India keen to settle sovereign bonds domestically to help with CAD

JPMorgan, this week, has sought views from the investors on whether it should include India's sovereign bonds in its GBI-EM Global Diversified Bond Index or not

Indian sovereign bonds may soon be settled domestically. This will be possible if the bonds are included in global bond indices and are traded overseas. According to a report by Economic Times (ET), the government is looking for ways to make this possible. 

"Discussions are on (on the inclusion) with them... We are looking at (whether) the settlement can be facilitated here," an official told ET.

This would also do away with the need to reform the taxation system in the country. JPMorgan, this week, sought views from investors on whether it should include India's sovereign bonds in its GBI-EM Global Diversified Bond Index or not. If the move is successful, it is expected to bring a large pool of liquidity into the Indian sovereign bond market.

This would also improve India's current account deficit. According to the report, India may see the highest CAD in the last 10 years, in FY23. It might come to around $300 billion. 

Usually, the trading of bonds in the global indices is settled on platforms like Euroclear. But the government of India is pushing to settle the trade domestically. 

ET further stated that the country is wary after the Nifty experience in Singapore. Till 2018, the Nifty could be traded in Singapore through derivatives. However, offshore settlement led to a huge wipe-off of the volume. SGX had a higher trade volume than NSE. 

"Some of the large foreign funds who currently trade directly in Indian debt markets are likely to shift their trading to the index if India is included in the JP Morgan bond index," a custodian of a leading bank told ET, "In such a case, if the trades are settled outside India, there could be export of volumes and also reduced liquidity for domestic investors."