{"id":41329,"date":"2025-11-19T03:27:21","date_gmt":"2025-11-18T21:57:21","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=41329"},"modified":"2025-11-20T14:42:12","modified_gmt":"2025-11-20T09:12:12","slug":"india-inclusion-in-jp-morgan-em-bond-index","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/india-inclusion-in-jp-morgan-em-bond-index\/","title":{"rendered":"India Inclusion in JP Morgan EM Bond Index"},"content":{"rendered":"<h2>What\u2019s in today\u2019s article?<\/h2>\n<ul>\n<li>Why in News?<\/li>\n<li>Indian Bond Market &#8211; Challenges and Solutions<\/li>\n<li>What is the JP Morgan Emerging Market Index?<\/li>\n<li>What was JP Morgan\u2019s Announcement?<\/li>\n<li>Impact of IGBs Inclusion<\/li>\n<li>Will Higher Inflows be a Concern for RBI?<\/li>\n<\/ul>\n<h2>Why in News?<\/h2>\n<ul>\n<li>India officially became part of JP Morgan&#8217;s Government Bond Index-Emerging Markets (GBI-EM).<\/li>\n<li>The inclusion is likely to bring nearly $20-25 billion into the country (over the next 10 months) and will help India manage its external finances and boost foreign exchange reserves and the rupee.<\/li>\n<\/ul>\n<h2>Indian Bond Market &#8211; Challenges and Solutions:<\/h2>\n<ul>\n<li><strong>Importance of bond markets:<\/strong>\n<ul>\n<li>They are a boon for corporate bodies and government entities, providing a <strong>flexible and efficient way to raise capital.<\/strong><\/li>\n<li>One of the critical advantages for companies is the<strong> avoidance of equity dilution.<\/strong><\/li>\n<li>Moreover, the cost of capital is reduced as the interest expenses on debt instruments are tax-deductible, making it a more attractive option than other forms of financing.<\/li>\n<\/ul>\n<\/li>\n<li><strong>India&#8217;s bond market:<\/strong>\n<ul>\n<li>India&#8217;s bond market is pivotal in the country&#8217;s economic structure.<\/li>\n<li>As of September 2023, the government bond market <strong>size stands impressively at $1.3 trillion<\/strong>, with corporate bonds at $0.6 trillion.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Challenges in Indian bond markets:<\/strong>\n<ul>\n<li>Narrow investment base,<\/li>\n<li>Insufficient participation by foreign investors,<\/li>\n<li>Virtually absent secondary market and<\/li>\n<li>Private placement (a sale of stock shares or bonds to pre-selected investors and institutions rather than publicly on the open market).<\/li>\n<\/ul>\n<\/li>\n<li><strong>Panacea:<\/strong>\n<ul>\n<li>Inclusion in the Global Indices<\/li>\n<li>Presence of market makers on both buy and sell-side<\/li>\n<li>No credit default swaps<\/li>\n<li>Bonds bhi \u2018Sahi Hain\u2019: A marketing campaign which can catch the eyeballs of all the age groups of the society.<\/li>\n<li>Credit enhancement frameworks<\/li>\n<li>Incentivising the issuer<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2>What is the JP Morgan Emerging Market Index?<\/h2>\n<ul>\n<li><strong>Created in the early 1990s<\/strong>, it is the most widely referenced index for emerging market bonds and has become benchmarks for local market and corporate EM bonds.<\/li>\n<li><strong>It began with the issuance of the first Brady bond <\/strong>&#8211; denominated in U.S. dollars and issued by developing countries and backed by the U.S. Treasury bonds.<\/li>\n<li><strong>It has since expanded to include<\/strong> the GBI-EM (in 2005) and the Corporate Emerging Markets Bond Index (CEMBI).<\/li>\n<\/ul>\n<h2>What was JP Morgan\u2019s Announcement?<\/h2>\n<ul>\n<li>JP Morgan has announced that it would include <strong>Indian Government Bonds (IGBs)<\/strong> to its emerging markets bond index (starting June 28, 2024).<\/li>\n<li><strong>There are 23 IGBs that meet the index eligibility criteria<\/strong>, with a combined notional value of approximately Rs 27 lakh crore or $330 billion.<\/li>\n<li><strong>Only IGBs designated under the Fully Accessible Route<\/strong> (FAR was introduced by the RBI in 2020 to enable non-residents to invest in specified Government of India dated securities) are index-eligible.<\/li>\n<\/ul>\n<h2>Impact of IGBs Inclusion:<\/h2>\n<ul>\n<li>India is expected to reach the <strong>maximum weight of 10% <\/strong>in the GBI-EM Global Diversified Index (GBI-EM GD).<\/li>\n<li>A higher weightage will prompt global investors to<strong> allocate more funds<\/strong> (~ $ 2-3 billion flows to India every month) for investment in Indian debt.<\/li>\n<li>It will not only result in <strong>lower risk premia<\/strong>, but will also <strong>help India to finance its fiscal and current account deficit (CAD).<\/strong><\/li>\n<li><strong>It will also help India to enhance the liquidity and ownership base<\/strong> of government securities (G-secs; debt instruments issued by the central government to meet its fiscal needs).<\/li>\n<li>The inclusion of certain Indian sovereign bonds will <strong>support a diversification of the investor base <\/strong>for Indian government securities.<\/li>\n<li><strong>It could help lower funding costs slightly<\/strong>, and support further development of domestic capital markets.<\/li>\n<\/ul>\n<h2>Will Higher Inflows be a Concern for RBI?<\/h2>\n<ul>\n<li>When the <a href=\"https:\/\/vajiramandravi.com\/current-affairs\/reserve-bank-of-india\/\" target=\"_blank\">Reserve Bank of India (RBI)<\/a> removes dollars from the market, it must release an equal amount in rupees.<\/li>\n<\/ul>\n<p>\u25cf This means, while higher inflows will boost the rupee, the RBI will have to use the instruments in its armoury <strong>to check the resultant inflationary pressures<\/strong><\/p>\n<hr \/>\n<h3>Q.1. What is fiscal and current account deficit (CAD)?<\/h3>\n<p>While both CAD and fiscal deficit relate to a country&#8217;s financial health, they operate in different spheres. CAD focuses on the trade balance between a country and the rest of the world, while fiscal deficit pertains to the government&#8217;s budgetary situation.<\/p>\n<h3>Q.2. What do you mean by the credit default swap?<\/h3>\n<p>A credit default swap (CDS) is a contract between two parties in which one party purchases protection from another party against losses from the default of a borrower for a defined period of time.<\/p>\n<p><strong>Source: <\/strong><a href=\"https:\/\/www.business-standard.com\/markets\/news\/indian-govt-bonds-now-part-of-jp-morgan-s-bond-index-here-s-what-it-means-124062800086_1.html\" target=\"_blank\" rel=\"nofollow noopener\">Indian govt bonds now part of JP Morgan&#8217;s bond index. Here&#8217;s what it means<\/a> | <a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/indian-govt-bonds-jp-morgan-index-9417977\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>India official inclusion into JP Morgan&#8217;s Government Bond Index-Emerging Markets (GBI-EM) is likely to bring nearly $20-25 billion into the country over the next 10 months<\/p>\n","protected":false},"author":5,"featured_media":41330,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-41329","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/41329","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=41329"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/41329\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/41330"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=41329"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=41329"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=41329"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}