• India's inclusion in the FTSE Russell's Emerging Market government bond index in 2025 is a significant milestone expected to draw global investment into Indian bonds.
• The inclusion will increase demand for government bonds, providing the government with more flexibility to raise funds and bring stability to the Indian rupee.
• Indian bonds have attracted nearly $18.5 billion in foreign inflows since JP Morgan announced its inclusion in its Emerging Markets index in 2023.
• This development, along with India's strong economic fundamentals and the central bank's commitment to stability, signals a positive outlook for India's economy.

The inclusion of India in the FTSE Russell's Emerging Market government bond index in September 2025 has been hailed by industry experts as a significant milestone that will have a long-term impact on India's economic landscape. This development comes after the inclusion by the JP Morgan index and is expected to draw fresh global investment into Indian bonds. The FTSE Russell announced that it will add India's sovereign bonds to its Emerging Markets Government Bond Index (EMGBI) in September 2025. India's debt will be included in FTSE's 4.7 trillion dollar Emerging Markets bond index, with the inclusion happening over a six-month period. It will carry a final weightage of 9.35 per cent, which is second only to China in the index.

Implications of the Inclusion

According to Suresh Darak, Founder of Bondbazaar, one of the primary advantages of this inclusion is the increased demand for government bonds, providing the government with more flexibility to raise funds. This could allow India to expand its fiscal deficit and fund critical capital expenditure, especially during economic slowdowns. Furthermore, this inclusion will help improve the capital account surplus, ensuring a steady inflow of foreign currency into India. This, in turn, brings stability to the Indian rupee, which is crucial for both the equity and bond markets.

Indian bonds have already attracted nearly 18.5 billion dollars in foreign inflows since JP Morgan announced in September 2023 that it would add Indian bonds to its Emerging Markets index. According to experts, a stable currency is beneficial for the equity market because it reduces the foreign investors' expected returns. For example, if currency depreciation decreases from 4 per cent to 2 per cent, foreign institutional investors (FIIs) would lower their return expectations by 2 per cent, potentially driving a rally in the stock market.

Economic Outlook and Future Projections

The country last month became the sixth-largest market in the MSCI All Country World Investable Market Index (ACWI IMI), surpassing China. The global index tracks capital market performance across the world. Strong fundamentals helped India pip China in the MSCI Emerging Market (EM) IMI to become the largest weight too.

In line with our expectations, the central bank, in its latest meeting, kept rates unchanged by a majority of 5 to 1, while the committee unanimously decided to change its stance on liquidity to neutral. The Governor highlighted that while they have gained greater confidence in achieving the final stage of disinflation, they will remain focused on the inflation target while supporting growth. This comes as the RBI continues to express confidence in India's growth prospects, keeping the annual GDP growth forecast unchanged, despite revising its Q2 FY25 projection lower from 7.2% to 7%.