop off indexes, while China’s worsening economic woes have taken the shine off the country’s sovereign debt.

Harsha Upadhyaya, President & CIO – Equity, Kotak Mahindra AMC, said it’s a very positive move for the Indian economy and fundraising. “The cost of funds will go down and availability of resources will go up for our corporates and our government…we are likely to see upwards of $20 billion in the first year itself. So, it's going to reduce the depreciation risk on the currency, and will make our economy more resilient. So definitely a long term positive.”