FTSE Russell defers India’s inclusion in its Emerging Markets Government Bond Index

FTSE Russell, a global index provider, has deferred the inclusion of India in its Emerging Markets Government Bond Index (EMGBI), noting that the country would stay in its watchlist as certain criteria for inclusion were still not met. 

“India will remain on the FTSE (Fixed Income Country Classification Watch List) for the potential reclassification of its Market Accessibility Level from 0 to 1, and consideration for inclusion in the FTSE EMGBI”, said FTSE Russell in its latest FTSE Fixed Income Country Classification Review published on Wednesday. 

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This is part of the semi-annual review where objective index inclusion criteria for market size and credit rating are assessed to ensure a consistent approach to market inclusion in FTSE global government bond indices. 

In 2021, India was added to the FTSE for reclassification of its Market Accessibility Level from 0 to 1, and consideration for inclusion in the FTSE EMGBI. This followed India’s move to introduce the Fully Accessible Route (FAR), paving the way for enhanced FPI flows into Indian debt market. 

India’s inclusion in FTSE EMGBI was last reviewed in September 2023, when the global index provider had decided to defer the inclusion. 

Falling short

Acknowledging that there has been progress in the accessibility of the Indian government bond market, FTSE Russell, which is a LSEG Business, noted that there continue to be criteria for a Market Accessibility Level of 1 that the Indian market does not satisfy.

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These include the documentary requirements to fulfil the Foreign Portfolio Investor (FPI) registration, increased regulatory reporting, the inflexible length of the settlement cycle and the tax clearance process. 

“FTSE Russell intends to continue its valuable dialogue with the Reserve Bank of India and welcomes feedback from an expanding cohort of international investors entering the Indian government bond market on the practicalities of their investment experience”, it added. 

India’s bond market will likely see an additional inflow of as much as $26 billion after the nation’s inclusion in JP Morgan’s GBI-EM Global index suite starting June 2024 and Bloomberg Index Services in January 2025. While the inflows from JP Morgan GBI-EM inclusion is estimated at $23 billion, it is expected to be $3 billion from Bloomberg Index inclusion.

Already Global funds have added about $10 billion into Indian bonds since JPMorgan Chase’s September 2023 announcement of India’s inclusion in its closely followed emerging-market debt index.