Bloomberg Index Services on Friday deferred the inclusion of Indian government securities in its flagship Global Aggregate Bond Index, saying it needs more time to ensure recent market reforms are fully embedded in trading and operational practices.
“Many market participants would like to see these enhancements become more firmly established in day-to-day market practice before a decision is made on index inclusion. While automated trading capabilities continue to expand, respondents noted that implementation has not yet been fully completed across all major investor regions,” Bloomberg said in a statement.
While acknowledging India’s progress, Bloomberg cited the expansion of electronic trading in government securities and the removal of withholding tax and capital gains tax for eligible foreign investors.
However, it said that given the Global Aggregate Index is its flagship benchmark, any inclusion decision must be supported not only by regulatory and market structure reforms but also by demonstrated operational efficiency across the broad range of investors tracking the index. “Additional time is warranted” before a decision is made, it said.
Over the past two years, Indian government securities have gradually been included in major global bond indices. JPMorgan Chase began adding Indian bonds to its emerging market index in June 2024. This was followed by Bloomberg’s inclusion of India in its Emerging Market Local Currency Index in January 2025 and FTSE Russell adding Indian bonds to its emerging market government bond index in September 2025.
The government has taken a series of measures to raise the attractiveness of bonds. On June 5, the government exempted eligible foreign investors from tax on interest income and capital gains arising from investments in government securities. Earlier, foreign investors were subject to a 12.5% long-term capital gains tax on bonds held for more than 12 months and a 20% withholding tax on interest income.
The Reserve Bank of India also expanded the fully accessible route (FAR) by including 15-year, 30-year and 40-year government securities, widening the pool of bonds available to foreign investors.
Market Disappointment
The decision disappointed the bond market, which had widely expected a positive announcement this month. Inclusion in the index was estimated to attract $20-25 billion of foreign inflows over the next year.
“The market will be disappointed, as many had anticipated inclusion this time. This comes when the market is already under strain from renewed geopolitical uncertainties,” said Shashi Dhar, chief general manager, treasury and global markets, Bank of Baroda. He believes that the positions built in anticipation of the move are likely to be unwound, which could push yields slightly higher. Markets were already under pressure today, with a sell-off triggered by the delay in index inclusion.
Agreed Anurag Mittal, head of fixed income at UTI Mutual Fund, adding that he expects the 10-year bond yield to rise by 5-7 basis points, with some foreign portfolio investor outflows likely in the near term. The benchmark 10-year government bond yield closed at 6.83% on Friday.
Dhar, however, does not expect a sharp rise in yields, saying inflows under the FCNR(B) deposit scheme should provide support. He added that index inclusion could still happen later this year or in 2027.
Bloomberg said it would continue engaging with market participants as part of its governance process and provide updates as the review progresses.
“The rationale needs greater clarity. Earlier, Bloomberg had identified withholding tax as the key concern. From our perspective, most of the prerequisites have now been met, with the removal of withholding tax — the biggest hurdle — already in place,” Mittal added. He said that the index provider may now be looking for greater stability and predictability in the tax regime before proceeding.
Foreign portfolio investor (FPI) inflows have already moderated in July on account of delay in index inclusion and renewed geopolitical uncertainty. FPI inflows into government securities under FAR fell sharply to `7,602 crore in July from record inflows of `41,773 crore in June, according to data from the Clearing Corporation of India.