Chief Economic Advisor V Anantha Nageswaran expects the government borrowing cost to come down post inclusion of Government securities in J P Morgan’s GBI EM Global Diversified Index. He also hopes that the rupee will appreciate because of more dollar inflow. However, it will be a challenge to keep the rupee competitive.

For the current fiscal, the government has set a target of ₹15.4-lakh crore for gross market borrowings. This is being done through government bonds with maturities of 3, 5, 7, 10, 14, 30 and 40 years. Out of these, 10-year bond is taken as benchmark and current yield. The government has provided around ₹10.8-lakh crore under interest payment which is nearly 24 per cent of total government expenditure.

“Everything being equal, the cost of government borrowing should come down,” Nageswaran said in a virtual briefing. If it happens, this will be a big saving for the government, which can be used for other development purposes.

Also read: What India’s inclusion in JPMorgan’s bond index means for its markets

Replying to a question, he said there will be a tendency for the currency to appreciate just as it happened between 2003 and 2008 when capital inflows into India surged. “There is a demand for investors to buy the Indian government bonds, so in that sense, there is a potential for currency appreciation, when the index inclusion starts to happen or the demand from investors for the Indian government securities starts to rise,” he said.

Rupee in recent times has been under some pressure and breached 83-level against the dollar. However, RBI interventions have curtailed the rupee’s fall.  The expectation is that USD/INR to trade between 82-84 in H2FY24, gradually gravitating towards the lower bound of the range. 

Nageswaran said that inclusion of Indian government bonds in JP Morgan’s global index from June 2024 will widen investor base. “It will also, in a way, relieve the Indian financial institutions from having to be one of the biggest buyers or subscribers of government bonds and they can actually then lend that money for more productive purposes to private sector, the commercial sector individuals etc,” he said..

Also read: PSBs set to shine with JP Morgan’s bond inclusion boost

Earlier in the day, he said that JP Morgan has made this decision on their own. It attests to the confidence that financial market participants and financial markets have on India’s potential and growth prospects and its macroeconomic and fiscal policies. “Just as long-term equity investors have been amply rewarded by investing in Indian markets, so will long-term investors in Indian government bonds,” he said. 

Echoing the same sentiment, Economic Affairs Secretary Ajay Seth said: “It is a welcome development showing confidence in Indian economy,”

In her Budget speech for 2020-21, Finance Minister Nirmala Sitharaman had said, “Certain specified categories of government securities would be opened fully for non-resident investors, apart from being available to domestic investors as well.” The specified securities, which will be listed on the indices, will not have a lock-in requirement.

This was long pending and there were certain issues including with regard to taxation, which the government has ironed out in the last few months.