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Though India opened up its stock markets to foreign investment, the bond markets are yet to welcome foreign investors. The inclusion of India in global bond indices next year could end the era of isolation. It would also put the country firmly into the global financial map. The inflow of foreign funds has done matured the Indian markets and made them robust. Foreign funds have also helped the Indian investors in multiple ways.

Participation of foreign investors in the Indian bond market can also do wonders on a number of fronts. One, it will improve the chances of domestic corporates to access capital. It would also make the capital cheaper. Morgan Stanley has predicted that this single development would drive down the cost of capital by 50 basis points.

Two of the concerns of rating agencies are high fiscal deficit and high current deficit. India has recorded a current account surplus in more than one quarters in FY21 and FY22. With a surge in direct and indirect tax revenue, the government is in a better position to rein in fiscal deficit despite increased expenditure due to the pandemic.

The inclusion of India in the bond index would also help the country maintain investment grade rating from rating agency majors, which is a persistent irritant for our policymakers. An investment grade rating would itself attract huge flow of capital into the country. In the next 10-year window, it can bring in $170-250 billion in the bond market alone.

The inflow of hard currency can regularly raise the value of the rupee against the dollar. It might be a concern for exporters, but it would help essential imports such as crude oil that has major repercussions on the economy. It was an irony that a country of 1.35 billion people with one of most vibrant stock markets in the world did not have a place in the bond indices. Hopefully, it would end in early 2022.