Tax code

Government refuses to change tax code to include in FTSE Russel Emerging Markets Bond Index

According to various reports, India has ruled out any changes to tax laws that would simplify the inclusion of the country’s bonds in international indices.

According to reports, the administration has no plans to waive capital gains taxes and fears foreign investment could exacerbate volatility in local markets. These taxes have already caused problems in the discussions.

Investors are pouring money into Indian bonds on the assumption that the nation will replace Russian debt when FTSE Russell and JPMorgan Chase & Co. release the results of their index reviews in the coming weeks.

Although talks broke down earlier over the government’s insistence on preserving the power to tax capital gains, analysts’ estimates of $30 billion in foreign inflows were disappointed. Nevertheless, index compilers could continue to include the securities without adjustments.

The largest emerging market bond market not yet represented in international indices is India. Since mid-June, the yield on benchmark 10-year bonds for the country has fallen nearly 30 basis points as domestic banks and foreign investors have increased their holdings. On Tuesday, the yield fell seven basis points to 7.29%.

When making allocation decisions, fund managers regularly monitor global bond indices, and inclusion frequently results in inflows of billions of dollars.

As the government has yet to address operational concerns, Indian bonds are unlikely to be included in JPMorgan’s index until early next year, according to Reuters, which cited people with knowledge of the situation.

The rupee has fallen more than 9% against the dollar this year and ended Tuesday’s trading session at 81.5762.

Investor anticipation for inclusion in the index had been boosted by India’s launch of the so-called fully accessible route in 2020, which removed restrictions on foreign ownership of particular bonds.

Even if Indian bonds are included, the unwavering attitude on tax relief, which would allow settlement on a platform like Euroclear, may diminish their appeal.

According to a spokesperson, FTSE Russell will announce the findings of its review on Thursday. At this time, JPMorgan has not provided a date for its announcement.

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