New Delhi may raise its concerns with Bloomberg over the latter’s decision to defer Indian government securities in its flagship Global Aggregate Bond Index, despite a series of steps taken recently to deepen the capital market, and the opening up of G-secs fully to foreign investors along with liberal tax sops.
“We opened up the whole (G-sec) spectrum from 1 year to 40 years maturity and gave tax relief,” an official said, calling the liberalisation a “holy grail.” The person added that the index service provider’s call could potentially delay India’s greater access to long-term passive foreign funds in infrastructure and key manufacturing sectors, and stressed that an early inclusion of India in the index would be pursued with Bloomberg.
Through recent measures, the government and the Reserve Bank of India raised Foreign Portfolio Investor’s (FPI) participation in G-Secs, extended tax exemptions on interest income, long-term and short-term capital gains, and expanded specified securities under the Fully Accessible Route (FAR). These were the constant demands of foreign investors in India for quite some time.
Index inclusion, against the backdrop of these incentives, would have reduced India’s borrowing costs by a few basis points and eased pressure on yields and the rupee.
Bloomberg could have appreciated these measures better instead of saying it needs more time to ensure recent market reforms are fully embedded in trading and operational practices.
G-Sec reforms, along with a special scheme to attract Foreign Currency Non-Resident (Bank) deposits, were part of a broader government-RBI package announced on June 5 aimed at attracting dollar inflows and easing pressure on the rupee. The FCNR (B) has turned out to be a huge success with inflows around $43 billion so far even though the window is open till September 30.
“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,” Bloomberg said in a statement on August 1.
Foreign investor participation in G-Secs remains relatively low, but has risen sharply in recent months. FPI holdings of G-Secs increased to Rs 4.33 lakh crore, or 3.76% of outstanding stock (yet much lower than the investment cap of 6%), on August 10 from Rs 3.75 lakh crore, or 3.34%, on May 12, 2026. Under FAR, holdings rose to Rs 3.73 lakh crore, or 6.95%, from Rs 3.21 lakh crore over the same period.
From April 1, 2026, eligible foreign investors were exempted from taxes on G-Sec interest income, which was earlier taxed at 20%, short-term capital gains at 30% and long-term capital gains at 12.5%. The FAR expansion now covers new issuances of 15-year, 30-year and 40-year government securities, as well as sovereign green bonds in eligible tenors.
“I think the deferment was not really required as the government had already gone along with several steps on this front. My sense is that this could have been done mainly due to the global uncertainty prevailing where they may have chosen to stick to the status quo,” Bank of Baroda Chief Economist Madan Sabnavis said. Greater participation at the long end would also help the government manage its borrowing costs. It helps the yield curve and increases the weighted average maturity of the papers. “The index inclusion would have supported inflows, which could have, along with the FCNR and ECB measures, provided a bonanza for the balance of payments,” Sabnavis added.