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India might have to wait until early next year to see its bonds enter the JPMorgan emerging market global index. The inclusion has reportedly been delayed on account of prickly operational issues. Local bond settlement rules, tax complexities and issues related to how global investors would repatriate dollars still need to be ironed out. Excited talk of Indian bonds being included in global indices has long been around, with the attendant hope of attracting extra inflows by the stature signalled by this, a possibility with high potential because many investment funds are allowed to put money only in such index participant bonds. But the global appetite for Indian debt will still be a function of return prospects that take variables into account on which we have lost some shine lately, so inflows won’t arise merely from index inclusion. Right now, US bonds are seeing yields rise as Fed policy tightens, and the Reserve Bank of India might have to raise rates and close the interest rate differential to keep Indian yields just as attractive. Inclusion will also stiffen global bond market scrutiny of our public finances, a glare known to have pushed even a US president to exasperation.

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