India may use tools and tax policy to disincentivise very large inflows in the event of future volatility after its inclusion in the JPMorgan Emerging Market Bond Index, according to a senior official.
India had made no concessions to encourage its inclusion in the global bonds, the official said, speaking on the condition of anonymity.
If and when there is a risk of volatility, or even an apprehension of future volatility, India has the freedom to change tax policy, regulatory policy, or use tools to contain excess inflows, the official said.
Commenting on India's inclusion in other indices and resultant inflows, the official explained that while it is a "good move", India would be watchful of volatility, and the tools to discourage excess inflows could include tweaking the accessibility criteria.
Speaking to the media after India's inclusion, Chief Economic Advisor V Anantha Nageswaran called it a "welcome move" and said inflows could possibly range from $20 to $26 billion, citing brokerage estimates.
India's finance secretary, T. V. Somanathan, had also told BQ that the Indiangovernment'st bond inclusion was a "reflection of a record of fiscal prudence in the recent past."
Announcing India's inclusion with a maximum weight of 10%, JPMorgan Chase & Co., in its Sept. 21 note, said that 23 Indian government bonds with a combined nominal value of $330 billion are index-eligible. The inclusion of the IGBs will be staggered over a 10-month period starting from June 28, 2024, through March 31, 2025, with an inclusion of 1% weight each month.
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