The Indian government is all set to list its bonds (government securities of debts) on global indexes but on its own terms. The Modi government has made it very clear that it wants global bond index operators to consider the local settlement of its securities if they are included in their indexes.
Since 2019, the government has been in discussion with J.P.Morgan and Bloomberg-Barclays on the listing, while also talking to Euroclear about clearing and settlement. “The discussions are going on with some top index operators and we are happy they are understanding our point of view,” said an official.
“Why can’t these bonds be settled within our borders?” added the official.
Moreover, the government has also said that there will be no changes in the tax laws and relaxation in tax regulations for bond traders. “The effort to list Indian bonds in international markets is on. We are happy with the inclusion of Indian bonds in the global indices, provided no change in taxation law is demanded,” said another official.
India needs a huge amount of money at cheap rates to finance its growth. In order to broaden India’s pool of available money, the Modi government is mulling over the listing of India’s sovereign bonds on global indices.
Reforms regarding Taxation
Last year, the Indian government brought the Taxation (Amendment) Bill to put an end to retrospective taxation for once and all. The foreign investors were shying from Indian Government bonds (IGB) due to lack of clarity on the taxation side, and this was among the major demands to clear listing on international indexes.
Very soon IGBs would be listed on international indexes and the Government of India get access to very cheap capital. So far, the Scheduled Commercial Banks hold most of the public debt in India and due to this, their private lending suffers. With the listing in the international bond markets, the Indian government would get billions of dollars every year at a very low-interest rate.
“This would push foreign ownership of IGBs to 9 per cent by 2031… In a bull case, foreigners could buy $27 billion a year thanks to well-controlled inflation, a well-managed fiscal deficit and gradual INR appreciation,” Morgan Stanley Research said.
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Government will pay Lower Interest
According to various researches, the listing into the global bond index would soften the Indian government bond yields by 50 basis points. In simple terms, if the Indian government is now getting loans and 6.5 percent per annum interest rates, it would get at 6 percent after the listing. And this means the government would save billions of dollars every year in interest rate payments.
The Indian government is considering various other options in order to get access to cheap loans to finance the large capital expenditure plans. One such option is opening up the government debt to retail investors, for whom investment has become super-easy thanks to the democratization of investing through digital technology.
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The mutual funds and Indian equities markets have benefitted immensely from this democratization as retail investors pumped billions of dollars into the economy. The Indian government is also willing to capitalize on this and open its debt to retail investors. RBI is also working on a framework to open the government bond for retail investors.
With access to cheaper capital, the Indian government would be able to build roads, railways, piped gas, water, and all other kinds of required infrastructure very efficiently and this will accelerate the economic growth in the coming years.
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