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Inclusion of India in JPMorgan’s GBI-EM Index


JPMorgan Chase & Co. is set to include India in its Government Bond Index-Emerging Markets (GBI-EM) index starting in June 2024. This decision anticipates a substantial influx of investments into India’s government bonds. Consequently, this move is likely to expand the investor base and has the potential to result in the appreciation of the Indian Rupee.


GS III: Inclusive Growth

Dimensions of the Article:

  1. The JPMorgan Government Bond Index-Emerging Markets (GBI-EM) Index
  2. India’s Inclusion in the JPMorgan GBI-EM Index
  3. Significance of India’s Inclusion in GBI-EM Index
  4. Challenges of India’s Inclusion in GBI-EM Index
  5. Way Forward

The JPMorgan Government Bond Index-Emerging Markets (GBI-EM) Index

  • The JPMorgan GBI-EM Index is a widely recognized benchmark index tracking the performance of Sovereign Bonds denominated in local currencies, issued by emerging market countries.
  • It serves as a comprehensive gauge of the fixed income market in emerging economies, aiding investors in assessing their performance.
  • This index encompasses government bonds from a variety of emerging market nations.
  • Eligibility criteria determine the inclusion of bonds, and the composition may evolve over time.

India’s Inclusion in the JPMorgan GBI-EM Index

Identification of Eligible Bonds:

  • JPMorgan has identified 23 Indian government bonds, collectively valued at USD 330 billion, as meeting the eligibility criteria for inclusion in the GBI-EM.

Weight in Indices:

  • India’s presence in the GBI-EM is poised to attain the maximum weight threshold of 10% in the GBI-EM Global Diversified index and approximately 8.7% in the GBI-EM Global index.


  • With India’s local bonds becoming part of the GBI-EM index and its suite of related indices, these benchmarks influence approximately USD 236 billion in global funds, according to JPMorgan.

Significance of India’s Inclusion in GBI-EM Index

  • Attracting Global Investors:
    • India’s inclusion in the GBI-EM index positions the country as a highly desirable investment destination for global investors.
  • Substantial Inflows:
    • This move is anticipated to attract significant investments, with potential inflows estimated at USD 45-50 billion over the next 12-15 months.
  • Alleviating Financing Constraints:
    • Inclusion in the index provides an alternative source of funds, which can help alleviate financing constraints related to India’s fiscal and current account deficits.
  • Reducing Risk Premia and Costs:
    • India’s risk premia and funding costs are expected to structurally decrease, enhancing economic stability. Risk premia reflect the return on a risky asset compared to a risk-free asset.
  • Corporate Sector Benefits:
    • The inclusion is likely to lower the entire yield curve, reducing corporate financing costs, stimulating investment, and fostering business growth.
  • Banking Sector Advantages:
    • Banks will face less pressure to absorb government bonds, enabling them to allocate more resources for lending to the private sector and promoting economic expansion.
  • Infrastructure Development Boost:
    • India’s infrastructure development initiatives receive a boost with a sustainable source of long-term financing through government securities.
  • Rupee Appreciation:
    • The inclusion is expected to lead to the appreciation of the Indian rupee due to increased investor confidence, enhancing the attractiveness of India as an investment destination.
  • Integration into Global Markets:
    • Integration into global markets, along with ongoing reforms and increased market access, promotes market development and encourages long-term capital inflows.
  • Innovation in Financial Products:
    • This move sets the stage for the introduction of innovative financial products, enhancing India’s financial markets.
  • Parity with Other Economies:
    • India is poised to reach a maximum weightage of 10% in the GBI-EM Global Diversified Index, putting it on par with other prominent economies like China, Brazil, Indonesia, and Malaysia in terms of index representation.

Challenges of India’s Inclusion in GBI-EM Index

  • Market Volatility:
    • Inclusion may introduce volatility in local debt markets, particularly during global economic turmoil or uncertainty, necessitating effective market management and stabilization by the Reserve Bank of India (RBI).
  • Balancing Monetary Policy:
    • RBI must carefully manage its monetary policy decisions to balance the impact of increased foreign investment with the goal of ensuring domestic economic stability and growth.
  • Geo-Political Risks:
    • High foreign holding of debt exposes Indian markets to external macro-economic shocks and geopolitical risks, as seen in instances like Russia’s exclusion from international currency markets, highlighting the potential impact of geopolitics on financial flows.
  • Exchange Rate Challenges:
    • Inclusion may impact the value of the domestic currency, posing challenges in managing exchange rates to maintain competitiveness for exports.
  • Greater Scrutiny and Fiscal Responsibility:
    • India may face increased scrutiny regarding government finances, necessitating greater transparency and fiscal responsibility in managing the fiscal deficit.
  • Tax Treatment for Foreign Investors:
    • Unresolved tax treatment for foreign investors could deter potential investors, requiring clear and favorable tax policies to attract foreign capital into Indian government bonds.
  • Market Stability and Capital Flows:
    • The behavior of foreign investors, especially during global economic shifts, could result in sudden surges or withdrawals of funds, impacting market stability and capital flows.

Way Forward

  • Resolve Operational Challenges:
    • Address operational challenges related to custody, settlement, and tax implications to facilitate smooth participation of foreign investors.
  • Strengthen Regulatory Environment:
    • Strengthen the regulatory environment to ensure market integrity, transparency, and investor protection, encouraging long-term participation.
  • Enhance Economic Fundamentals:
    • Strengthen India’s economic fundamentals to better withstand global economic shifts and fluctuations, minimizing risks associated with external factors.

-Source: Indian Express

December 2023