(Bloomberg) — India is considering giving some tax exemption to foreign investors settling sovereign bond purchases on Euroclear to speed up the inclusion of its debt in global indexes, according to people with knowledge of the matter.
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Authorities are looking at a proposal to exempt overseas investors from capital gains tax, the people said, asking not to be identified before a final decision is taken. Policymakers are still looking at how transactions involving a resident would be treated, they said.
Settlement of Indian bonds on Euroclear, an international securities settlement platform, is a key demand from index providers such as JPMorgan Chase & Co. for the inclusion of the nation’s debt on indexes. Other countries listed on Euroclear don’t charge capital gains tax on bond transactions, the people said.
“There has been a buzz in the market about the inclusion of Indian government bonds in global indexes,” said Kunal Sodhani, assistant vice president at Shinhan Bank in Mumbai. “What kind of weightage India gets will determine how the market reacts.”
A finance ministry spokesman didn’t immediately respond to calls seeking comment. Bonds pared some losses, with the yield on benchmark 10-year bond dropping to 6.27% from an intraday high of 6.29%.
Indian authorities have been making efforts to get the nation’s bonds included in global indexes like JPMorgan Chase & Co. and FTSE Russell in hopes of attracting steady foreign inflows to fund infrastructure needs.
READ: FTSE Keeps India on Fixed-Income Watch List Amid Reforms
Bloomberg LP said in 2019 that it would work with Indian authorities to help the nation gain access to global indexes. India’s inclusion into global bond indexes would lure $40 billion of inflows to the country’s debt market in the next two years, according to Morgan Stanley.
While settlement via an International Central Securities Depository like Euroclear is neither a necessary nor a sufficient condition for inclusion in global bond indexes, it acts as an enabler and provides more liquidity.
Note: For full transparency, Bloomberg LP is the parent company of Bloomberg Index Services Limited (BISL), which administers indices that compete with indices from other providers.
(Adds trader’s comments in the fourth paragraph. Yields in the fifth)
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